2022 (3) TMI 377 - AT - Income Tax

Addition of Bad and Doubtful Debts Reserve (BDDR) for earlier years written back in the year under consideration - assessee is a Co-operative Society conducts its banking business - assessee submitted that there was excess provision for earlier year and made reversal in the year under consideration - As contended that such amount should not be added in the computation of income as there was no deduction claimed at the time of creation of BDDR provision in the earlier year - HELD THAT - The assessee shown profit of ₹ 6,73,27,193/- in the computation of total income as net profit which is inclusive of ₹ 8,54,42,557/- and reversed the same amount, meaning thereby that the assessee claimed no deduction on account of provision for bad and doubtful debts made in the year under consideration nor offered any income on account of written back of the said provision for bad and doubtful debts for the earlier year in the computation of total income. Thus, when there is no deduction claimed in the computation of total income on account of BDDR and its reversal in subsequent year i.e. involving present A.Y. 2014-15 under consideration does not warrant any addition, meaning no tax on the reversal of BDDR in the subsequent year. A similar issue on same identical facts, the Co-ordinate Bench in assessee‟s own case 2020 (10) TMI 658 - ITAT PUNE whether it is case of the period when the assessee was eligible for deduction u/s.80P or thereafter when the benefit of section 36(1)(viia) came to be conferred, the creation of BDDR and its simultaneous addition in the computation of total income has made it clear that, in fact, no deduction was claimed by the assessee in this regard. Once the assessee did not claim any deduction in respect of BDDR, there can be no question of taxing the reversal of BDDR in a subsequent year, as has been the case under consideration. We, therefore, overturn the impugned order on this score and hold that the ld. CIT(A) was not justified in upholding the addition - Decided in favour of assessee.

Summary

Issues:
Whether the addition of ?8,54,42,557/- on account of Bad and Doubtful Debts Reserve (BDDR) for earlier years written back in the year under consideration is justified.

Analysis:
The appellant, a Co-operative Society, challenged the addition of ?8,54,42,557/- to the profit and loss account on account of bad and doubtful debts reserve written off. The AO added this amount to the total income, which was confirmed by the CIT(A). The appellant argued that no deduction was claimed at the time of creating the BDDR provision in earlier years. The Tribunal noted that the appellant did not claim any deduction on account of the provision for bad and doubtful debts made for the year under consideration. The total provision for bad and doubtful debts from A.Ys. 2004-05 to 2014-15 was ?71,88,98,173/-. The Tribunal found that the appellant did not claim any deduction on account of BDDR and its reversal in subsequent years. Referring to a similar case, the Tribunal held that since no deduction was claimed for BDDR, there was no justification for adding the reversed amount to the total income.

In a similar case, the Tribunal noted that the appellant had been adding back BDDR in the computation of total income for several assessment years. The Tribunal highlighted that the appellant did not claim any deduction on account of BDDR created on the basis of RBI norms. The Tribunal emphasized that the creation and reversal of BDDR did not affect the deduction claimed under section 80P of the Act. The Tribunal concluded that since no deduction was claimed for BDDR, the reversal in subsequent years should not lead to any addition to the total income. The Tribunal overturned the CIT(A)'s decision and directed the deletion of the addition of ?3,39,02,138/- to the total income.

Based on the Tribunal's orders and detailed analysis, the addition of ?8,54,42,557/- on account of bad and doubtful debts reserves written back for earlier years was deemed unjustified. The Tribunal allowed the appellant's appeal, leading to the deletion of the addition confirmed by the CIT(A).