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2016 (4) TMI 252 - KARNATAKA HIGH COURT

2016 (4) TMI 252 - KARNATAKA HIGH COURT - TMI - Applicability of Explanation (c) to Section 115JB(1)(MAT) - Provisions made for Bad and Doubtful debts - Held That:- The issue is already covered by the referred decision of this Court in the case of CIT v. Yokogawa India Ltd., [2011 (8) TMI 766 - KARNATAKA HIGH COURT] held that beside debiting Profit & Loss A/C and creating a provision assessee also reduces the amount from Loan & advances and at the end only net amount is shown in asset side - The .....

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he revenue has preferred the present appeal by raising the following substantial questions of law : 1. Whether the Tribunal was correct in holding that the assessee has reduced the provision so made from the sundry debtors in the balance sheet and hence the same cannot be considered as provision but is the write off of bad debts without appreciating that as per the accounting standards the provisions are either shown separately in the balance sheet or may be reduced from the concerned asset/liab .....

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y debited to the P & L account and reduction o the provision from the debtors is only a requirement under the Companies Act? 2. We have heard Mr. K.V. Aravind, learned counsel appearing for appellants-revenue and Mr.A.Shankar, learned counsel appearing for respondent-assessee. 3. We may record that the Tribunal, while considering the appeal, at paragraphs 25 and 26 has observed thus: "25. We have perused the orders and heard rival contentions. Claim of assessee is that though it had ter .....

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96,981 from which assessee had deducted the provision of ₹ 2,04,24,768. What was reflected by assessee in its balance sheet under the head debtors was only the net amount. In such circumstances, we are of the opinion that judgment of Hon ble Apex Court in Vijaya Bank (Supra) as well as that of Hon ble jurisdictional High Court in Yokogawa India Ltd., (supra), would come to its aid. In the case of Yokogawa India Ltd., (supra), the issue involved was very similar, though the computation was .....

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cal. In order to attract the Explanation the debt which is doubtful or bad should satisfy the requirement contemplated in Item (c) of the Explanation. It is the amount or amounts set aside as provisions made for meeting the liability other than the ascertained liabilities. In the instant case also the bad and doubtful debt for which a provision is made which is in the nature of diminution in the value of any asset would not fall within item (c) of Expln. (1). It is in that context the CIT(A) as .....

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lanation. It accepted the argument on behalf of the Revenue to the effect that the explanation makes it very clear that there is a dichotomy between actual write off on the one hand and provision for bad and doubtful debt on the other, A mere debit to the profit and loss account would constitute a bad and doubtful debt, but it would not constitute actual write off and that was the very reason why the explanation stood Inserted. Prior to the Finance Act, 2001 many assesses used to take the benefi .....

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see correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and, consequentially, at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance sheet was shown as net of the provision for the impugned bad debt. Then the said amount representing bad debt or doubtful debt cannot be added in order to compute book profit. .....

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