The Income Tax Appellate Tribunal (ITAT), Mumbai Bench allowed the assessee’s claim to write back credit to profit and loss account for bad debt made in earlier years.
The assessee company, Goldman Sachs (India) Finance Private Limited is engaged in the business of Financial Services as NBFC. The Assessing Officer noted that the assessee has claimed to write off bad debt, disallowed in earlier years at Rs.36,60,10,774/-.
Upon the AO’s enquiry, the assessee explained that the entire bad debts written off of Rs.36,60,10,774/- during the year pertains to only one party i.e. Sanghi Industires Limited (SIL). A loan of Rs.66,60,00,000/- was granted by assessee to SIL in F.Y. 2008-09. Interest accrued on the loan given to SIL was credited to the profit and loss account for the years ended 31.03.2009, 31.03.2010, and 31.03.2011, and was offered to tax under the head “Income from business or profession”.
Based on the Non – banking Financial Companies Prudential Norms (NBFC) (Reserve Bank) Directions, 2007 issued by RBI, where an asset has remained overdue for a period of six months or more, the asset shall be classified as a non-performing asset (NPA), a provision was created in the books of accounts of the assessee in respect of the loan given to SIL from FY 2008-09 onwards.
Mr. Jahangir Mistri, the Counsel of the assessee submitted that the authorities below have wrongly invoked the proviso, as the same is applicable when no tax is paid on book profit. The counsel of the assessee further submitted that the assessee has actually paid more taxes. He referred to Board Circular No. 530 dated 01.01.1990. He submitted a computation wherein it was shown that even if the provision were added back to the book profit in the concerned assessment year, there would not have been any MAT payable on book profit. As the assessee has paid tax on normal profit, there is no impact.
While examining the claim of the assessee, the assessing officer found that in earlier years, i.e., assessment years 2009 -10 and 2010 -11, the provisions made were not added back to the book profit. Hence, he made the impugned addition of an equivalent amount of Rs.31,30,020/- to the book profit.
The assessee has contended that this exercise in earlier years would have been futile and academic exercise. This was on the reasoning that the impugned amounts when added to the concerned assessment year’s book profit would still not have called upon the assessee to pay any tax on the book profit, as the tax payable on normal computation of profits were much higher than the tax on book profits.
The Coram of Judicial Member, Amarjit Singh, and Accountant Member, Shamim Yahya opined that if the assessee is not called upon to pay any tax on book profit as taxes on normal computation are higher even after the exercise of increase of the book profit by the amount of provision for the concerned year, the exercise would be an empty exercise and revenue-neutral. This means that the assessee would not have been called upon to pay any extra tax whatsoever had this exercise been done.
“The explanation invoked by the authorities below is not applicable to the facts of this case. Even for argument’s sake, we consider the view that there are two views possible, we are of the considered opinion that the view in favor of assessee is on an overwhelmingly higher side,” the ITAT said.
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