2022 (3) TMI 567 - AT - Income Tax

Exemption u/s 11 - Assessment of trust - denial of claim as application of income on account of provisions for doubtful debts - HELD THAT - We find that CIT(A) after considering the submissions of the assessee has given a finding that the provision made by the assessee was ascertained and quantified and the provision was made in furtherance of the objectives of the trust. He further relying on the decision in the case of NASSCOM 2012 (5) TMI 204 - DELHI HIGH COURT held that the income for application for charitable purpose is to be computed in accordance with the commercial principles. Before us Revenue has not placed any contrary binding decision in its support nor has pointed to any fallacy in the findings of CIT(A). In such a situation we find no reason to interfere with the order of CIT(A). Thus the grounds of the Revenue are dismissed.

Summary

Issues:
Allowability of provision for doubtful debts as application of income.

Analysis:
The appeal pertains to the order of the Commissioner of Income Tax (CIT) relating to Assessment Year 2014-15. The main issue revolves around the disallowance of the claim of provision for doubtful debts amounting to ?3,32,58,322/- by the Assessing Officer (AO). The AO contended that the provision for doubtful debts was not an ascertained liability and had not been applied during the relevant financial year. The AO disallowed the amount as application of income. The assessee, a trust carrying out charitable activities, argued that the provision was quantified and ascertained, relating to outstanding amounts that could not be recovered and were written off after seeking approval. The assessee maintained that the provision was for bad debts and not merely an estimate. The CIT(A) ruled in favor of the assessee, stating that the provision was ascertained and quantified, made in furtherance of the trust's objectives, and should be deducted while computing income for charitable purposes based on commercial principles.

The Revenue challenged the CIT(A) order, contending that the provision for doubtful debts was not allowable as application of income. However, the ITAT Delhi upheld the CIT(A) decision, emphasizing that the provision was quantified and made in good faith, aligning with commercial principles and the trust's objectives. The ITAT noted that the Revenue failed to provide contrary binding decisions or flaws in the CIT(A) findings, leading to the dismissal of the Revenue's appeal. Consequently, the appeal of the Revenue was dismissed, affirming the allowance of the provision for doubtful debts as application of income for the trust's charitable activities.