2016 (4) TMI 380 - AT - Income Tax

Adjustment of book profit by increasing it by provision for bad and doubtful debts - Held that - Clause (i) covers the amount debited to the profit and loss account which are set aside as provision for diminution in the value of any assets. Provision of bad and doubtful debts also results diminution in the value of its assets i.e. debt. Therefore in our view the provision for bad and doubtful debts are required to be added to book profit as per clause (i) of explanation 1 to subsection 2 of section 115JB of the Act. In view of this we confirm the decision of CIT (A) on this count. Taxing the amount of interest - as business income OR income from other sources - Held that - Details of such interest income was not furnished by AR of the assessee and same was no such details have been furnished before us. In the assessment order also, AD has not mentioned the reason for changing the head of bank interest income from -Business Income -offered by assessee to income from other sources . Therefore in the interest of justice we set aside this ground of appeal of the assessee back to the file of AD to decide the same on merit after affording reasonable opportunity of hearing to assessee.

Issues Involved:
1. Addition of provision for bad and doubtful debts to book profit under Section 115JB.
2. Assessment of interest income under the head "business income" or "other sources."
3. Adjustment of interest income against business loss.
4. Legality and excessiveness of interest levy under Section 234B.

Detailed Analysis:

1. Addition of Provision for Bad and Doubtful Debts to Book Profit under Section 115JB:
The primary issue in both appeals (ITA No. 3063/Del/2012 and ITA No. 3064/Del/2012) is whether the provision for bad and doubtful debts should be added back to the book profit while computing the income under Section 115JB. The Assessing Officer (AO) made this addition based on the amendment under Section 115JB(2) by the Finance Act, 2009, which had retrospective effect from 01.04.2001. The AO's view was supported by the Commissioner of Income-tax (Appeals) [CIT(A)], who rejected the assessee's reliance on the Karnataka High Court's decision in CIT Vs. Yokogawa India Ltd. The Tribunal upheld the AO's addition, referencing the Delhi High Court's decision in Whirlpool of India Limited v. Union of India, which clarified that provisions for diminution in the value of any asset, including bad and doubtful debts, should be added to the book profit. Consequently, the Tribunal dismissed the assessee's grounds on this issue in both appeals.

2. Assessment of Interest Income under the Head "Business Income" or "Other Sources":
The second issue pertains to the classification of interest income. The AO and CIT(A) classified the interest income as "income from other sources," contrary to the assessee's declaration as "business income." Both parties agreed that this issue was previously addressed by the Tribunal in similar cases, where the matter was remanded to the AO for re-evaluation. Following the precedent, the Tribunal set aside the issue to the AO for fresh consideration, allowing the ground for statistical purposes in both appeals.

3. Adjustment of Interest Income Against Business Loss:
The assessee contended that if the interest income is treated as "income from other sources," it should be adjusted against the business loss of the year. However, this ground was not pressed during the hearing, and thus, the Tribunal dismissed it.

4. Legality and Excessiveness of Interest Levy under Section 234B:
The assessee challenged the levy and excessiveness of interest under Section 234B. Similar to the previous issue, this ground was not pressed during the hearing and was subsequently dismissed by the Tribunal.

Conclusion:
The Tribunal partly allowed both appeals, affirming the addition of provision for bad and doubtful debts to the book profit and remanding the issue of interest income classification to the AO for fresh consideration. The grounds related to the adjustment of interest income against business loss and the levy of interest under Section 234B were dismissed as they were not pressed by the assessee.

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