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Income Tax Appellate Tribunal, KOLKATA BENCH (A
Before: Shri P.M. Jagtap, AM & Shri S.S. Viswanethra Ravi, JM]
order
: May 16, 2018 ORDER
PER P.M. JAGTAP, AM
This appeal is preferred by the revenue against the order of Ld. CIT(A) – 17, Kolkata dated 23.08.2016 and the solitary ground raised therein by the revenue reads as under: “The Ld. CIT(A) – 17, Kolkata erred in law by allowing relief to the assessee of Rs. 1,07,57,450/- on account of ‘disallowance on deduction claimed on provision for doubtful debts and advances’ violating the provision of Income Tax Rule – 46(1).”
The assessee in the present case is a company which filed its return for the year under consideration on 30.09.2009 declaring a total income of Rs. 26,27,25,591/-. The said return was subsequently revised by the assessee on 05.02.2010 declaring a total income of Rs. 26,14,54,170/-. In the assessment originally completed under section 143(3) vide an order dated 13.12.2011, the total income of the assessee was determined by the A.O. at Rs. 26,32,19,290/-. The said
2 Assessment Year: 2009-10 M/s. HSIL Ltd. assessment was subsequently reopened by the A.O. and after recording the reasons, a notice under section 148 was issued by him on 07.03.2014. In reply, a letter was filed by the assessee on 13.03.2014 requesting the A.O. to treat the return of income originally filed by it on 30.09.2009 as the return filed in response to notice under section 148. During the course of assessment proceedings, the A.O. required the assessee to inter alia support and substantiate its claim for deduction of Rs. 1,21,08,999/- made in the computation of total income on account of provision for doubtful debts and advances written back. In reply, the following explanation was offered by the assessee in writing: “The assessee’s contention in this regard is The company in computation has claimed deduction only on such provision which has been written back during the year out of the earlier amount of provision for bad and doubtful debts. The amount of bad and doubtful provision is made based on the management evaluation of the amount of probable doubtful debts as at the year end. The amount of provision is then deducted from the actual bad debts during the year. It is a continuous process of debit and credit entries are passed through the provision amount only. During the year under consideration the amount of excess provision in earlier years were adjusted through the outstanding amount under the provision for bad and doubtful debts which were appearing in the balance sheet. Since the provision for bad and doubtful debts are always added back in the normal computation of income, obviously the amount which is written back would be deducted from the total income and the company has correctly done in the computation”
The above explanation offered by the assessee was not found acceptable by the A.O. in the absence of any details or evidence to support and substantiate the same. He accordingly disallowed the claim of the assessee for deduction on account of provision for doubtful debts and advances written back and made an addition of Rs.
3 Assessment Year: 2009-10 M/s. HSIL Ltd. 1,21,08,999/- to the total income of the assessee in the assessment completed under section 147/143(3) vide an order dated 05.02.2015.
The addition made by the A.O. on account of disallowance of its claim for deduction on account of provision for doubtful debts and advances written back inter alia was challenged by the assessee in the appeal filed before the Ld. CIT(A) and after considering the submissions made by the assessee as well as the material brought on record, the Ld. CIT(A) deleted the said addition for the following reasons given in his impugned order: “As regards provision for bad and doubtful debts it has been submitted that the assessee company follows a consistent accounting policy i.e. when a provision is created in the books of accounts the same is added back in the computation of income filed along with the return of income. In the same manner when the provision for doubtful debts is reduced in the books of accounts due to the decision of the management that less debts are probable of becoming bad, a corresponding amount is reduced in the computation of income for the year. The accounting entry passed during the previous year is as follows: 1. Provision for Doubtful Debts A/c. Dr. 12108996 To Party/Debtors A/c 12108996 As the provision was written back during the previous year the assessee has reduced, the amount written back from the computation of income. This is consistent with the accounting policy followed. The accounting entry passed has been duly explained and I do not see any error in the methodology adopted. The only requirement is that it should pertain to trade debtors. Loans or advances would not be eligible for adjustment on account of provision for doubtful. On going through the details of doubtful debts written back it is seen that the amount written back on account of trade debtors is Rs. 1,07,57,450/- and the amount written off on account of pure advances is Rs. 13,51,546/-. The basic condition for writing off of bad debts is that it should have been considered as income either during the previous year or any of the earlier previous years. The advances given by the assessee have not been routed through the profit & loss account. Therefore, the sum of Rs. 13,51,546/- which is in the nature of advances and which has been claimed as bad debts is not allowable as per the 4 Assessment Year: 2009-10 M/s. HSIL Ltd. provision of the Act. Accordingly, the addition made of Rs. 13,51,546/- is confirmed. The assessee gets part relief of Rs. 1,07,57,450/- which represents the amount written back with respect to trading debts which have been routed through the profit and loss account.”
Aggrieved by the order of the Ld. CIT(A), the revenue has preferred this appeal before the Tribunal.
We have heard the arguments of both the sides and also perused the relevant material available on record. The limited issue raised by the revenue in this appeal is relates to the violation of Rule 46A of the Income Tax Act Rules, 1962 by the Ld. CIT(A) while giving relief to the assessee on account of its claim for deduction of provision for doubtful debts and advances. In this regard, the learned DR has invited our attention to the relevant portion of the assessment order to show that the relevant details and documents in support of its claim for deduction on account of provision for doubtful debts and advances were not furnished by the assessee before the A.O. He has also invited attention to the relevant portion of the impugned order of the Ld. CIT(A) to point out that the break-up of doubtful debts and advances as well as other relevant details in support of its claim on this issue were furnished by the assessee-company for the first time before the Ld. CIT(A) and substantial relief was allowed by the Ld. CIT(A) by relying on the said details without giving any opportunity to the A.O. to verify the same. As rightly contended by him, there is thus a clear violation of Rule 46A by the Ld. CIT(A) and even the learned counsel for the assessee has not been able to dispute this position clearly evident from the orders of the authorities below. He, however, has contended that the break-up of bad debts and advances
5 Assessment Year: 2009-10 M/s. HSIL Ltd. written of was available in the books of accounts of the assessee and the matter may be restored to the file of the A.O. for the limited purpose of verifying as to whether the conditions for claiming deduction on account of bad debts written off are satisfied in the case of the assessee. We find merit in this contention of the learned counsel for the assessee. The impugned order of the Ld. CIT(A) on this issue is accordingly set aside and the matter is restored to the file of the A.O. for verifying the assessee’s claim for bad debts written off to the extent of Rs. 1,07,57,450/- as per the conditions laid down in section 36(1)(vii) read with section 36(2).
In the result, the appeal of the revenue is treated as allowed for statistical purpose. Order Pronounced in the Open Court on 16th May, 2018.