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2022 (8) TMI 1125 - AT - Income TaxMAT Computation - book profit of the assessee-company u/s 115JB on account of provision for doubtful debts and provision for diminution in the value of investment - HELD THAT - VODAFONE ESSAR GUJARAT LTD. 2017 (8) TMI 451 - GUJARAT HIGH COURT held a mere provision is made by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debts; but if such provision is simultaneously obliterated by the assessee from its account by reducing the corresponding amount from the loans and advances on the asset side of the balance-sheet thereby showing the loans and advances on the asset side of the balance-sheet as net of the provision at the end of the year, it would amount to a write off and such actual write off could not be hit by clause (i) of the Explanation to Section 115JB of the Act. As demonstrated by assessee from the annual account of the assessee-company, the provision made for doubtful debts as well as for diminution in the value of investment was reduced by the assessee from the corresponding amount of trade receivables and investments as reflected in the balance-sheet at the end of the year and this being so, we hold, respectfully following the decision of the Hon ble Gujarat High Court in the case of Vodafone Essar Gujarat Ltd that it is not merely a case of provision but an actual write off which would not be hit by clause (i) of Explanation to Section 115 JB of the Act. We accordingly delete both the additions made by the Assessing Officer and confirmed by the learned CIT(A) to the book profit of the assessee-company under Section 115JB of the Act on account of provision for doubtful debts and provision for diminution in the value of investment and allow ground Nos. 2 3 of the assessee s appeal.
Issues:
1. Validity of reassessment under Section 143(3) r.w.s. 147 of the Act based on a change of opinion. 2. Adjustment of provisions for doubtful debts to the "Book Profit" u/s. 115JB of the Act. 3. Adjustment of provisions for diminution in the value of investments to the "Book Profit" u/s. 115JB of the Act. Issue 1: The appeal challenged the validity of reassessment under Section 143(3) r.w.s. 147 of the Act, contending it was based on a change of opinion. The Assessing Officer reopened the assessment due to provisions for doubtful debts and diminution in the value of investments not added to the book profit under Section 115JB. The assessee argued these were ascertained liabilities and relied on legal decisions. The Assessing Officer added the provisions to the book profit, leading to an appeal before the CIT(A). The CIT(A) upheld the additions, citing the provisions as not ascertained liabilities and the retrospective amendment to Section 115JB. The Tribunal dismissed ground No.1 as not pressed. Issue 2: Regarding the adjustment of provisions for doubtful debts to the "Book Profit" u/s. 115JB of the Act, the assessee contended that these were not liabilities but write-offs from corresponding amounts in the balance sheet. The CIT(A) upheld the Assessing Officer's additions, stating the provisions were not ascertained liabilities. However, the Tribunal, following the decision of the Hon'ble Gujarat High Court, ruled that the provisions were actual write-offs and not hit by the Explanation to Section 115JB. Consequently, the Tribunal deleted the additions made by the Assessing Officer and confirmed by the CIT(A). Issue 3: Concerning the adjustment of provisions for diminution in the value of investments to the "Book Profit" u/s. 115JB of the Act, the Assessing Officer added these provisions to the book profit. The CIT(A) upheld the additions, citing the retrospective amendment to Section 115JB. However, the Tribunal, distinguishing between provisions and actual write-offs, followed the decision of the Hon'ble Gujarat High Court. It ruled that the provisions were actual write-offs and not hit by the Explanation to Section 115JB. Consequently, the Tribunal deleted the additions made by the Assessing Officer and confirmed by the CIT(A), allowing ground Nos. 2 & 3 of the assessee's appeal.
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