Reversal of excess provision for doubtful debts deductible in book profit calculation

Brief of the case:

• The Hon’ble Himachal Pradesh High Court in the case of CIT vs. M/s Himachal Pradesh State Industrial Development Corporation Ltd. held that the excess provision for bad and doubtful debts written back by way of credit to Profit and Loss A/c is deductible while arriving at the book profits.
• It is an effective credit to P&L A/c and not merely a book adjustment.

Facts of the case:

• For AY 2004-05, the assessee had claimed that a debit of Rs. 1,64,47,026/- in the P&L account on account of bad debts written off and writing back Provision made for Bad & Doubtful Debts of Rs. 2,38,41,187/- in financial years 1997-98 to 2002-03.
• Assessee claimed the deduction of amount of Provision for Doubtful Debts written back under Explanation 1(i) to Sec 115JB (2). AO did not allowed the such deduction from book profits.
• ITAT allowed the appeal of assessee by following its own decision in the assessee’s case for AY 2003-04.
• Against the order of ITAT , the revenue is in appeal before Himachal Pradesh High Court.

Contention of the Assessee:

• The deduction was claimed as per explanation 1(i) to Sec 115JB because the provisions were created only after April 1, 1997 so the exception provided by the explanation won’t apply in the assessee’s case.
• The written back of provision was an effective credit to P&L A/c and a book adjustment because the excess provision had been written back after utilizing the same from current year’s bad debts written off.

Contention of the Revenue: