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2015 (2) TMI 64 - AT - Income TaxDisallowance of Provision for Doubtful Debt - Held that - As decided in Vijaya Bank Vs. Commissioner of Income-tax 2010 (4) TMI 46 - SUPREME COURT to understand the dichotomy, one must understand how to write off'. If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. However, if an assessee debits provision for doubtful debt' to the profit and loss account and makes a corresponding credit to the current liabilities and provisions' on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction after April 1, 1989. Since both the lower revenue authorities have not examined the issue in the light of the above decision, therefore, in the interest of justice, the matter is restored back to the file of the Assessing Officer for examining the issue de-novo. - Decided in favour of assessee for statistical purposes. Penalty u/s 271(1)(c) - Held that - Since we have already set aside the addition towards provision for doubtful debts as aforesaid vide para no. 7 to 7.3, the penalty levied on this account is hereby quashed accordingly.- Decided in favour of assessee. Disallowance of Provision for Contractual Obligations - Held that - The fact that the assessee had incurred a sizable portion of the provision as expenditure and the same has been allowed by the Assessing Authority itself is supporting the claim of the assessee that the expenses are accrued and the liability ascertained and the provisions are made on factual basis and they were not in the nature of any contingency of future expenses. The legal character of the provision for contractual obligation is in a way similar to the provision for warranty/ guarantee. Therefore, the discussion made in respect of the issue regarding provision of warranty equally applies to the provision for contractual obligations also. we restore back the issue to the file of the Assessing Officer for examining the issue de-novo. - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Disallowance of Provision for Doubtful Debts. 2. Disallowance of Provision for Contractual Obligations. 3. Penalty under Section 271(1)(c) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance of Provision for Doubtful Debts: - Assessment Year 2001-02: The Assessee claimed a provision for doubtful debts amounting to Rs. 16,18,319/-. The AO disallowed this claim, categorizing it as a contingent liability not allowable under the Act. The CIT(A) dismissed this ground on the basis that it was not pressed by the Assessee. However, the Tribunal noted that in a similar issue for the assessment year 2005-06, the matter was remanded back to the AO for de-novo examination in light of the Supreme Court's decision in Vijaya Bank Vs. Commissioner of Income-tax. The Tribunal followed this precedent and restored the issue to the AO for re-examination. - Assessment Year 2004-05: The Assessee's claim for doubtful debts amounting to Rs. 2,13,72,616/- was disallowed by the AO and upheld by the CIT(A). The Tribunal, referring to its decision for the assessment year 2001-02, remanded the issue back to the AO for de-novo examination. 2. Disallowance of Provision for Contractual Obligations: - Assessment Year 2004-05: The AO disallowed Rs. 36,362/- claimed as a provision for contractual obligations, reasoning it was an ad-hoc provision. The CIT(A) upheld this disallowance, stating that the Assessee failed to provide a justification for the claim. The Tribunal noted that in a similar issue for the assessment year 2005-06, the matter was remanded back to the AO for re-examination in light of the Tribunal's decision for the assessment year 1998-99. Following this precedent, the Tribunal restored the issue to the AO for de-novo examination. 3. Penalty under Section 271(1)(c) of the Income Tax Act: - Assessment Year 2001-02: The AO imposed a penalty of Rs. 6,40,046/- under Section 271(1)(c) for furnishing inaccurate particulars of income concerning the provision for doubtful debts. The CIT(A) upheld this penalty, stating that the Assessee had accepted the disallowance and failed to provide a plausible explanation. However, since the Tribunal had already remanded the issue of provision for doubtful debts back to the AO for re-examination, the penalty based on this disallowance was quashed accordingly. Consolidated Result: - ITA No. 5939/Mum/2008 (A.Y. 2001-02): Partly allowed for statistical purposes. - ITA No. 2425/Del/2011 (A.Y. 2001-02): Allowed. - ITA No. 5519/Mum/2008 (A.Y. 2004-05): Allowed for statistical purposes. Order Pronounced: - The appeals were disposed of with the above directions on 30-1-2015.
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