The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the deduction under Section 115JB of the Income Tax Act, 1961 shall be allowed when the farmer and trade advances are actually written off in the books of accounts.
The assessee is a resident corporate entity. Assessment in the case of the assessee was originally completed under Section 143(3) of the Income Tax Act. Subsequently, the assessment order was revised under Section 263 of the Income Tax Act on the ground that while computing book profit under Section 115JB of the Income Tax Act, certain deductions claimed by the assessee, which are in the nature of provisions, were not disallowed.
The Assessing Officer completed the assessment disallowing the deduction as per directions of the Commissioner of Income Tax (CIT).
The counsel submitted that, in the financial statement the nomenclature is shown as provisions, however, the amounts have been written off in the books. He further submitted that an identical issue has been decided in the assessee’s favour by the Tribunal in various other assessment years.
It is the case of the assessee that the provisions for farmer advances, trade debts, and other trade advances have been disallowed while computing book profit under Section 115JB of the Income Tax Act only for the reason that they have not actually been written off, hence, in the nature of provisions.
The Two-member bench comprising of Saktijit Dey (Vice-President) and B.R.R. Kumar (Accountant member) directed the Assessing Officer to factually verify the assessee’s claim in case it was found that the assessee had actually written off the farmer advances, trade advances, and doubtful debts in the books, they have to be allowed as deduction while computing book profit under Section 115JB of the Income Tax Act. Thus, the appeal was partly allowed.
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