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2021 (5) TMI 910 - AT - Income TaxDisallowing the claim of the appellant to reduce the reversal of provision for bad and doubtful debts from the book profits computed under section 115JB - HELD THAT - If we apply the purposive test of the enactment being considered here. To recapitulate the provision of the act mandates that if assessee writes back provision for bad debt made in appeal years, the deduction of the same from the book profit is permissible if the provision created in the earlier year has been added back to the book profit. In this regard, the CBDT circular No. 550 explains that such an action in earlier year should have gone to increase the book profit of the said year. We are of the considered opinion that in this regard if the assessee is not called upon to pay any tax on book profit as taxes on normal computation are higher even after the aforesaid exercise of increase of the book profit by the amount of provision for the concerned year, the exercise would be an empty exercise and revenue neutral. This means that the assessee would not have been called upon to pay any extra tax whatsoever had this exercise been done. The explanation invoked by the authorities below is not applicable on the facts of this case. Even for argument sake, we consider the view that there are two views possible, we are of the considered opinion that the view in favour of assessee is on an overwhelming higher side. In this view of the matter, as expounded by the Hon ble Court s Constitution bench in the case of Dilip Gandhi 2018 (8) TMI 271 - ITAT MUMBAI if two views are possible in a statutory tax provisions, the one in favour of the assessee should be adopted. Accordingly, in the background of the aforesaid discussion and precedent, we are of the considered opinion that the order of the ld. CIT(A) is not sustainable. Accordingly, we set aside the order of the ld. CIT(A) and decide the issue in favour of the assessee. Interest u/s.234C - As assessee submitted that interest is leviable on returned income and not on assessed income. That this submission was made but not considered by the ld. CIT(A) - HELD THAT - Upon careful consideration we find that this issue is consequential, the A.O. shall consider the same as per law.
Issues Involved:
1. Disallowance of the claim to reduce the reversal of provision for bad and doubtful debts from book profits under section 115JB. 2. Non-appreciation of the fact that adding back provisions for bad and doubtful debts in earlier years would not result in any loss to the revenue. 3. Relevance of the decision of the Agra Tribunal in a similar context. 4. Reliance on the Supreme Court decision in Apollo Tyres Ltd. 5. Levy of interest under section 234C. 6. Initiation of penalty proceedings under section 271(1)(c). Detailed Analysis: Issue 1: Disallowance of the claim to reduce the reversal of provision for bad and doubtful debts from book profits under section 115JB Facts: The assessee, engaged in financial services as an NBFC, claimed a write-off of bad debts amounting to ?36,60,10,774. The A.O. noted that the provisions for bad debts were not added back to book profits in earlier years (A.Y. 2009-10 and A.Y. 2010-11). Therefore, the A.O. added back ?31,30,20,000 to the book profits for A.Y. 2013-14. A.O.’s Observation: The A.O. referred to Explanation 1 of section 115JB, which mandates that amounts withdrawn from provisions made in earlier years cannot be reduced from book profits unless those provisions were added back in the year they were made. CIT(A)’s Decision: The CIT(A) upheld the A.O.'s decision, emphasizing that the book profit computation must strictly follow section 115JB, irrespective of the tax impact in earlier years. Tribunal’s Decision: The Tribunal found that the authorities below wrongly invoked the proviso, as the assessee paid higher taxes under normal provisions in earlier years. The Tribunal held that the exercise of adding back provisions in earlier years would have been revenue-neutral and an empty exercise. Therefore, the order of the CIT(A) was set aside, and the issue was decided in favor of the assessee. Issue 2: Non-appreciation of the fact that adding back provisions for bad and doubtful debts in earlier years would not result in any loss to the revenue Assessee’s Argument: The assessee contended that even if the provisions were added back in earlier years, it would not have resulted in any MAT payable, as taxes on normal profits were higher. Tribunal’s Finding: The Tribunal agreed with the assessee, stating that the exercise would have been revenue-neutral and would not have added anything to the public coffers. Hence, the authorities' action was not sustainable. Issue 3: Relevance of the decision of the Agra Tribunal in a similar context Assessee’s Reference: The assessee relied on the decision of the Agra Tribunal in ACIT vs. Srinivas Synthetics Packers Pvt. Ltd., arguing that the issue was covered by this decision. CIT(A)’s Rejection: The CIT(A) found the Agra Tribunal’s decision inapplicable as it pertained to a different context and facts. Tribunal’s View: The Tribunal did not specifically address this issue in detail but focused on the revenue-neutral nature of the exercise in the present case. Issue 4: Reliance on the Supreme Court decision in Apollo Tyres Ltd. CIT(A)’s Reliance: The CIT(A) relied on the Supreme Court decision in Apollo Tyres Ltd., which mandates strict adherence to the provisions of section 115JB. Tribunal’s Analysis: The Tribunal acknowledged the strict interpretation but emphasized the purposive test and revenue-neutral nature, which justified the assessee’s claim. Issue 5: Levy of interest under section 234C Assessee’s Submission: The assessee argued that interest under section 234C should be levied on returned income, not assessed income. Tribunal’s Decision: The Tribunal found this issue consequential and directed the A.O. to consider it as per law. Issue 6: Initiation of penalty proceedings under section 271(1)(c) A.O.’s Action: The A.O. initiated penalty proceedings for concealing income and furnishing inaccurate particulars. Tribunal’s Decision: The Tribunal did not specifically address the penalty proceedings in the detailed analysis, focusing instead on the main disallowance issue. Conclusion The Tribunal allowed the appeal partly, setting aside the CIT(A)’s order regarding the disallowance of the claim to reduce the reversal of provision for bad and doubtful debts from book profits. The issue of interest under section 234C was directed to be considered by the A.O. as per law.
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