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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI N.K. PRADHAN, HONBLE
O R D E R PER C.N. PRASAD 1. This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals) -4, Mumbai dated 17.06.2016 for the Assessment Year 2009-10 arising out of the order passed by the Assessing Officer u/s. 154 of the Act.
(A.Y: 2009-10) M/s. Maya Entertainment Ltd.,
Assessee raised following grounds in its appeal: -
“1) Learned CIT (A) erred in law and on facts and in the circumstances of the case in holding that what is 'writing of bad and doubtful debts' and what is 'provision for doubtful debts' was not a debatable issue prior to decision of Hon'ble Supreme Court in case of Vijaya Bank vs. CIT 323 ITR 166, dated 15.4.2010 and therefore, Assessing Officer could pass rectification order u/s. 154 of the Act in respect of this matter. 2) Learned CIT (A) erred in law and on facts and in the circumstances of the case in holding that as the issue that procedure adopted by assessee in respect of bad and doubtful debts tantamount to write off of bad and doubtful debts and therefore eligible for deduction in computation of business income u/s.36 (1) (vii) of the Act did not arise out of order passed in original assessment proceedings or in proceeding u/s. 154 of the Act, this issue could not be considered by him. 2.1) Learned CIT (A) failed to appreciate that scope of his power is co-terminus with that of that Income Tax Officer and he can do what Income Tax Officer can do and also direct him to do what he has failed to do. 3) Each ground of appeal hereinabove is independent and without prejudice to each other. 4) The order of Commissioner (Appeals) being contrary to law, evidence and fact of the case should be set aside, amended or modified. 5) The appellant craves leave to reserve to itself the right to add, to alter or amend or annul any of the grounds of appeal at or before the time of hearing and to produce such further evidences, documents and papers as may be necessary.”
3. Briefly stated the facts are that, assessee filed return of income on 26.09.2009 declaring Nil income. The assessment was completed on 20.12.2011 u/s. 143(3) of the Act determining the income under normal provisions of Act at ₹.2,61,28,570/- and book profits u/s. 115JB at ₹.8,57,75,733/-. While completing the assessment the Assessing Officer made addition of ₹.2,51,10,812/- by disallowing the bad debts written off, addition towards excess allowances of ₹.36,03,439/- and disallowance of prior period expenses of ₹.18,92,500/- was also made. No adjustment was made in respect of book profits while completing the assessment
(A.Y: 2009-10) M/s. Maya Entertainment Ltd., u/s.143(3) of the Act. subsequently an order u/s. 154 of the Act was passed on 13.01.2014 determining the book profits at ₹.9,43,74,290/-. While passing order u/s. 154 of the Act the Assessing Officer disallowed provision for doubtful debts of ₹.85,98,557/- and Income-tax of ₹.3,06,000/-. The Assessing Officer also made adjustment towards carryforward business loss while arriving at the book profits.
The assessee carried the matter to the Ld.CIT(A) and contended that the provision for doubtful debts of ₹.85,98,557/- should have been allowed as deduction while computing business income under normal provisions of the Act u/s. 36(1)(vii) of the Act. However, the assessee contended that it did not claim due to the bonafide ignorance of law in the light of the decision of the Hon'ble Supreme Court in the case of Vijaya Bank v. CIT [323 ITR 166]. It was contended that according to the decision of the Apex Court write off of bad debts to be allowable u/s. 36(1)(vii) of the Act, when the provision is made and debited to profit and loss account so as to reduce the profit of the year, the Profit and Loss Account so credited should be debited and the amount of loans and advances/debtors should be reduced and loans and advances or sundry debtors of the assessee at the end of the year in the balance sheet should be net of provision for doubtful debts. Therefore, it was contended that the assessee write off its debt and doubtful debts and has followed the (A.Y: 2009-10) M/s. Maya Entertainment Ltd., procedure laid down by the Hon'ble Supreme Court and therefore this amount was not required to be added under clause (i) of Explanation -1 to section 115JB of the Act.
It was further contended that whether assessee has written off bad and doubtful debts or made a provision for bad and doubtful debts is debatable issue which is finally been decided by the Hon'ble Supreme Court in the case of Vijaya Bank v. CIT (supra) and therefore since the issue was debatable it is not a mistake apparent on record within the meaning of provisions of section 154 of the Act. However, the Ld.CIT(A) held that the Assessing Officer has rightly rectified the apparent mistake from record by adding back the provision for doubtful debts. He rejected the contention of the assessee that the issue of whether the assessee has made provision for doubtful debts or it tantamount to write off debts is a debatable issue and outside the scope of provisions of section 154 of the Act.
