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Facts
The Revenue appealed against the CIT(A)'s order for Assessment Year 2015-16 regarding two main issues: the assessee's claim for deduction under Section 80IB as an R&D company, and the disallowance of a provision for bad and doubtful debts amounting to Rs. 5,99,74,390/- for computing book profit under Section 115JB. The CIT(A) had allowed both claims in favor of the assessee.
Held
For the Section 80IB deduction (Grounds 1-3), the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order based on consistency with its own earlier decisions in the assessee's case. For the provision for bad and doubtful debts under Section 115JB (Ground 4), the Tribunal noted that a similar issue for Assessment Year 2017-18 was pending and stayed by the Hon'ble High Court. Consequently, this issue was remanded to the Assessing Officer for a decision based on the High Court's final outcome for Assessment Year 2017-18.
Key Issues
1. Whether the assessee is eligible for deduction under Section 80IB as an R&D company, considering conditional approval and rule of consistency with past decisions. 2. Whether the provision for bad and doubtful debts should be added back while computing book profit under Section 115JB.
Sections Cited
80IB, 80IB(8A), 115JB, 115JA, 37(1), 36(1)(vii), 10, 11, 12, 86, 33AC
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘ DB-B ‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice-Shri Madhusudan Sawdia
Per Vijay Pal Rao, Vice President
This appeal by the Revenue is directed against the order dated 09/01/2025 of the learned CIT (A)-10 Hyderabad, relating to A.Y.2015-16.
The Revenue has raised the following grounds of appeal:
3. Ground Nos.1 to 3 are regarding the claim of deduction u/s 80IB of the Act was disallowed by the Assessing Officer and allowed by the learned CIT (A). The learned DR has submitted that the approval to the assessee as R&D Company u/s 80IB(8A) by the Central Government authorities was given subject to certain conditions and provisions of Rule 18D and 18DA of the I.T. Rules and therefore, the said approval as an R&D company was not a blanket approval to the assessee. He has relied upon the orders of the Assessing Officer.
On the other hand, the learned Counsel for the assessee has submitted that this issue is covered by the order of Page 2 of 14 this Tribunal in assessee’s own case for the A.Y 2005-06 to 2013- 14. The learned CIT (A) has allowed the claim of the assessee by following the earlier decisions of this Tribunal.
In rejoinder the learned DR has submitted that the Department has not accepted the orders of this Tribunal and challenged the same before the Hon'ble jurisdictional High Court.
Having considered the rival submissions and careful perusal of the record, we find that this issue of deduction u/s 80IB has been considered by this Tribunal from A.Y 2005-06 to 2013-14. For the A.Y 2013-14, the Tribunal vide order dated 30/05/2018 in has considered this issue in para 5 to 5.2 as under:
Accordingly, it is a matter of fact that the Tribunal has taken a consistent view in assessee’s own case. To maintain the rule of consistency, we follow the earlier decision of the Tribunal and therefore, we do not find any error or illegality in the impugned order of the learned CIT (A), qua this issue. Hence, Ground Nos. 1 to 3 of Revenue’s appeal are dismissed.
Ground No.4 is regarding the disallowance of provisions for bad and doubtful debts while computing the book profit u/s 115JB of the Act.
We have heard the learned DR as well as the learned AR of the assessee and considered the relevant material on record. The learned CIT (A) has allowed the claim of the assessee in para 6.4 as under:
Page 6 of 14 9.1 Thus, the learned CIT (A) has allowed the claim by following various judgements of the High Courts as well as on the premise that the assessee has debited profit and loss account with net provisions made for bad and doubtful debts and also shown the loans & advances in the balance sheet as net of the provisions. The learned Counsel for the assessee has fairly submitted that for the A.Y 2017-18, this Tribunal has considered an identical issue and decided the same against the assessee vide order dated 25/05/2024 in ITA No.483/Hyd/2023. At the outset, we find that this Tribunal in assessee’s own case for the A.Y 2017-18 has considered and decided this issue in para 11 to 14 as under: “11. We have heard the rival arguments made by both the sides and perused the material available on Page 7 of 14 record. For the purpose of deciding the above issues in hand, it is essential to reproduce the relevant provision of section 115JB Exp. (1) which reads as under: “115JB. Special provision for payment of tax by certain companies. (1)Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent: Provided that for the previous year relevant to the assessment year commencing on or after the 1st day of April, 2020, the provisions of this sub-section shall have effect as if for the words "eighteen and one-half per cent" occurring at both the places, the words "fifteen per cent" had been substituted. (2)Every assessee,— (a)being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of Schedule III to the Companies Act, 2013 (18 of 2013); or (b)being a company, to which the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable, shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of the Act governing such company: Provided that while preparing the annual accounts including statement of profit and loss,— (i)the accounting policies; (ii)the accounting standards adopted for preparing such accounts including statement of profit and loss; (iii)the method and rates adopted for calculating the depreciation,shall be the same as have been adopted for the purpose of preparing such accounts including statement of profit and loss and laid before the company at its annual general meeting in accordance with the provisions of section 129 of the Companies Act, 2013 (18 of 2013) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 2013 (18 of 2013), which is different from the previous year under this Act,— (i)the accounting policies;(ii)the accounting standards adopted for preparing such accounts including statement of profit and loss;(iii)the method and rates adopted for calculating the depreciation,shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including statement of profit and loss for such financial year or part of such financial year falling within the relevant previous year.
