ASSISTANT COMMISSIONER OF INCOME TAX, AJMER vs. AJMER VIDHYUT VITRAN NIGAM LTD., AJMER

doubtful debts in para 7 of assessment order as under:-

‘’7. Provisions for Doubtful Debts

On verification of Profit & Loss Account, it is seen that the assessee has claimed bad and doubtful debts provisions for dues of Rs. 30,63,23,038/-. Therefore, vide

6 The ACIT, Circle – 2, Ajmer vs Ajmer Vidyut Vitran Nigam Ltd., Ajmer questionnaire dated 23-01-2013 it was show caused as to why provision for bad & doubtful debts should not be disallowed and also added to the Book Profit u/s 115JB.

Vide submission dated 26-03-2013 the assessee has stated that a sum has been debited as bad & doubtful provision for dues from consumer actually it is write off of outstanding of permanent disconnected consumer however, as per accounts norms of electricity companies it is not directly debited to customers account for future recovery and thus the term provision is being used whereas it is actualy8 write off and the year of realization of the same is considered as income and thus it is actually write off of bad debts.

The submission of the assessee is perused and the same is not acceptable for the reasons that any provision for uncertain liability is to be added back to the book profit. The provisions of bad and doubtful debts dues is made not for certain liability. The bad & doubtful debts of Rs. 30,63,23,038/- is disallowed and added to the total income & book profit u/s 115JB.

The AO stated in the assessment order that on verification of profit and loss account, it was found that the assessee had claimed bad and doubtful debts provision. Accordingly, the AO issued show cause to the assessee as to why said claim should not be disallowed. The assessee in its reply stated that the sum has been debited as bad and doubtful provision for dues from consumer but actually it is write off of outstanding of permanent disconnected consumer. Thus it transpires from the assessment order that the assessee has disclosed this fact before the AO and the AO Though the provision for bad and doubtful debts are not allowable claim until and unless it is actually written off and the said addition was confirmed by the Tribunal in quantum appeal in for the Assessment Year 2010-11 vide order dated 28-08-2017 (M/s. Ajmer Vidyut Vitran Nigam Ltd vs ACIT, Circle – 2, Ajmer) by observing at para 48 as under:-

‘’48. We have heard the rival submissions and purused the material available on record. The assessee company has contended that it is not a provision but an actual write off. It was submitted that as per accounting procedure/guidelines prescribed for the electricity companies, it is not directly debited to the customer account for the purposes of determining the amount to be recovered in future. It was further submitted that as and when the amount is realised in future, the same will be offered to tax. There is however nothing on record to demonstrate what accounting treatment, the assessee company has done in its books of accounts under the double entry accounting system, if the amounts in individual accounts of the customers are not written off. Unless and until, the accounting treatment in the books of accounts is clear and through which it can be demonstrated that the assessee company has actually write off the bad debts in its books of accounts, merely contending that the intention is to write off the bad debts would not be sufficient enough to claim a deduction under the provisions of the Act. The provisions of section 36(1)(vii) read with explanation 1 are clearly attracted and the assessee has not able to demonstrate how the said provisions are not applicable in the instant case. Further, ld CIT(A) has given a finding that in AY 2011-12, the assessee company itself has added back the provision for doubtful debts for the 8 The ACIT, Circle – 2, Ajmer vs Ajmer Vidyut Vitran Nigam Ltd., Ajmer purposes of computing the income under the normal provisions of the Act. The rule of consistency therefore equally applies to the assessee company. In the entirety of facts and circumstances of the case, we are of the view that the AO has rightly disallowed the provision for doubtful debts and which has rightly been confirmed by the ld CIT(A). In the result, the ground of the assessee is dismissed.’’ Thus from the findings of the AO as well as Tribunal in the quantum proceedings, it is clear that it is not a case of furnishing inaccurate particulars of income or concealment of particulars of income but the claim of the assessee is regarding provision for bad and doubtful debts being outstanding dues from the electricity disconnection consumers.

Once the assessee has produced and disclosed all the relevant facts then mere disallowance of claim by the AO on the ground that the same is not allowable as per provisions of the Income Tax would not lead to the conclusion that the assessee has furnished the inaccurate particulars of income or concealed the particulars of income. Accordingly, following the judgement of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petroproducts (P) Ltd. (supra), the penalty levied by the AO against disallowance of claim of provision for bad and doubtful debts is deleted.

Thus the solitary ground of the assessee is allowed. assessee is allowed.

Order pronounced in the open court on 09 /01/2020.