Before us Ld. Counsel for the assessee reiterated the submissions made before the lower authorities. Further referring to Page No.20 and 28 of the Paper Book which is the Profit and Loss Account and Schedule 12 i.e. operating, administrative, selling and other expenses, submitted that provision for doubtful debts and advances have been debited to Profit
(A.Y: 2009-10) M/s. Maya Entertainment Ltd., and Loss Account under the head operating, administrative, selling and other expenses thereby reduced the profit of the current year. Ld. Counsel for the assessee further referring the Page No. 25 of Paper Book which is the Schedule No.6 i.e. current assets, loans and advances, submitted that the provision for doubtful debts have been reduced from the debtors account and the corresponding sundry debtors stands reduced with that amount and this satisfied the second condition stipulated in the Judgment of the Hon'ble Supreme Court in the case of Vijaya Bank v. CIT (supra). Therefore, it is submitted that when once the provision for doubtful debts has been debited to Profit and Loss Account and reduced from debtors account and it tantamount to write off debt and it is no more a provision and in which case no adjustment is required to be made under clause (i) to Explanation-1 to Section 115JB of the Act. In support of his contentions, Ld. Counsel for the assessee relied on the following decisions. i. Vijay Bank v. CIT [190 Taxman 257 (SC)] ii. CIT v. Kirloskar Systems Ltd., [40 taxmann.com 124 (Kar.)] iii. CIT v. Vodafone Essar Gujarat Ltd., [85 taxmann.com 32 (Guj)] 7. Ld. Counsel for the assessee further submitted that in any case the issue of whether the provision made for doubtful debts which was debited to Profit and Loss Account and reduced from debtors account tantamount to write-off of debt or not is debatable issue, in view of the decision of the (A.Y: 2009-10) M/s. Maya Entertainment Ltd., Hon'ble Supreme Court and subsequent decisions and hence outside the scope of section 154 of the Act. Relying on the decision of the Supreme Court in the case of T.S. Balaram, Income Tax Officer v. Volkart Brothers [82 ITR 50], Learned Counsel for the assessee submitted that the Hon'ble Supreme Court held that a mistake apparent on record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivable be two opinions.
Ld. DR vehemently supported the orders of the Ld.CIT(A).
We have heard the rival submissions, perused the orders of the authorities below and the case laws relied on. The Hon'ble Supreme Court in the case of Vijaya Bank v. CIT (supra) has explained when the bad debts can be considered as write off in the Books of Accounts. The Hon'ble Supreme Court held that if the bad debts are not only debited to Profit and Loss Account but simultaneously reduced from loans and advances or the debtors from the asset side of the balance sheet to the extent of corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of provisions for the impugned bad debts, the same is allowable as bad debts. In the case on hand, assessee not only debited the provision for doubtful debts to the (A.Y: 2009-10) M/s. Maya Entertainment Ltd., Profit and Loss Account, it was simultaneously reduced from the debtors account and the amount and loans and advances/debtors was shown as net of provisions at the end of the year and therefore it amounted to actual write off of debt. In the circumstances, it cannot be treated as provision for doubtful debts which can be added under clause (i) of Explanation 1 to section 115JB of the Act. In the case of CIT v. Indian Petrochemicals Corpn. Ltd., [74 taxmann.com 163] the Hon'ble Gujarat High Court rejected the Revenue’s appeal involving a question of adding back provision for doubtful debts in terms of section 115JB, holding that if provision is obliterated from accounts, it would amount to write-off and such actual write-off would not hit by clause(i) of Explanation 1 to section 115JB of the Act. In view of the above, in our view the assessee should succeed on merits. Even otherwise the issue as to whether the provision for doubtful debts debited to Profit and Loss Account and reduced from debtors account at the end of the year tantamount to write-off of debt is highly debatable and this can only be arrived after a long drawn process of reasoning and it is not an obvious and patent mistake apparent on record. Hence, we direct the Assessing Officer to delete the adjustment made under Clause (i) of Explanation 1 to Section 115JB of the Act in respect of provision for doubtful debts computed while passing the order u/s. 154 of the Act.
(A.Y: 2009-10) M/s. Maya Entertainment Ltd., 10. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on the 15th June, 2018.