Explanation 1.—For the purposes of this section, "book profit" means the profit as shown in the statement of profit and loss for the relevant previous year prepared under sub-section (2), as increased by— (a)the amount of income-tax paid or payable, and the provision therefor; or (b)the amounts carried to any reserves, by whatever name called, other than a reserve specified under section 33AC; or (c)the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d)the amount by way of provision for losses of subsidiary companies; or (e)the amount or amounts of dividends paid or proposed ; or (f)the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or (fa)the amount or amounts of expenditure relatable to income, being share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86; or (A)the capital gains arising on transactions in securities; or (B)the interest, [dividend,] royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII, (fb)the amount or amounts of expenditure relatable to income accruing or arising to an assessee, being a foreign company, from,—if the income-tax payable thereon in accordance with the provisions of this Act, other than the provisions of this Chapter, is at a rate less than the rate specified in sub-section (1); or (fc)the amount representing notional loss on transfer of a capital asset, (h)the amount of deferred tax and the provision therefor,(i)the amount or amounts set aside as provision for diminution in the value of any asset,(j)the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset,
12. From the reading of Exp (1)(i) it is abundantly clear that in case there is a diminution of valuation of the asset, then the same is required to be added back to the profit & loss of the company.
For the purposes of fulfilling the criteria in (c) it is essential that(i) the amount(s) set aside for meeting the liability other than the ascertained liability are only required to be added to the P&L Account of the company for the purpose of computing the book profit of the company.
Page 9 of 14 13.1 In the present case with respect to gratuity, the assessee has made the provision on the basis of scientific principles. The Hon'ble Kerala High Court in a case (2019) 111 Taxmann.com 350 (Ker.) has decided this in favour of the assessee. We are of the considered opinion that the provisions made for meeting the liability for the gratuity is an ascertained liability and it is calculated on the basis of scientific basis and therefore, the findings given by the learned CIT (A) is in accordance with the law.
With respect to two other issues i.e. for doubtful debts and advances, it is very much clear that these items would fall within the realm of section (i) of Exp.(1) of section 115JB of the Act as they will have the effect of diminishing the value of the asset. We have seen page 160 of the Paper Book and submission before the learned CIT (A) and from the perusal of the above, it is not clear whether the assessee had complied with the provisions of section 36(vii) of the Act i.e. by proving that bad debts have neem written off as irrecoverable in the accounts of the assessee for the previous year. Similarly, whether advances have also been written off as irrecoverable in its account or not. In view of the legality of the above, we deem it appropriate to remand the issue of doubtful debts and advances to the file of the Assessing Officer, with a direction to examine the record available and find out whether bad debts and advances have been written off irrecoverable or not. However, if the assessee was able to demonstrate that they were actually written off in the books of account of the assessee, then the bad debts and advances would cease the character of the provisions, as it will be calculated as actually written off of the bad debts and loans and advances and if not be covered within the provisions of (i) of Exp.(1) of section 115JB of the Act. In the light of the above, we deem it proper to remand back these two issues to the file of the Assessing Officer with a direction to verify after giving an opportunity of being heard to the assessee whether the bad debts and loan advances were actually written off in the books of account or not. “
The learned AR of the assessee has submitted that the assessee has challenged the said order of the Tribunal before the Hon'ble jurisdictional High Court wherein the Hon'ble High Court has admitted the substantial question of law vide order dated 09/12/2024 and also granted interim stay against the operation of the order of the Tribunal vide order dated 27/05/2024 as well
Page 10 of 14 as the further proceedings pursuant to the said order. He has filed the copies of the orders of the Hon'ble High Court which are reproduced for the sake of completeness as under:
Thus, in view of the fact that this Tribunal for the subsequent A.Y 2017-18 has decided this issue against the assessee but the said order of the Tribunal has been stayed by the Hon'ble High Court. By considering this development in the shape of the order of this Tribunal and the order of the Hon'ble High Court, both the learned DR as well as the learned AR has fairly submitted that this issue may be remanded to the record of the Assessing Officer with the suitable directions. Since the Hon'ble High Court has seized with the matter, therefore, at this stage, it is not proper for us to express any view on this issue. Accordingly, we remand this issue to the record of the Assessing Officer to decide this issue as per the outcome of the appeal filed by the assessee before the Hon'ble jurisdictional High Court for the A.Y 2017-18. We order accordingly.
In the result, appeal filed by the Revenue is partly allowed for statistical purposes.