Retrospective Amendment Requires Addition of Bad Debt Provision to MAT Profits: Madras HC

CIT Vs Mohan Breweries & Distilleries Ltd (Madras High Court)

The Madras High Court partly allowed the Revenue’s appeal concerning the computation of book profits under Section 115JA and the filing of audit reports for claiming deductions under Sections 80IA/80HHC of the Income Tax Act.

The first issue before the Court was whether the addition of ₹7,49,870 towards bad and doubtful debts should be included while computing book profits under Section 115JA. The Revenue argued that Explanation (g) to Section 115JA(2), inserted by the Finance (No. 2) Act, 2009 with retrospective effect from 1 April 1998, required amounts set aside as provisions for diminution in the value of assets to be added back. The Court observed that Section 115JA deals with the computation of book profits and that the Explanation specifically covers provisions for diminution in the value of assets, including bad and doubtful debts. Since the Tribunal had failed to consider the retrospective amendment, the Court held that the addition towards bad and doubtful debts was warranted. This question was answered in favour of the Revenue.

The second issue concerned whether an audit report supporting a deduction claim under Section 80IA/80HHC could be submitted at the appellate stage. Referring to an earlier Division Bench judgment, the Court held that, prior to the amendment introduced by the Finance Act, 2020, the requirement to furnish the audit report along with the return of income was directory and not mandatory. Consequently, filing the audit report at the appellate stage was permissible. This question was answered in favour of the assessee.