2021 (8) TMI 111 - AT - Income Tax

Tribunal rules bad debt provision as actual write-off, not falling under Income Tax Act section 115JB

Deputy Commissioner of Income-tax, Circle-3 (1), Kolkata. Versus M/s. SPPL Property Management Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decision, ruling that the provision for bad and doubtful debts amounting to Rs. 94,22,355/- was an actual write-off, not ... MAT computation u/s 115JB - Addition of provision for bad and doubtful debts’ in the computation of book profit u/s 115JB - CIT-A deleted the addition - HELD THAT:- In this case though in the computation of income filed the provision for bad and doubtful debts had been added back to the total income, however, the Sundry Debtors on the asset side of the Balance Sheet have been reduced by an equivalent amount and since such amount of provision having not been transferred to the liability side of the Balance sheet as “current Liabilities and provisions”, such provision for bad and doubtful debt is allowable u/s. 36(1)(vi) of the Act. Therefore, in the light of the aforesaid Hon’ble Supreme Court decision in the case of Vijaya Bank[2010 (4) TMI 46 - SUPREME COURT] the Ld. CIT(A) has rightly allowed the claim of the assessee. And since it has been found that it was actual write off of bad debts and not provision as erroneously noted by AO, clause (c) or (i) of Explanation (1) to sub-section (2) of section 115JB of the Act will not be attracted. As relying on THE PEERLESS GENERAL FINANCE & INVESTMENT CO. LTD.[2020 (12) TMI 1249 - ITAT KOLKATA] CIT(A) rightly allowed the claim of assessee since the said provision was an actual write off and therefore, it does not attract clause (i) or (c) of Explanation (1) of sub-section (2) of section 115JB of the Act. Therefore, we find no infirmity in the order passed by the Ld. CIT(A) which is confirmed. Appeal of revenue is dismissed. Issues Involved:1. Deletion of the addition made by the AO of Rs. 94,22,355/- on account of 'provision for bad and doubtful debts' in the computation of book profit under section 115JB of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Deletion of Addition by AO on Account of 'Provision for Bad and Doubtful Debts'The Revenue appealed against the order of the CIT(A)-10, Kolkata, which deleted the addition of Rs. 94,22,355/- made by the AO under section 115JB of the Income Tax Act, 1961. The AO had disallowed the assessee's claim, stating that the 'provision for bad and doubtful debts' should be added back to the book profit as per section 115JB. The AO's rationale was based on the language of section 115JB, which mandates that book profit should be increased by the amount set aside as provision for liabilities, other than ascertained liabilities, or for diminution in the value of assets.Upon appeal, the CIT(A) found that the assessee had actually written off the bad debts amounting to Rs. 94,22,355/- in its books, which was not contested by the Department. This finding was based on the Supreme Court's judgments in Vijaya Bank vs. CIT, Southern Technologies Ltd. vs. CIT, and T.R.F. Ltd. vs. CIT, which clarified that a mere provision does not qualify for deduction unless it is an actual write-off.The CIT(A) noted that the assessee had reduced the amount from Sundry Debtors in the audited balance sheet, which constituted an actual write-off, not just a provision. Therefore, the CIT(A) concluded that clause (c) or (i) of Explanation (1) to sub-section (2) of section 115JB was not applicable.The Tribunal upheld the CIT(A)'s decision, reiterating that the provision for bad and doubtful debts was an actual write-off. The Tribunal referenced its own decision in DCIT vs. The Peerless General Finance & Investments Co. Ltd., which dealt with similar issues. The Tribunal emphasized that if the provision is not merely debited in the profit and loss account but also simultaneously obliterated from the asset side of the balance sheet, it constitutes an actual write-off, not attracting the provisions of section 115JB.The Tribunal concluded that the CIT(A) had rightly allowed the assessee's claim, as the provision of Rs. 94,22,355/- was an actual write-off and did not attract clause (i) or (c) of Explanation (1) to sub-section (2) of section 115JB. Consequently, the appeal of the Revenue was dismissed.Conclusion:The Tribunal confirmed the CIT(A)'s order, holding that the provision for bad and doubtful debts amounting to Rs. 94,22,355/- was an actual write-off and not merely a provision. Therefore, it did not attract the provisions of section 115JB, and the Revenue's appeal was dismissed.