Trust's Provision for Doubtful Debts Upheld as Charitable Expense

The ITAT Delhi upheld the CIT(A) decision, allowing the provision for doubtful debts as application of income for the trust's charitable activities. The Revenue's appeal challenging this decision was dismissed as the provision was deemed quantified, made in good faith, and aligned with commercial principles and the trust's objectives. The ITAT found no flaws in the CIT(A) findings and noted the absence of contrary binding decisions presented by the Revenue, leading to the affirmation of the allowance of the provision for doubtful debts.

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Issues:
Allowability of provision for doubtful debts as application of income.

Analysis:
The appeal pertains to the order of the Commissioner of Income Tax (CIT) relating to Assessment Year 2014-15. The main issue revolves around the disallowance of the claim of provision for doubtful debts amounting to Rs. 3,32,58,322/- by the Assessing Officer (AO). The AO contended that the provision for doubtful debts was not an ascertained liability and had not been applied during the relevant financial year. The AO disallowed the amount as application of income. The assessee, a trust carrying out charitable activities, argued that the provision was quantified and ascertained, relating to outstanding amounts that could not be recovered and were written off after seeking approval. The assessee maintained that the provision was for bad debts and not merely an estimate. The CIT(A) ruled in favor of the assessee, stating that the provision was ascertained and quantified, made in furtherance of the trust's objectives, and should be deducted while computing income for charitable purposes based on commercial principles.

The Revenue challenged the CIT(A) order, contending that the provision for doubtful debts was not allowable as application of income. However, the ITAT Delhi upheld the CIT(A) decision, emphasizing that the provision was quantified and made in good faith, aligning with commercial principles and the trust's objectives. The ITAT noted that the Revenue failed to provide contrary binding decisions or flaws in the CIT(A) findings, leading to the dismissal of the Revenue's appeal. Consequently, the appeal of the Revenue was dismissed, affirming the allowance of the provision for doubtful debts as application of income for the trust's charitable activities.

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