The Tax Publishers2021 TaxPub(DT) 0312 (Karn-HC) : (2021) 431 ITR 0255 : (2021) 278 TAXMAN 0126

INCOME TAX ACT, 1961

Section 115JB

The assessee could not have added back the provision for doubtful debts to the net profit for the purpose of computation under Section 115JB of the Act in the years prior to insertion of clause (i) in Explanation to section 115JB(2) as those years had already elapsed and the assessee could not have given effect to the provision, which was inserted at a later point of time. The assessee therefore, could not have added back the provision for bad and doubtful debts to the net profit. It is also pertinent to note that even if the provision for doubtful debt is added back to the net profits, the resultant book profit is still negative and even though the assessee was prevented from adding back the provision for bad and doubtful debts to the net profit due to reasons beyond its control, it has at the first opportunity demonstrated to the authorities that book profits are still negative on adding back the provision for bad and doubtful debts and therefore, no adverse inference could have been drawn against the assessee.

MAT - Book profit under section 115JB - Entitlement to reduction of amount credited to profit & loss account on account of reversal of provision for bad and doubtful debts -

The assessee was engaged in financing industrial units in the State of Karnataka. The assessee filed the return of income declaring 'NIL' income under normal provisions of the Act. Thereafter, the assessee returned income of Rs. 13,60,88,457 under the provisions of section 115JB of the Act. The assessing officer did not grant any relief in respect of disallowance of provision for bad and doubtful debts written back. The tribunal held that write back of provision for bad and doubtful debts to the extent of Rs. 14,77,53,747 is liable to be added to the profits for determination of book profits under section 115JB of the Act. Assessee submitted that provision for bad and doubtful debts could not have been added to the net profit by the assessee as the provision under which the same had to be increased was inserted by Finance Act, 2009 with retrospective effect i.e., from 01-4-2001 and the revenue cannot expect the assessee to add back the provisions for doubtful debts to the net profits for the purpose of computation under section 115JB of the Act in the years prior to insertion of clause (i) to Explanation to section 115JB of the Act as those years have already elapsed and the assessee cannot give effect to a provision, which was inserted at a later point of time. Held: The assessee could not have added back the provision for doubtful debts to the net profit for the purpose of computation under Section 115JB of the Act in the years prior to insertion of clause (i) in Explanation to section 115JB(2) as those years had already elapsed and the assessee could not have given effect to the provision, which was inserted at a later point of time. The assessee therefore, could not have added back the provision for bad and doubtful debts to the net profit. It is also pertinent to note that even if the provision for doubtful debt is added back to the net profits, the resultant book profit is still negative and even though the assessee was prevented from adding back the provision for bad and doubtful debts to the net profit due to reasons beyond its control, it has at the first opportunity demonstrated to the authorities that book profits are still negative on adding back the provision for bad and doubtful debts and therefore, no adverse inference could have been drawn against the assessee.

Referred:CIT v. HCL Comnet Systems & Services Ltd. (2008) 305 ITR 409 (SC) : 2008 TaxPub(DT) 2312 (SC).

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2009-10



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