2008 (8) TMI 484 - HC - Income Tax

Bad debt - the assessee was following a practice of creating a provision on account of bad and doubtful debts by first debiting it in its profit and loss account and then adding it back while computing its total income. Thereafter, in a later year some amount was received, that was shown to the credit in the profit and loss account but was not offered for taxation. - It is not necessary for the assessee to show the precise identify of the amount of written back, to be relating to any particular earlier year in view of the fact that when the provision is made in whatever year no deduction of tax had been claimed for that amount. - The appeals thus have no force and the same are, therefore, dismissed summarily.

Summary

Issues:
Appeals arising from Tribunal's order for assessment years 1989-90 and 1991-92 regarding taxation of written back amounts against provision for bad and doubtful debts.

Analysis:
The main issue in this case revolves around the treatment of written back amounts against provisions for bad and doubtful debts for taxation purposes. The assessee had a practice of creating a provision by debiting it in the profit and loss account and then adding it back while computing total income. Subsequently, when amounts were received, they were shown in the profit and loss account but not offered for taxation. The Assessing Officer contended that the written back amounts were liable to tax, despite the provision already being taxed in earlier years. However, the Commissioner (Appeals) and the Tribunal found that if the provision had been taxed earlier, the subsequent realization should not be taxed again. The Tribunal highlighted the fallacy in assuming that the assessee claimed deduction when the provision was made, as no deduction was actually claimed at that time. Therefore, the written back amounts should not be taxed.

The High Court, comprising N. P. Gupta and Kishan Swaroop Chaudhari JJ., upheld the Tribunal's findings as being in accordance with the law. The Court dismissed the Revenue's suggested question for appeal, stating that it was not necessary for the assessee to precisely identify the written back amounts relating to specific earlier years, as no tax deduction was claimed when the provision was initially made. Consequently, the appeals were deemed to lack merit and were summarily dismissed.