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2023 (2) TMI 1004 - ITAT RAJKOTRevision u/s 263 - reduction from provision created for bad and doubtful debts for rural advances - real income theory - as per CIT Provision created for bad and doubtful debts for rural advances to its general reserves, which was liable to be taxed as income of the assessee since the provision created had been allowed a deduction earlier, the AO had not considered this matter and had made no verification or necessary inquiries in relation to the same while finalizing the assessment - As per assessee invocation of Explanation-2 to section 263 by the ld.Pr.CIT without confronting the same to the assessee causing the order passed to be against principle of natural justice and hence invalid - HELD THAT:- We are not impressed nor convinced with the contention of the Ld.counsel for the assessee on the merits of the case that the write back of provision for bad and doubtful debts on rural advances was not taxable as income. Considered from all, any and every aspect, as per law read alongwith accounting principles in this regard, the write back, we hold, is to be treated as income and subjected to tax ,as rightly held by the Ld.PCIT. Even as per accepted accounting principles, this write back needed to be treated as income and routed through the P&L account, as rightly held by the Ld.PCIT. Thus going by law, supported by accounting principles, the write back of provisions for bad and doubtful debts of rural advances was required to be routed through the Profit and Loss account and treated as income for taxation purposes. Even going by the real income theory the Ld.PCIT, we hold, has rightly found the write back taxable,noting that the write back of the provision to the general reserve indicated no NPA and hence realization of income. Meaning thereby that the provision created earlier, for cushioning against bad debts on account of rural advances turning NPA , being created out of profits , and when not required as written back, it resulted in income to the assessee. This provision for bad and doubtful debts relating to the rural advance, having been allowed as claim for deduction in earlier years, any write back from the same, logically needed to be subjected to tax, since clearly the claim allowed in earlier years was excessive to the extent of the write back done by the assessee. Even on the accounting principles as prescribed by the ICAI the write back from the provision needed to be routed through profit & loss account. Therefore, for all purposes, we find that there is no merit in the claim made by the ld.counsel for the assessee that this write back could not be subjected to tax. No merit in the contention of the ld.counsel for the assessee that the order u/s 263 of the Act needs to be set aside for not having confronted the assessee with invocation of Explanation 2 to the said section. Decided against assessee.
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