2016 (6) TMI 300 - AT - Income Tax

Addition of Provision for doubtful debts to the Book profit u/s 115JB - MAT computation - Held that - It is in the knowledge of every one that the accounts are prepared under the Companies Act in accordance with the Principles of Accounting by following various accounting standards and practices. Under the accounting terminologies Provision for doubtful debts and writing of bad debts has got distinct meaning. Both the terms stand on different footing and the accounting world also understand their meaning differently. Accordingly, in our considered view, the meaning of the above said expressions should be understood and applied in the same manner while computing book profit u/s 115JB of the Act. Accordingly, the provision for doubtful debts shall represent a provision made to take care of the diminution in the value of Sundry debtors and the same cannot be understood as actual write off as Bad debts . It is well settled proposition of law that the decision rendered by nonjurisdictional High Court has got persuasive value only. Accordingly, we are of the view that the Ld CIT(A) was justified in confirming the addition of Provision for doubtful debts to the Book profit - Decided against assessee Chargeability of interest u/s 234B of the Act on the addition so made by Ld CIT(A) on the basis of subsequent amendment - Held that - The various decisions relied upon by the assessee expresses the view that the assessee should be fastened with interest liability in respect of the addition made on the basis of subsequent amendment, since the assessee could not have foreseen the liability at the time of estimating his income for the purpose of payment of advance tax. Hence, we find merit in the additional ground urged by the assessee. Accordingly, we direct the AO not to levy interest u/s 234B of the Act on the addition relating to Provision for doubtful debts made while computing book profit u/s 115JB of the Act. - Decided in favour of assessee

Summary

Issues:
Rectification order passed by CIT(A) on the addition of "Provision for doubtful debts" to book profit u/s 115JB of the Act.
Validity of the rectification order in terms of limitation and appeal remedy.
Debatable nature of the amendment to the Act and justification for rectification.
Accounting treatment of "Provision for doubtful debts" and its impact on book profit computation u/s 115JB.
Chargeability of interest u/s 234B on the addition made by CIT(A) based on subsequent amendment.

Issue 1: Rectification Order on Provision for Doubtful Debts
The appeal challenges the CIT(A)'s rectification order adding "Provision for doubtful debts" to book profit u/s 115JB. The AO added the provision, later deleted by CIT(A), but a subsequent amendment made it necessary to include it. The first rectification order was challenged on grounds of limitation, but ITAT found it timely filed within four years.

Issue 2: Appeal Remedy and Rectification Order
The appellant argued that the Revenue should have appealed to the Tribunal instead of filing a rectification petition. However, as the CIT(A) followed a Supreme Court decision, ITAT found no need for the Revenue to appeal. The subsequent amendment justified the rectification order.

Issue 3: Debatable Nature of Amendment
The appellant contended that the CIT(A) should not have rectified the order based on a debatable amendment. However, ITAT upheld the rectification citing Supreme Court precedents where rectification was justified due to subsequent amendments, indicating a non-debatable issue.

Issue 4: Accounting Treatment of Provision for Doubtful Debts
The appellant argued that the provision was an actual write-off, not a diminution in asset value. However, ITAT differentiated between the accounting terms and upheld the CIT(A)'s decision to include the provision in book profit u/s 115JB.

Issue 5: Chargeability of Interest u/s 234B
The appellant raised an additional ground on interest chargeability due to subsequent amendment impact. Citing relevant case laws, ITAT agreed with the appellant, directing the AO not to levy interest u/s 234B on the provision for doubtful debts addition.

In conclusion, the ITAT partly allowed the appeal, considering the issues of rectification order validity, appeal remedy, debatable nature of the amendment, accounting treatment, and interest chargeability. The judgment detailed the legal aspects, precedents, and reasoning behind each issue, ensuring a comprehensive analysis of the case.