2024 (12) TMI 187 - AT - Income Tax

Assessee allowed deduction for provision for doubtful debts treated as write-off; assessing officer ordered to delete additions

Goldiam Jewellery Ltd Versus ACIT – CC 1 (2) Mumbai

ITAT MUMBAI held that the assessee is entitled to a deduction for provision for doubtful debts because the provision was debited to the profit and loss ... Addition on account of provision for doubtful debts claimed as deduction - HELD THAT:- Coordinate Bench of ITAT [2018 (7) TMI 2355 - ITAT MUMBAI],Hon’ble jurisdictional High Court of Mumbai [2013 (4) TMI 211 - BOMBAY HIGH COURT] have granted relief by following the decision of Hon’ble Supreme Court in the case of Vijaya Bank Vs. CIT [2010 (4) TMI 46 - SUPREME COURT] wherein it was held that “once the provision of doubtful debt has been debited to the profit and loss account and corresponding provision has been credited or reduced from the debtors account in the balance sheet, then, this would amount to written off”. In the present case it is an undisputed fact that the assessee has debited the provision of doubtful debt from the P & L account, balance sheet and written off income, which amount to written off of the debt. Therefore, respectfully following the decisions mentioned above and also considering the facts of the case, we hold that the assessee is eligible for deduction on account of provision for doubtful debt in the given facts and circumstances. Therefore, while concurring with the stand of Ld. AR, we direct the Ld.AO to delete the impugned additions. Decided in favour of assessee. Issues Involved:1. Jurisdiction and legality of reopening the assessment under Section 147 of the Income Tax Act, 1961.2. Addition of Rs. 1,48,50,000 on account of provision for doubtful debts claimed as deduction.3. Disallowance of employees' contribution to PF amounting to Rs. 1,96,127 under Section 36(1)(va) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Jurisdiction and Legality of Reopening the Assessment:The assessee initially challenged the reopening of the assessment under Section 147, arguing that the notice issued under Section 148 was without jurisdiction and bad in law. However, during the proceedings, the assessee's representative stated that this ground was not being pressed. Consequently, the tribunal dismissed this ground as not pressed.2. Addition of Rs. 1,48,50,000 on Account of Provision for Doubtful Debts:The primary issue contested was the addition of Rs. 1,48,50,000 made by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], related to the provision for doubtful debts. The AO disallowed this provision, stating it was not an admissible expenditure since the bad debts were not written off as irrecoverable in the assessee's accounts. The tribunal examined the profit and loss account, balance sheet, and return of income, noting that the assessee had indeed debited this amount as a provision for doubtful debts.The tribunal referred to several judicial precedents, including the Supreme Court's decisions in TRF Ltd. vs. CIT and Vijaya Bank vs. CIT, which clarified the conditions under which a provision for doubtful debts could be considered a write-off eligible for deduction under Section 36(1)(vii). The tribunal emphasized that post-April 1, 1989, a mere provision does not qualify for deduction unless it is accompanied by an actual write-off in the books, which involves reducing the loans and advances or debtors on the asset side of the balance sheet.The tribunal found that the assessee had debited the provision for doubtful debts to the profit and loss account and made corresponding adjustments in the balance sheet, which aligned with the criteria set by the Supreme Court. Therefore, the tribunal held that the assessee was entitled to the deduction for the provision for doubtful debts and directed the AO to delete the addition.3. Disallowance of Employees' Contribution to PF:The assessee also contested the disallowance of Rs. 1,96,127 related to employees' contribution to the Provident Fund, which was disallowed by invoking Section 36(1)(va). However, similar to the first issue, the assessee's representative did not press this ground during the proceedings. As a result, the tribunal dismissed this ground as not pressed.Conclusion:The tribunal allowed the appeal in part, specifically granting relief to the assessee on the issue of the provision for doubtful debts, while dismissing the grounds related to the reopening of assessment and disallowance of PF contributions as not pressed. The tribunal's decision was grounded in established legal precedents and interpretations of the relevant sections of the Income Tax Act.