2012 (6) TMI 415 - AT - Income Tax

Court rejects Revenue's appeal, upholds Assessee's position on bad debts exclusion from MAT liability.

The ITAT upheld the CIT(A)'s decision in favor of the Assessee, dismissing the Revenue's appeal. The High Court clarified that provisions for bad and ... MAT - re-computation of book profit on ground that provision for doubtful debts and provision for contingencies were not added to arrive at the book profits u/s 115JB - Held that:- It can be seen that the provision of bad and doubtful debts has been reduced from the gross debtors and the net sundry debtors are shown as asset in the balance sheet. Thus the provision for bad and doubtful debts cannot be termed as a provision for liability but is in the nature of diminution in the value of asset. Facts in the present case are identical to that of the case of Yokogwa India Ltd wherein it is held that if the bad debt or doubtful debt is reduced from the loans and advances or the debtors from the assets aside of the balance sheet, the Explanation to Section 115JA or JB is not at all attracted. Hence, CIT(A) has rightly deleted the addition made on aforesaid ground - Decided in favor of assessee Issues:- Challenge to the deletion of addition to book profits for MAT liability computationAnalysis:1. The Revenue appealed against the CIT(A)'s order deleting the addition to book profits for MAT liability computation for the Assessment Year 2003-04. The Assessee challenged the validity of the reassessment proceedings under Rule 27 of the Income tax Appellate Rules, 1963, citing various decisions to support its case.2. The Assessee, engaged in providing cellular services in Gujarat, initially declared total income as Nil for AY 2003-04. After scrutiny, the AO determined the total income as Nil and calculated tax payable under section 115JB based on book profits. Subsequently, a notice u/s 148 was issued to reopen the assessment due to non-inclusion of provisions for doubtful debts and contingencies in book profits. The AO then determined the book profits and tax payable under MAT.3. The CIT(A) allowed the Assessee's appeal, stating that provisions for doubtful debts are not an ascertained liability and should not be added to book profits under section 115JB. Citing relevant case laws, the CIT(A) held in favor of the Assessee, leading to the Revenue's appeal before the ITAT.4. The Revenue argued that post an amendment in Sec. 115JB by Finance Act, 2009, provisions for bad debts should be added back in computing book profits. They referred to a specific case to support their stance. However, the Assessee cited a High Court decision stating that provisions for bad and doubtful debts should not be added back under Explanation (c) to Section 115JB(1) as they do not constitute an ascertained liability.5. The High Court's decision emphasized that provisions for bad and doubtful debts, which lead to diminution in asset value, should not be considered as an ascertained liability for book profit computation. The Court clarified the distinction between actual write-offs and provisions for bad debts, supporting the Assessee's position.6. Considering the arguments, case laws, and facts, the ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal. The ITAT found no infirmity in the CIT(A)'s order and aligned with the High Court's interpretation regarding provisions for bad and doubtful debts not being added back for MAT liability computation. The appeal was thus dismissed in favor of the Assessee.