9911796707
TMI Blog2012 (8) TMI 733X X X X Extracts X X X X X X X X Extracts X X X X ..... total income - in view of no deduction claimed, subsequent reversal shall be deducted from the total income - Held that:- Since no provision for doubtful debts is allowed in the I.T. Act, if the provision is debited to the P/L A/c, it must be added back while computing total income. However, if it is credited to the P/L A/c as happens when it is written back, then the income is artificially increased while computing the income as per I.T. Act, the provision so credited has to be reduced from the total income. If not reduced would lead to taxing income twice. Since the entire provision created has already been offered to tax in the AY 2001-02, hence it is justified to allow the deduction of same - Decided in favor of assessee. - ITA Nos.993 & 1065/Hyd/2010 - - - Dated:- 8-6-2012 - SHRI D. KARUNAKARA RAO, SHRI SAKTIJIT DEY, JJ. Assessee by : Sri Vijaya Raghavan Department by : Sri Nageswara Rao ORDER PER SAKTIJIT DEY, JM: These three appeals, one by the assessee (ITA No.993/Hyd/2010 and other two are cross appeals (ITA Nos. 1065 and 1066/Hyd/2010) are directed against the order of CIT (A)-V, Hyderabad and they pertain to the assessment years 2002-03 and 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a closing stock of Rs.105,056,320/- which is the opening stock for the financial year 2002-03. The CIT (A) has also observed that the assessee during the assessment year 2001-02 has claimed the expenses of Rs.1,98,96,833/- as per Profit Loss A/c. 4. Thus, the CIT (A) holding that the assessee had already reduced an amount of Rs.1.98 crores from its closing stock for the assessment year 2001-02, the provision for obsolete stock credited to the Profit Loss A/c for the assessment year 2002- 03 of an amount of Rs.80,97,004/- cannot be allowed as deduction. Being aggrieved by the order of the CIT (A), the assessee is now in appeal before us with the following grounds:- 1. On the facts of and in the circumstances of the case and in law, the ld. CIT (A) erred in upholding the reassessment proceedings initiated by the AO u/s 148 of the Act which was merely on change of opinion. 2. The CIT (A) erred in upholding the assessment order passed by the AO u/s 143(3) r.w.s. 147 of the Act without considering the fact that the AO has failed to pass a speaking order for disposing off the objections raised by the appellant on the reasons recorded by the AO. 3. Without prejudice to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion cannot be accepted and hence have to be deducted from the total income of the assessee. Otherwise, it will amount to taxing the same amount twice. The learned counsel further submitted that claim of deduction of obsolete stock has not been properly considered by the revenue authorities, the matter needs re-examination. In addition to the above submissions made before us, the learned AR also filed written submissions raising the following contentions:- For the assessment year CA Y') 2001-02 the assessee has provided a sum of Rs. 1,98,96,8331- towards obsolete/slow moving stock and reduced the same from the closing value of stock. The closing values of stock as on March 31, 2001 in the books of accounts i.e. of Rs.10,50,56,3201- is after considering diminution in value of closing stock (i.e. Rs . 12,49,53,1531- less provision of Rs. 1,98,96,833). Whereas for the purpose of computing Income-tax liability for the AY 2001-02 the assessee has added back RS.1 ,98,96,833/- and in effect valued the closing stock value at the unadjusted figure of Rs.12,49,53, 153/-. For the AY 2002-03, the assessee has added back Rs. 80,97,004/- to the closing stock as provision no longer required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deducted from the value of closing stock in the profit and loss account (i.e. debited or credited in the profit and loss account) on the computation of taxable income of the assessee for AY 2001-02, 2002- 03 and 2003-04. 6. On the other hand, the learned CIT-DR also fairly submitted that the entire issue needs to be verified again by the AO. 7. We have heard rival contentions and perused materials placed before us. We find from the order of the CIT (A) that he has come to a specific finding that in the assessment year 2001- 02, the assessee has claimed deduction of the provision made for obsolete stock amounting to Rs.1,98,96,833/-. However, the learned AR referring to the documents submitted before us has demonstrated that this amount of Rs.1,98,96,833/- was never claimed as deduction in the assessment year 2001-02 and also forms part of the opening stock for assessment year 2002-03 while computing the Income-tax liability. In view of the conflicting claim made by the parties and considering the contentions of ld. AR that an income which has already been taxed is again being taxed, we think it proper to restore the matter back to the file of the AO who shall examine the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to determine the true nature of the issue. These entries are discussed below: Asst.Year 2001-02 Opening Provision for Doubtful Debts(credit entry) Rs.66,53,317 Profit Loss A/c - Dr Rs.1,00,49,738 To Provision for Doubtful Debts - Cr Rs.1,00,49,738 In other words, the appellant as per the above entries reduced its income by RS.1 ,00,49,738/- during the financial year relevant to asst. year 2001-02 by claiming an expense of equal amount on account of provision for doubtful debts. At the same time, the appellant reduced the amount of RS.1 ,00,49,738/- from the figure of debtors on the assets side of the Balance Sheet. These entries are allowable in the books of account to be maintained as per the Companies Act. However, in the Income Tax Act, the aforementioned provision is not allowable as an expense. Therefore, while computing income for the asst. year 2001-02, the amount of Rs.1,00,49,738/- was added to the total income thereby reversing the expenditure entry made above. Asst.Year 2002-03 Opening Provision for Doubtful Debts (credit entry) Rs.1,66,25,055 Profit Loss A/c - Dr Rs.6,18,928 To Provision for Doubtful Debts - Cr Rs. 6,18,928 In the next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bts is allowed in the I.T. Act, if the provision is debited to the profit and loss account, it must be added back while computing total income. However, if it is credited to the profit and loss account as happens when it is written back, then the income is artificially increased while computing the income as per I.T. Act, the provision so credited has to be reduced from the total income. The appellant has therefore, correctly reduced Rs.24,55,321/- from total income and has in fact offered an additional income of Rs.22,94,312/-, which it need not have. It is clear from the above accounting entries that if the mount of Rs.24,55,321/- is again added back, it will tantamount to taxing the same income twice; once in earlier asst. year and second time in the current asst. year. In facst, the appellant should reduce the entire amount of Rs.47,49,633/- from the income computation as it had rightly done in the original return of income. 11. In course of hearing before us, the learned DR contended that for the assessment years 2001-02 and 2002- 03, the provisions created during the years were added back to the income but for the assessment year 2003-04, no such provision was created and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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