Revenue appeal denied for deletion of addition by Assessing Officer on bad debts provision reversal for AY 2011-12

The Revenue's appeal against the deletion of an addition of Rs. 1,67,64,206 made by the Assessing Officer regarding the reversal of bad debts provision for the assessment year 2011-12 was dismissed. The tribunal upheld the first appellate authority's decision, noting the consistent tax-neutral approach of the assessee in previous years. The provision's accounting treatment did not affect taxable income, leading to the conclusion that the reversed provision should not generate taxable income. Therefore, the tribunal affirmed the deletion of the addition, and the appeal was dismissed on 11th December 2020.

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Issues:
Revenue's appeal against deletion of addition of Rs. 1,67,64,206 made by Assessing Officer on account of reversal of bad debts provision for assessment year 2011-12.

Analysis:
The only issue raised by the Revenue in this appeal pertains to the deletion of an addition of Rs. 1,67,64,206 made by the Assessing Officer concerning the reversal of bad debts provision by the assessee. The facts reveal that the assessee, a co-operative bank, debited Rs. 5.00 crore for Bad and Doubtful Reserve, simultaneously reducing Rs. 1,67,64,206 from this amount, resulting in a net debit of Rs. 3,32,35,794 in its Profit & Loss account. The Assessing Officer contended that the reversed provision of Rs. 1.67 crore should be treated as income separately, leading to an addition. However, the first appellate authority deleted this addition.

Upon careful consideration and examination of the material on record, it was noted that the assessee consistently followed a tax-neutral approach in previous years, where provision for bad debts was added back while computing total income. The tribunal observed that the manner in which the provision was debited to the Profit & Loss account and then added back in the income computation did not affect the taxable income. Since the provision creation did not reduce the income initially, its subsequent reversal should not generate taxable income, irrespective of the accounting depiction. The tribunal found no evidence to challenge the first appellate authority's finding that the assessee historically added back such provisions while computing total income. Consequently, the tribunal upheld the deletion of the addition of Rs. 1,67,64,206.

In conclusion, the appeal by the Revenue was dismissed, affirming the first appellate authority's decision. The tribunal pronounced the order in open court on 11th December 2020.

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