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TMI Blog2018 (4) TMI 993X X X X Extracts X X X X X X X X Extracts X X X X ..... ad debt or part thereof which is written off as irrecoverable in the accounts of assessee for the previous year is allowable as a deduction. See case of T.R.F. Ltd., Vs. CIT [2010 (2) TMI 211 - SUPREME COURT] - since the amount is written off in the books of account as irrecoverable, we direct the AO to allow the amount.- Decided in favour of assessee Addition towards bad debts provision written back - MAT computation - Held that:- Neither the AO nor the CIT(A) has examined the issue in the correct perspective. If the provision for bad and doubtful debts is not allowed as a deduction in the year in which the provision was made, the same cannot be considered as income in the year in which the provisions were written back. The accounting under the company law stands on a different footing from the computation of income in the income tax proceedings. Since the statement given by assessee and extracted above has not been examined by the AO and CIT(A) [even though they are provided before them], we are of the opinion that this aspect should be examined by the AO and in case the provisions are not allowed in the respective years in the respective computations as explained before us, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore, he confirmed the amount of disallowance. 3.1. It was the submission that the amount is not a penalty and any sales tax demanded even if pertains to earlier years has crystalised during the year and was also paid during the year and allowable under the provisions of Section 43B. With reference to nature of the amount categorized as 'penalty' by the AO, it was contended that it is an allowable business expenditure and relied on the decision of the Hon'ble Madras High Court in the case of CIT Vs. Chemical Constructions [243 ITR 858] (Mad) and judgement of Hon'ble Himachal Pradesh High Court in the case of Gurajat Ambuja Cement Ltd., [118 STC 315] (HP). 3.2. After considering the rival contentions, we are of the opinion that the amount of sales tax is not in the nature of 'penalty' and is allowable as 'business expenditure'. The Hon'ble Madras High Court in the case of CIT Vs. Chemical Constructions (supra) has held as under: "The fact that a levy is termed a penalty in a statute is not by itself decisive of its true character. The compensatory element in a levy termed penalty is eligible for being regarded as business expenditure. It is only that part, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproach also". 3.2.ii. Respectfully following the principles laid down by the above two judgments, we are of the opinion that sales tax so levied on assessee is not in the nature of penalty and is an allowable expenditure as per the provisions of the Act. AO is directed to allow the amount. This ground is allowed. Ground No.3: 4. This ground pertains to disallowance of bad debts written off ₹ 2,66,236/-. AO disallowed the amount stating that assessee has not taken any genuine effort in collecting the outstanding debts like - writing letters to the above Debtors frequently and sending legal notices etc. Further, AO noted that assessee has not submitted any evidence in support of its claim that the debts have become bad and hence written off. He disallowed the amount and added back to the total income of assessee. 4.1. Before the Ld.CIT(A) assessee not only explained how the amounts have become bad but also submitted that the amounts have been written off. Relied on the provisions of the Act and the case law to submit that the amounts written off are eligible for deduction. Ld.CIT(A), however, reiterated the findings of the AO and justified the disallowance made by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not provided earlier and hence cannot be subtracted from MAT working. AO was of the opinion that the amount has to be added back in both the computations and accordingly, he has increased the total income under normal computation as well as under MAT computation. 5.1. Assessee has explained that the provision has been made in earlier years which was not allowed and placed the relevant orders in support. However, Ld.CIT(A) rejected the contentions noting as under: "8.1. After having gone through AO's observations I find that the AO has not allowed deduction of ₹ 21,23,257/- claimed by the assessee towards provision for bad and doubtful debts written back on the ground that the assessee should have claimed it earlier i.e., in the A.Y. 2007-08. During the appeal proceeding the AR could not file any evidence rebutting the conclusions drawn by the AO. Therefore, I am of the considered opinion that the action of the AO is justified in not allowing deduction of ₹ 21,23,257/- claimed by the assessee towards provision for bad and doubtful debts written back on and hence confirmed. Therefore, the ground raised on this score is dismissed". 5.2. It was the submission that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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