2018 (3) TMI 1351 - AT - Income Tax

Tribunal upholds business provisions for doubtful debts, citing Vijaya Bank case.

A.C.I.T,C. C-2 (1), Kolkata Versus Amrit Agrovet (P) Ltd

The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to allow provisions for doubtful debts as business expenditure and to permit ... Provisions for doubtful debt under the head ‘administrative and other expenses to its P & L account' disallowed - assessee netted off the said provision for doubtful debt against sundry debtors and claimed deduction - Held that:- CIT-A was justified in entertaining and deciding the issue regarding allowability of provisions for doubtful debts as business expenditure and deduction on bad debt therein is liable to be allowed. The Tribunal has discussed the issue thoroughly analyzing the facts of the case following the decision of the Hon’ble Supreme Court in the case of Vijaya Bank [2010 (4) TMI 46 - SUPREME COURT], that the provisions of doubtful debts have been duly adjusted against sundry debt and provisions for doubtful debt cannot be treated as uncertain liability - Decided in favour of assessee. Issues:1. Allowability of provisions for doubtful debts as business expenditure.2. Netting off of provision for doubtful debt against sundry debtors.Issue 1: Allowability of provisions for doubtful debts as business expenditureThe appeal by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) for the A.Y 2010-11, arguing that the CIT-A wrongly deleted the impugned addition related to doubtful debt shown in the balance sheet against sundry debtors. The Revenue contended that the CIT-A erred in considering provisions of doubtful debt as business expenditure and not discussing the netting off of provision for doubtful debt. The Revenue relied on the AO's order to support their argument. On the other hand, the respondent argued that the issue was covered by a previous order in the assessee's own case, where the CIT u/s. 263 quashed the AO's order as erroneous. The Tribunal held that the provisions of doubtful debts were duly adjusted against sundry debt, following the principles laid down by the Hon'ble Supreme Court in the case of Vijaya Bank. The Tribunal dismissed the Revenue's appeal, stating that the CIT-A was justified in allowing the provisions for doubtful debts as business expenditure based on the Supreme Court's decision.Issue 2: Netting off of provision for doubtful debt against sundry debtorsThe Tribunal analyzed that the assessee had made provisions for doubtful debt under 'administrative and other expenses' in the P & L account, netting off the provision against sundry debtors and claiming deduction before the AO. The AO denied the deduction, stating that the Supreme Court's principles in the Vijaya Bank case applied only to banks. However, the Tribunal found that the provisions of doubtful debts were properly adjusted against sundry debt, as shown in the balance sheet. The Tribunal cited the Vijaya Bank case and a previous order of the Co-ordinate Bench, supporting the assessee's position. The Tribunal concluded that the AO was unjustified in disallowing the claim, and the grounds raised by the Revenue in the appeal were dismissed. Ultimately, the appeal of the Revenue was dismissed, upholding the decision of the CIT-A regarding the netting off of provision for doubtful debt against sundry debtors.---