2022 (11) TMI 183 - AT - Income Tax

MAT Computation u/s 115JB - Provision for doubtful debts - ascertained liability - addition in both income under normal provisions of the Act as well as book profits u/s. 115JB - CIT(A) has deleted the adjustment made by stating that the assessee while computing the income under normal provisions of the Act already disallowed the provision and adding the same would amount to double addition - HELD THAT - Assessee has adjusted the provision of bad doubtful debts against the sundry debtors and following the decision of the Hon ble Supreme Court in the case of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT which is followed in the decisions of Kirloskar Systems Ltd. 2013 (12) TMI 9 - KARNATAKA HIGH COURT and Yokogawa India Ltd. 2011 (8) TMI 766 - KARNATAKA HIGH COURT by the Hon ble jurisdictional High Court, we hold that the provision made by the assessee for bad doubtful debts is the actual write off and not a mere provision and therefore cannot be adjusted under clause (i) of Explanation 1 to sub-section (2) of section 115JB. Hon ble Supreme Court in the case of HCL Comnet Systems 2008 (9) TMI 18 - SUPREME COURT has clearly laid down that when the provision is made against a debt receivable, cannot be equated with a provision for liability and therefore cannot be adjusted under clause (c) of Explanation 1 to sub-section (2) of section 115JB. We hold that the addition made by the AO towards provision for bad doubtful debts to the book profit u/s. 115JB is not tenable and the same is deleted. Assessee s appeal is allowed.

Summary

Issues:
- Addition of provision for doubtful debts under section 115JB
- Interpretation of Explanation 1 to sub-section (2) of section 115JB
- Double addition of provision for doubtful debts

Analysis:
1. The appeal was against the order of the National Faceless Assessment Centre for the assessment year 2011-12. The assessee, engaged in the business of Ayurvedic veterinary medicines, filed a return declaring income. The AO added a provision for doubtful debts to the income, which was contested by the assessee before the CIT(A). The CIT(A) held that the addition was incorrect as it was already disallowed by the assessee, leading to a double addition, and ruled in favor of the appellant.

2. The assessee appealed to the Tribunal specifically on the point of addition to book profits under section 115JB. The grounds of appeal included challenging the CIT(A)'s decision and arguing that the provision for doubtful debts should not be added to book profits. The appellant contended that the provision was not an unascertained liability and should not be considered under the relevant clause of Explanation 1 to section 115JB.

3. During the proceedings, the AR argued that the provision for doubtful debts should not be treated as an unascertained liability under section 115JB. They relied on judicial precedents and the Supreme Court's decision in a similar case. The AR emphasized that the provision was reduced from the balance of sundry debtors, constituting an actual write-off, and not falling under the provisions of Explanation 1 to section 115JB.

4. The Tribunal reviewed the arguments and precedents cited. It noted that the provision for doubtful debts was an ascertained liability and that the CIT(A) had already deleted the adjustment in the normal provisions of the Act. However, the Tribunal observed that the CIT(A) did not address the addition to book profits under section 115JB. Citing relevant legal interpretations and precedents, including the Supreme Court and High Court decisions, the Tribunal concluded that the provision for doubtful debts should not be added to book profits under section 115JB.

5. Therefore, the Tribunal allowed the appeal, holding that the addition made by the AO towards the provision for doubtful debts to the book profit under section 115JB was not justified and deleted the same. The decision was based on the specific interpretation of the provisions and relevant case laws, leading to a favorable outcome for the assessee.