2021 (12) TMI 1081 - HC - Income Tax

Court Upholds ITAT Decision on Provision for Doubtful Debts

The Court dismissed the appeal as it did not involve any substantial question of law. The ITAT's decision, following the Full Bench decision in Vodafone ... MAT computation u/s 115JB - Bad and doubtful debts inclusion to the book profits for computation of MAT liability u/s 115JB - Whether the ITAT has committed the gross error of law in not upholding the addition on account of the provision for doubtful debt made by the assessing officer to the book profit u/s. 115JB? - HELD THAT:- Judgment laid down by the Full Bench in case of Vodafone Essar Gujarat Limited [2017 (8) TMI 451 - GUJARAT HIGH COURT] relied upon by the ITAT in the impugned order, wherein the issue with regard to the bad and doubtful debts to the book profits for computation of MAT liability in the light of the Explanation (1) to section 115JB of the Act was considered. The issue having already been duly considered by the ITAT following the decision of the Full bench of this Court, the Court is of the opinion that the question proposed by the appellant in the present Appeal could not be said to be substantial question of law within the meaning of Section 260A of the said Act. It may be noted that the Appeal under Section 260A could be admitted only on the High Court being satisfied that the case involves a substantial question of law. Issues Involved:1. Whether the ITAT erred in not upholding the addition of Rs. 2,52,36,800/- for provision for doubtful debt to the book profit under Section 115JB of the Income Tax Act.2. Whether the ITAT wrongly applied the decision in the case of Vodafone Essar Gujarat Ltd. to the present case.Detailed Analysis:Issue 1: Addition of Provision for Doubtful DebtThe appellant, Principal Commissioner of Income Tax, challenged the ITAT's decision, which did not uphold the addition of Rs. 2,52,36,800/- for provision for doubtful debt to the book profit under Section 115JB of the Income Tax Act. The respondent-assessee had filed its Return of Income for the Assessment year 2004-05, declaring the total income as ‘NIL’ after setting off unabsorbed loss and depreciation. The book profits under Section 115JB were declared at Rs. 19,68,66,005/- after claiming deduction under Section 80HHC.The Assessing Officer made various dis-allowances, including the provision for bad and doubtful debts. The CIT (Appeals) deleted the addition, holding that the provision for bad and doubtful debt is not a provision for liability but for diminution in value of assets, and thus Clause-C of the Explanation to Section 115JB would not be applicable. The ITAT upheld this view, stating that the assessee had not merely debited the Profit & Loss account but had simultaneously obliterated such provision from loans and advances on the asset side of the Balance Sheet, amounting to a write-off. This write-off was not hit by Clause (i) of the Explanation to Section 115JB, as per the Full Bench decision in Vodafone Essar Gujarat Ltd.Issue 2: Application of Vodafone Essar Gujarat Ltd. DecisionThe appellant argued that the ITAT erred in applying the Vodafone Essar Gujarat Ltd. decision because the facts were different. The assessee had debited the provision for doubtful debts under administrative and marketing expenses and reduced the corresponding amount from loans and advances. The appellant contended that the provision for doubtful debt did not match the non-recovery of loans/advances and thus should be added back to the book profit under Section 115JB.The respondent-assessee argued that the ITAT correctly applied the Vodafone Essar Gujarat Ltd. decision. The assessee had obliterated the provision for bad and doubtful debts from its accounts by reducing the corresponding amount from loans and advances on the asset side of the Balance Sheet. This amounted to a write-off and was not hit by Clause (i) of the Explanation to Section 115JB.Court's Decision:The Court referred to the Full Bench decision in Vodafone Essar Gujarat Ltd., which clarified that if the provision for doubtful debts is obliterated from the accounts by reducing the corresponding amount from loans and advances on the asset side of the Balance Sheet, it amounts to a write-off and is not hit by Clause (i) of the Explanation to Section 115JB. The ITAT had followed this decision correctly.The Court further noted that an appeal under Section 260A of the Income Tax Act could only be admitted if it involved a substantial question of law. The Supreme Court in various judgments has laid down tests to determine whether a substantial question of law is involved. The Court concluded that the present appeal did not involve any substantial question of law and hence deserved to be dismissed.Conclusion:The appeal was dismissed as it did not involve any substantial question of law. The ITAT's decision, which followed the Full Bench decision in Vodafone Essar Gujarat Ltd., was upheld. The provision for doubtful debts was correctly treated as a write-off and not added back to the book profit under Section 115JB.