2018 (11) TMI 258 - AT - Income Tax

Tribunal affirms deletion of electricity duty & disallows bad debts provision.

The Assistant Commissioner of Income-tax, Circle-1 (1), Trivandrum Versus M/s. Kerala State Electricity Board, Vydyuthi Bhavan, Trivandrum

The Tribunal upheld the deletion of the addition made under Section 43B for electricity duty payable to the Government of Kerala, based on the ... Addition of an amount which is related to the provision for bad and doubtful debts - whether an express provision in section 36(1)(vii) which prohibits granting deduction of any provision for bad and doubtful debts can be got over by the assessee? - Held that:- Section 36(1)(viia) is a complete answer to this query raised by the assessee wherein special provisions are made in the I.T. Act for allowing provision for bad and doubtful debts of scheduled banks, non-scheduled banks, co-operative banks etc. to the extent permissible thereunder. In fact, u/s. 36(1)(viia), the eligible banks are authorized to create provision subject to certain limits in respect of rural advances and other loans referred to therein and claim deduction of the same. This provision clearly indicates that Parliament is well aware of the risk undertaken by the banks in making advance to the rural sector in terms of the guidelines issue by the Government and the RBI and only such cases are treated as exception to the general provision contained in Explanation to section 36(1)(vii), which prohibits granting of deduction of any provision for bad and doubtful debts. Unfortunately, the present assessee is not covered by section 36(1)(viia) of the I.T. Act and so much so, explanation to section 36(1)(vii) squarely applies or in other words, the assessee is not entitled to deduction of any provision created for bad and doubtful debts, no matter such provision is created based on the prevalent accounting policies. - Decided against assessee. Issues Involved:1. Deletion of addition made under Section 43B for electricity duty payable to the Government of Kerala.2. Disallowance of provision for bad and doubtful debts under Section 36(1)(vii) and Section 36(2).Issue-wise Detailed Analysis:1. Deletion of Addition Made Under Section 43B for Electricity Duty Payable to the Government of Kerala:The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 248,91,12,986 made under Section 43B of the Income Tax Act, which pertained to the electricity duty payable to the Government of Kerala. The Revenue argued that the CIT(A) failed to consider that the Hon’ble Kerala High Court’s decision in the assessee’s own case for earlier years had not become conclusive as the SLP filed by the department was pending before the Apex Court. Additionally, the Revenue asserted that the electricity duty collected by the assessee constitutes trading receipts received during the ordinary course of its business and should be disallowed under Section 43B if not paid within the due date.The Assessing Officer had invoked Section 43B, bringing the said amount to tax due to non-remittance within the stipulated time. However, the CIT(A) deleted the addition by relying on the jurisdictional High Court's judgment, which held that Section 43B could not be invoked for amounts collected by the assessee under the Electricity Duty Act as the obligation to pay these amounts was fiduciary and not sovereign.Upon appeal, the Tribunal upheld the CIT(A)’s decision, stating that the issue was squarely covered by the jurisdictional High Court’s judgment in the assessee’s own case. Therefore, the Tribunal found no infirmity in the CIT(A)’s order and dismissed the Revenue's appeal.2. Disallowance of Provision for Bad and Doubtful Debts Under Section 36(1)(vii) and Section 36(2):The assessee appealed against the disallowance of Rs. 153,91,29,948, which was claimed as provision for bad and doubtful debts. The Assessing Officer had rejected the claim, stating that the assessee failed to provide complete details of the bad debts written off and the years in which the respective amounts were accounted for. The AO emphasized that the Explanation to Section 36(1)(vii) allows deduction only for bad debts actually written off and not for provisions made.The CIT(A) confirmed the AO’s findings, noting that the assessee did not furnish the necessary details and that the reliance on the Supreme Court’s decision in Vijaya Bank vs. CIT was misplaced. The CIT(A) observed that the deduction under Section 36(1)(vii) is subject to Section 36(2), which requires the bad debt to be taken into account in computing the income of the previous year.The Tribunal, after considering the submissions, upheld the lower authorities' decision. It stated that the provisions of Section 36(1)(vii) and the Explanation thereto prohibit granting deduction for any provision for bad and doubtful debts, except for those covered under Section 36(1)(viia), which pertains to certain banks. The Tribunal concluded that the assessee, not being covered under Section 36(1)(viia), could not claim such a deduction. Therefore, the Tribunal dismissed the assessee’s appeal.Conclusion:In conclusion, the Tribunal dismissed both the Revenue’s and the assessee’s appeals. The deletion of the addition under Section 43B was upheld based on the jurisdictional High Court’s judgment, and the disallowance of the provision for bad and doubtful debts was confirmed due to non-compliance with Sections 36(1)(vii) and 36(2).