Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, COCHIN BENCH : COCHIN
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K.
ORDER PER BENCH This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 28/03/2023 in respect of the A.Y. 2012-13.
The brief facts of the case are that the assessee is a company engaged in the business of manufacturing activated carbon and filed the return of income disclosing a total income of Rs. 1,11,42,400/-. Thereafter, the case was selected for scrutiny and in the scrutiny assessment, the AO had disallowed the claim made for provision for bad and doubtful debts and provision for doubtful advances aggregating Rs. 94 Lakhs on the ground that the debtor’s accounts are not closed and the debts are not written off as irrecoverable. The AO also disallowed the additional depreciation claimed by the assessee for the reason that the assessee had used the assets for less than 180 days and hence restricted the additional depreciation to 10%. The assessee challenged the said order before the Ld.CIT(A). The Ld.CIT(A) had accepted the claim of the additional depreciation whereas confirmed the disallowance of provision of bad and doubtful debts and advances.
As against the said order, the assessee is in appeal before this Tribunal and raised the following grounds of appeal:
1. The order of the CIT(A). National Faceless Appeal Centre (NFAC) issued under section 250 of the Income Tax Act, discussing the ground relating to disallowance of Provision for bad and doubtful debts/advances is erroneous on facts and law. 2. a) The Ld. CIT(A) erred in disallowing the provision for bad and doubtful debts(Rs.29 lakhs). The Ld. AO ought to have noted that the income in connection with which the bad debts have been written off has already been offered to tax in various years. b) The Ld. CIT(A) ought to have noted that the appellant had debited the "Provision for bad and doubtful debts" to the Profit & Loss Account of the year and simultaneously reduced the said amount from the amount of Sundry Debtors in the Balance Sheet. The provision for bad and doubtful debts is not a general provision created by the appellant but is an actual write off of specifically identified debts. Accordingly, the said provisions are in the nature of write off of bad debts eligible for deduction while computing the taxable income. The appellant is relying on the decision of the Hon'ble Apex Court in the case of Vijaya Bank vs. CIT 323 ITR 166 (SC) and various other decisions in favour of the appellant in this regard. 3. a)The Ld.CIT(A) erred in disallowing the Provision for doubtful advances(Rs.65 lakhs). The Ld. AO ought to have noted that the advances written off were in the nature of trade advances in connection with the business of the appellant and are revenue in nature and hence were eligible to be claimed as revenue business expense.
The Ld. CIT(A) ought to have noted that the appellant had debited the "Provision for doubtful advances" to the Profit & Loss Account of the year and simultaneously reduced the said amount from the amount of Loans and Advances in the Balance Sheet. The provision for doubtful advances is not a general provision created by the appellant but is an actual write off of specifically identified trade advances. Accordingly, the said provisions are in the nature of write off of doubtful advances eligible for deduction while computing the taxable income. The appellant is relying on the decision of the Hon'ble Apex Court in the case of Vijaya Bank vs. CIT 323 ITR 166 (SC) and various other decisions in favour of the appellant in this regard.
For these and other grounds that may be further adduced at the time of hearing, the order of the CIT(A) requires to be modified.”
4. At the time of hearing, the Ld.AR relied on the judgment of the Hon’ble Supreme Court reported in 323 ITR 166 and contended that the provision for bad and doubtful debts and advances are actually written off and in support of his arguments, the Ld.AR also filed a paper book and enclosed the copy of the balance sheet, ledger account of provision for bad debts, provision for doubtful advances and the respective party ledgers to show that the said amounts were actually written off and the same were reduced in the sundry debtors and therefore the debtor’s accounts were closed by the assessee and therefore they are entitled for deduction as per the various judgments of the Hon’ble Supreme Court as well as other High Courts and Tribunals and prayed to allow the appeal. The Ld.DR relied on the orders of the lower authorities and prayed to dismiss the appeal.
We have heard the arguments of both sides and perused the materials available on record.
We have perused the financial statements which stood as on 31/03/2012 in which the assessee had shown the advances recoverable in cash or in kind as Rs. 65 Lakhs but deducted the said amount in the statement as against the provision for doubtful advances and the net effect would be zero. The assessee had written off the said amounts of Rs 94,00,066 in the profit and loss account in respect of the bad and doubtful debts and advances and also reduced the said amount of provision from the amount of trade receivables on the asset side of the balance sheet. We have also perused the invoice wise details and the balance in the ledger folios in respect of the 3 assessees which comes about Rs. 29,00,066/. The assessee in their respective ledger folios had written off the outstanding balances by stating that being debtors accounts set off against provision. Therefore, as per the documents submitted by the assessee, it is very clear that the assessee had written off the entire provision for bad and doubtful debts and advances by closing the account of the debtors.
Even though, the assessee has demonstrated that the amounts were written off as irrecoverable and therefore the assessee is eligible for the deduction as per section 36(1)(vii) of the Act, the Ld.CIT(A) had not considered the records properly and gave a finding that the assessee had failed to demonstrate. We found that the balance sheet as well as the other records produced by the assessee would demonstrate that the said amounts were written off by deducting the same in the P&L account and thereafter the said set off was also properly recorded in the balance sheet and therefore the balance amounts after deducting the same of Rs. 94 Lakhs has been taken into consideration for the purpose of arriving the financial status of the assessee.
In such circumstances, the finding of the Ld.CIT(A) is without appreciating the facts properly and hence we are in agreement with the arguments advanced by the assessee. We have also gone through the judgment of Hon’ble Supreme Court reported in 323 ITR 166 in the case of Vijaya Bank vs. CIT wherein it was held that whether the assessee had written off the bad debts in its books by way of a debit to profit and loss account, simultaneously reducing the corresponding amount from loans and advances to debtors depicted on asset side in balance sheet at the close of the year, the assessee was entitled to deduction u/s. 36(1)(vii) of the Act and for that purpose, it was not necessary to close individual account of each of its debtors in its books. In the present case also, the assessee had written off the bad and doubtful debts and advances by debiting the P&L account and also the balance sheet was prepared after considering the said written off and the debtors account has been closed by making necessary entries such as “being debtors accounts set off against provision” and therefore the present issue is squarely covered by the judgement of the Hon’ble Supreme Court cited supra. In view of the above said facts we allow the appeal filed by the assessee.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 12th November, 2024.