TaxTMI 
TaxTMI 
2021 (10) TMI 1009
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....0/- on the ground that the appellant is not permitted to make any adjustment to the book profit except which has been specifically provided therein, without realizing that these bad debts written off were adjusted during the year against provision for doubtful debts created in earlier years and have been adjusted in computation of book profits under clause (i) of Explanation 1 of section 115JB. 4. The appellant reserves to itself, the right to add, alter, amend, substitute, withdraw and/or any Ground(s) of Appeal at or before the date of hearing. 2. Briefly stated facts of the case are that the assessee company is engaged in the business of running a multispecialty hospital under the brand name of "Fortis Hospital". The assessee filed its return of income for the year under consideration on 29/11/2011, declaring nil income. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices were issued and complied with. The Assessing Officer in his assessment order dated 23/03/2015 assessed income under regular provisions of the Income-tax Act,1961 (in short 'the Act') as well as under section 115JB of the Act after making addition of ....
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....l debts and the same is being added to the total income.' During the year, debtors to the extent of Rs. 67,69,460/- actually became bad and the same were written off in the books of accounts. However, since the provisions already existed in respect of the same, they were not written off in the Profit & Loss Account but adjusted from the provision account and the debtors were actually written off. Since no deduction had been allowed in respect of provision in the earlier years, expenditure in respect of actual bad debts which have been written off during the year has been claimed. 12. I havegone through the various details. The appellant has also provided a copy of provision for bad debts account since Assessment Year 2008-09 which shows the various entries in respect of provisions made, the bad debts written off, and further provision made in the ensuing year. The appellant has show that provision for doubtful debts has been disallowed in the earlier years and deduction is being claimed only in respect of actual bad debts. However, the amount does not appear in the Profit & Loss Account since it is squared off from the provision account. The deduction is claimed when t....
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....Dr. (Balance Sheet item) : Rs. 100 (D) To Provision for doubtful debts and advances: Cr. (Profit & Loss item) : Rs. 100 The above entries are passed in order to reverse Provision for Doubtful Debts & Advances made in earlier years and to write off the Bad debts, out of provisions made in earlier years. Thus, in the year of write off Profit & Loss account does not disclose any expenses. Such balances which have been written off during the year (as per entry 1 above) are separately claimed in the tax computation. The same are allowable in view of section 36(l)(vii) as such debt has been written off in the books of account during the year. Accounting Entries Passed for Provision for Doubtful Debts and Advances Following accounting entries are passed relating to Provision for Doubtful Debts and Advances: Entry No. 1 - (E) Provision for doubtful debts & advances: Dr 1,47,98.850/- (Refer Schedule 20 of the Balance Sheet ) (F) To Provision for doubtful debts & advances: Cr. 1,47,98,850/- (lncluded in Rs. 2,40,64,755/- appearing in Schedule 9 of the Balance Sheet) ....
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....d loss account for the relevant previous year prepared under subsection (2) as increased by - (a) ........................................ (b) ................... ........................ (c) ................. ...................... (d) ........................................ (e).................................. ... (f) ........................................ (g) ........................................ (h) ........................................ (i) the amount or amounts set aside as provision Jbr diminution in the value of any asset (k).................................... if any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by - (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit & loss account), if any such amount is credited to the profit and loss account" In view of the above, Provision for doubtful debts c....
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....deemed income for the purpose of assessing the fax. If one examines the said provision in the above background, one notices that the use of the words in for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts oj the company, an Assessing Officer under the Income-tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinized and certified by statutory auditors and will have to be approved by the company in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, it is difficult to accept the argument of the revenue that it is still open to the Assessing Officer to re-scrutinized the accounts and satisfy himself that these accounts have be....
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....are similar, therefore, the ratio of the case will equally apply to section 115JB as well. Even subsequently in the case of Malyalam Manorama, the Supreme Court has re-affirmed the view taken in the case of Apollo Tyres Ltd. It is, now, therefore, beyond doubt that neither the appellant nor the Assessing Officer is permitted to make any adjustment to the book profits except which has been specifically provided therein. Therefore, the appellant was required to add back only the provision which had been provided in the books of accounts. Since the claim of bad debts actually incurred during the year did not appear in the Profit & Loss Account, the same could not be added back since the same is not covered under Explanation I. The appellant vide its letter dated 30lh November, 2016, has stated that amount claimed as bad debt during the year will be covered under clause (i) to Explanation I. The clause (i) of this. Explanat ion read s as under:- " Explanation [1] - For the purposes of this section. 'book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection (2) as increased by - (a) ..............