TMI Blog2021 (10) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... curred during the year did not appear in the profit and loss account and, therefore, same could not be added back since the same is not covered under Explanation 1 below section 115JB of the Act. Thus, as per the Learned CIT(A), the Assessee has not credited the amount in relation to the bad debt in the profit and loss account made on the basis of the books of account, whereas claim of the assessee is that effect of the bad debt written off has been taken into consideration in books of accounts. In our opinion, this is a matter of the verification with the books of account of the assessee. From the details filed before us prima facie it appears that the amount of bad debt written off has been reduced while computing the income as per provision of Act and, therefore, we feel it appropriate to restore this issue back to the file of the Assessing Officer for deciding after verification of the books of account and financial statement prepared thereon for the year under consideration. Assessing Officer has to verify the amount of provision for doubtful debt in the books of accounts and book profit has to computed as per Explanation 1 below the section 115 JB - Appeal of assessee is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 322/- and under the provisions of section 115JB assessed at ₹ 41,58,21,022/-. 2.1 Aggrieved, the assessee filed appeal before the Ld. CIT(A), who partly allowed the appeal of the assessee, however, the addition of bad debt amounting to ₹ 67,69,460/- under section 115JB was retained. Aggrieved with said finding of the Ld. CIT(A), the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 3. Before us, the parties appeared through Video Conferencing facility. The assessee filed a paper-book containing pages 1 to 96. 4. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The only dispute raised by the assessee is with regard to amount of the provision for bad and doubtful debt to be taken for the purpose of computing book profit under section 115JB of the Act. The contention of the assessee is that in the year under consideration provision of doubtful debt amounting to ₹ 1,47,98,850/- was created, but out of that bad debt written off amounting to ₹ 67,49,460/- was reduced and balance amount of ₹ 80,49,390/- was added back both for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income, the appellant 'had netted off this amount against the provision created during the year and only the net amount has been added back. There would not have been any confusion had the entire amount of provision made during the year been added to the income and deduction claimed in respect of actual bad debts of ₹ 69,69,460/-. In view of above discussion, bad debts claimed are allowed under section 336(1)(vii) of the Act in accordance with the decision of Hon ble Supreme Court in the case of TRF Limited (323 ITR 397). 4.1 However, as regard to claim of bad debt written off under section 115JB for computation of the book profit was rejected by the learned CIT(A). The detailed finding of the learned CIT(A) in Para 18 to Para 22 after considering the submission of the assessee is reproduced as under: 18. As far as the provision for doubtful debts is concerned, the appellant in his computation of income has added back a sum of ₹ 80,49,390/-. The Profit Loss Account of the appellant, however, shows that appellant had made a provision of ₹ 1,47,98,850/- in the Profit Loss Account. The same was, therefore, required to be added and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dr 1,47,98.850/- (Refer Schedule 20 of the Balance Sheet ) (F) To Provision for doubtful debts advances: Cr. 1,47,98,850/- (lncluded in ₹ 2,40,64,755/- appearing in Schedule 9 of the Balance Sheet) Note: (A) is disclosed/included under the account head Selling, General Administrative Expenses in the Profit and loss account. (B) is disclosed as netting off item in the balance sheet from the respective debtors/advances Provision for doubtful debts advances - Pro fit Loss item is offered for tax in the computation of income. Accounting Entries Passed for Bad Debts written off Following entries are passed relating to Bad Debts written off: Entry No. 2 (C) Bad Debts Written off (Profit Loss item): Dr.67,49,460/- (D) To Sundry Debtors: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit loss account), if any such amount is credited to the profit and loss account In view of the above, Provision for doubtful debts created in earlier years, written back and credited to Profit loss account during the year under reference amounting to ₹ 67,49,460/- is to be reduced from the Book Profit determined under the provisions of Section 115.JB of the I. T. Act. Your honour will appreciate that during the. year under reference, the appellant assessee has created further Provision for doubtful debts and advances amounting to ₹ 1,47,98,850/-, which has duly been added to for arriving at the Book Profit in view of provision made in Section 115JB of the Income Tax Act. Provision for doubtful debts and advances amounting to ₹ 67,49,460/- have also been written back and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the company in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, it is difficult to accept the argument of the revenue that it is still open to the Assessing Officer to re-scrutinized the accounts and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. Reliance placed by the revenue on sub-sect ion (I A) of section 115J in support of the above contention was misplaced. Sub-section (I A) of section 115.1 does not empower the Assessing Officer to embark upon a fresh inquiry in regard TO the entries made in the hooks of account of the company. The said sub-section, as a mailer of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate is bodily lifted from the Companies Act into the income-tax Act for the limited purpose of making the said accounts so maintained as a basis fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e added back since the same is not covered under Explanation I. The appellant vide its letter dated 30lh November, 2016, has stated that amount claimed as bad debt during the year will be covered under clause (i) to Explanation I. The clause (i) of this. Explanat ion read s as under:- Explanation [1] - For the purposes of this section. 'book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection (2) as increased by - (a) ............................................ (b) ................................................ (c) ................................................ (d) ............................................ (e) ............................................ (f) ............................................ (g) ............................................ (h) .............................. ............. (i) the amount or amounts set aside as provision for diminution in the value of any asset (k) ........................................... if any amount referred to in clauses (a) to (i) is debited to die profit and los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be added back since the same is not covered under Explanation 1 below section 115JB of the Act. Thus, as per the Learned CIT(A), the Assessee has not credited the amount in relation to the bad debt in the profit and loss account made on the basis of the books of account, whereas claim of the assessee is that effect of the bad debt written off has been taken into consideration in books of accounts. In our opinion, this is a matter of the verification with the books of account of the assessee. From the details filed before us prima facie it appears that the amount of bad debt written off has been reduced while computing the income as per provision of Act and, therefore, we feel it appropriate to restore this issue back to the file of the Assessing Officer for deciding after verification of the books of account and financial statement prepared thereon for the year under consideration. The Assessing Officer has to verify the amount of provision for doubtful debt in the books of accounts and book profit has to computed as per Explanation 1 below the section 115 JB of the Act. It is Needless to mention that the assessee shall be afforded adequate opportunity of being heard. The grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X
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