Bad Debt Write-Offs Constituting Actual Write-Offs Not Hit by Section 115JB: ITAT

Bad Debt Write-Offs Constituting Actual Write-Offs Not Hit by Section 115JB: ITAT

Introduction

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) permitted Schindler India Private Limited to exclude an amount of ₹1,09,72,163 written-off as bad and doubtful debts from its book profits while determining Minimum Alternate Tax (MAT) under Section 115JB of the Income Tax Act, 1961.

Factual Background

Schindler India filed two appeals before the ITAT relating to A.Y. 2013–14 and 2014–15. The Assessing Officer (AO) had made an addition to the company’s book profits on the ground that the bad and doubtful debts should be added back as per clause (i) of the Explanation to Section 115JB.

Procedural History

• The AO concluded that the write-off amounted to a diminution in the value of sundry debtors, treating it as a provision, and accordingly added it back while computing MAT.
• The assessee contended that the amount was an actual write-off, duly reflected in the audited financial statements, and appealed.

Contentions of the Parties

• Assessee’s Contention:

o The disputed amount was an actual write-off since it was debited to the P&L account and simultaneously reduced from gross trade receivables in the balance sheet.

o Relied on precedents including CIT v. Kirloskar Systems Ltd. (Karnataka HC, 2013), CIT v. Vodafone Essar Gujarat Ltd. (Gujarat HC, 2017), and the Supreme Court ruling in Vijaya Bank v. CIT (2010).

• Revenue’s Contention:

o Supported the AO’s view that the amount reflected diminution in debtor value, hence a provision falling under clause (i) of Explanation to Section 115JB.

Issues

1. Whether the amount written off by Schindler India constituted a provision or an actual write-off?

2. Whether the addition of ₹1,09,72,163 to book profits for MAT was legally justified?

Tribunal’s Reasoning

The Bench comprising Vikram Singh Yadav (Accountant Member) and Sandeep Singh Karhail (Judicial Member) found that:

• The disputed amount was not merely debited as an expense but also reduced from debtor balances, thereby constituting a genuine write-off.
• As per judicial precedents, actual write-offs are excluded from adjustments to book profits under Section 115JB.
• The Tribunal emphasized that book profits are computed in accordance with the Companies Act, and the higher courts have clarified the treatment of bad debts under MAT.

Outcome

• The ITAT allowed the appeal on this issue.
• It held that the addition of ₹1,09,72,163 to book profits was not justified, permitting Schindler India to exclude the amount for MAT computation.

Significance

This ruling reiterates the distinction between provisions and actual write-offs, providing relief to taxpayers facing MAT additions under Section 115JB. It affirms that genuine write-offs reflected in audited accounts cannot be subjected to MAT adjustments.

Representation

In this case the applicant was represented by Ms. Chandani Shah and Ms. Nidhi Agarwal, Advocates. Meanwhile the respondent was represented by Mr. Ajay Chandra, Advocate.