High Court upholds customs duty treatment as income, rules on provision for doubtful debts under Income Tax Act

The High Court of Calcutta upheld the assessee's treatment of customs duty exemption as income under the mercantile accounting system, dismissing the appeal in favor of the assessee. Additionally, the Court ruled in favor of the revenue regarding the allowability of provision for doubtful advances and debts under section 115JB of the Income Tax Act, 1961, due to a retrospective amendment. The appeal was disposed of in accordance with these decisions.

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Issues:
1. Customs duty exemption treated as income under mercantile accounting system.
2. Allowability of provision for doubtful advances and debts under section 115JB of the Income Tax Act, 1961.

Issue 1: Customs duty exemption treated as income under mercantile accounting system:

The High Court of Calcutta addressed the first issue regarding the treatment of customs duty exemption as income under the mercantile accounting system. The case revolved around a customs notification exempting goods imported against a duty credit certificate issued under the target plus scheme. The certificate was based on the incremental growth in FOB value of exports during a specific financial year. The respondent assessee, following the mercantile system of accounting, accounted for the duty exemption amount in the financial year when the certificate was issued. However, the income tax authority disallowed this treatment.

The Assessing Officer, the Commissioner of Income Tax (Appeals), and the tribunal had ruled in favor of the assessee. The High Court found no error in the accounting method adopted by the assessee and upheld the tribunal's order dated 13th April 2016. Consequently, the Court dismissed the appeal with regard to this question, answering it in favor of the assessee and against the revenue.

Issue 2: Allowability of provision for doubtful advances and debts under section 115JB of the Income Tax Act, 1961:

Regarding the second issue, the Court noted that the question of whether the provision for doubtful advances and debts was an allowable deduction under section 115JB of the Income Tax Act, 1961, had been resolved in favor of the revenue due to a retrospective amendment of the Act. The Court acknowledged the amendment to section 115JB explanation (1)(i) with effect from 1st April 2001, leading to a conclusion in favor of the revenue and against the assessee.

Consequently, the Court disposed of the appeal (ITA No. 152 of 2018) in accordance with the above orders, thereby addressing both issues raised in the appeal.

This detailed analysis of the High Court of Calcutta's judgment provides a comprehensive overview of the legal issues involved and the Court's decisions on each matter.

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