Provision for doubtful debt being in nature of diminution in value of asset attracts section 115JB

DCIT Vs Everest Industries Limited (ITAT Mumbai)

ITAT Mumbai held that under regular provisions of section 36(1)(vii) of the Act, the provision for doubtful debt being in the nature of diminution in value of asset, it also attracts explanation (i) of the section 115JB of the Act. Accordingly, addition of book profit sustained.

Facts- The assessee, a public limited company, was during the year under consideration engaged in the business of manufacturing of ‘asbestos cement sheets’ and ‘accessories and ‘pre-engineered’ building products. For the year under consideration, the assessee filed return of income on 27.02.2014 declaring total loss of Rs.58,70,89,863/- under the normal provisions of the Income-tax Act, 1961 whereas book loss of Rs.40,32,90,378/- was shown as per the provisions of section 115JB of the Act. The assessee further revised its return of income on 30.03.2016 declaring total loss of Rs.57,35,23,520/- under the normal provisions and book loss at Rs.40,71,78,204/-. The return of income filed by the assessee was selected for scrutiny and the statutory notices under the Income Tax Act were issued and complied with.

In the assessment order passed u/s. 143(3) of the Act dated 30.12.2016, AO made additions to the income under the normal provisions of the Act as well as book profit/loss u/s. 115JB of the Act. Aggrieved, the assessee filed appeal before the CIT(A) wherein got part relief in the impugned order dated 22.10.2019. Aggrieved by the relief allowed to the assessee, the Revenue appealed before the tribunal.

Conclusion- What is relevant for the purpose of section 115JB of the Act is book profit prepared in accordance with the provisions of the Company Act, 2013 as mentioned in section 115JB(2) as increased by the items mentioned in Explanation (a) to(k). How the entries have been made in Balance sheet, may be relevant for deciding the issue under section 36(1)(vii) of the Act and if there is finding on that issue that provision for bad and doubtful debt is no longer an unascertained liability, then no addition could be made under section 115JB of the Act. But unless there is such a finding under regular provisions of section 36(1)(vii) of the Act, the provision for doubtful debt being also in the nature of diminution in value of asset, it also attracts explanation (i) of the section 115JB of the Act.

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