MADHYA PRADESH MADHYA KSHETRA VIDUT VITARAN CO LTD,BHOPAL V. THE ITO 2(1), BHOPAL

ITA 252/IND/2023

AI Insights

The case involves Madhya Pradesh Madhya Kshetra Vidut Vitaran Company Limited, an electricity distribution company, which appealed against the order of the Commissioner of Income-Tax (Appeals) - NFAC, Delhi. The appeal was related to the assessment year 2014-15, where the AO had disallowed a 'Provision for Bad & Doubtful Debts' of Rs. 47,31,00,000, which was upheld by the CIT(A). The primary contention was whether the provision made for bad and doubtful debts was an allowable deduction under the Income Tax Act, 1961. The ITAT found that the assessee had already made a suo moto disallowance before filing the return, leading to a double addition of the same amount.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312991 (ITAT-INDORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Department Lawyers: FORASSESSEEFIRSTLYEXPLAINEDTHEPROCEEDINGSWHICHHADTAKEN; FORREVENUEDIDNOTHAVEANYOBJECTIONIFTHEISSUEISREMANDED; SHRIRAM KUMAR YADAV
• Assessee Lawyers: SHRIGAGANTIWARI
• Keywords: Bad and doubtful debts
• Section: 143(3); 37

Judgement Text

"Page 1 of 6 आयकरअपीलीयअिधकरण, इंदौरɊायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI B.M. BIYANI, ACCOUNTANT MEMBER AND SHRI PARESH M. JOSHI, JUDICIAL MEMBER ITA No.252/Ind/2023 Assessment Year: 2014-15 Madhya Pradesh Madhya Kshetra Vidut Vitaran Company Limited, 1, Nishtha Parisar, Bijli Nagar Colony, Govindpura, Bhopal बनाम/ Vs. ITO-2(1) Bhopal (Assessee/Appellant) (Revenue/Respondent) PAN: AADCM6799G Assessee by Shri Gagan Tiwari, Advocate & AR Revenue by Shri Ram Kumar Yadav, CIT-DR Date of Hearing 28.04.2025 Date of Pronouncement 30.04.2025 आदेश/ O R D E R Per B.M. Biyani, A.M.: Feeling aggrieved by order of first-appeal dated 15.05.2023 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 30.12.2016 passed by learned ITO-2(1), Bhopal [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Madhya Pradesh Madhya Kshetra Vidut Vitaran Company Limited, ITA No. 252/Ind/2023 - AY 2014-15 Page 2 of 6 Assessment-Year [“AY”] 2014-15, the assessee has filed this appeal on the grounds mentioned in Appeal Memo (Form No. 36). 2. The brief facts leading to this appeal are such that the assessee is an electricity distribution company. For AY 2014-15, the assessee filed return declaring a loss of Rs. 26,44,37,12,625/-. The case was selected for scrutiny and the AO passed assessment order dated 30.12.2016 u/s 143(3) reducing loss to Rs. 20,38,06,12,625/- after making two additions, namely (i) disallowance of ‘Prior-period Expenses’ of Rs. 5,59,00,00,000/-, and (ii) disallowance of ‘Provision for Bad & doubtful debts’ of Rs. 47,31,00,000/-. Aggrieved, the assessee carried matter in first-appeal before CIT(A) whereupon the CIT(A) deleted the disallowance of ‘Prior-period Expenses’ but upheld the disallowance of ‘Provision for Bad & doubtful debts’. Still aggrieved, the assessee has come in present appeal before us. 3. Presently, the solitary issue for adjudication by us is the deduction of ‘Provision for Bad & doubtful debts’ of Rs. 47,31,00,000/- disallowed by AO and also upheld by CIT(A). 4. Ld. AR for assessee firstly explained the proceedings which had taken place before lower-authorities. For this, he drew us to Para 2 of assessment- order, more particularly sub-para 2.3 thereof, to demonstrate that the AO has made the disallowance of “Provision for Bad & doubtful debts” for the pure reason that the assessee did not offer any explanation when the AO sought explanation qua same. Thereafter, he drew us to Para 6 of impugned Madhya Pradesh Madhya Kshetra Vidut Vitaran Company Limited, ITA No. 252/Ind/2023 - AY 2014-15 Page 3 of 6 order passed by CIT(A) wherein the CIT(A) has made following adjudication dismissing assessee’ claim: “6. Decision on Ground of Appeal No.2: 6.1 The second ground of appeal challenges the disallowance made by the AO on account of provision for bad and doubtful debts of Rs.47.31 crores. 6.2 During the appellant proceedings the appellant submitted that the AO has held that provision for bad and doubtful debts is not an allowable expense as per section 37 of the I.T. Act as the same was not incurred during the previous year relevant to the assessment year 2014-15. The appellant is Distribution Company engaged in the distribution of electricity to the end user and billing the same based on their usage and collecting the amount of the bill so issued. The entire amount of billing is booked as revenue at the time of generation of bill and is part of the operating revenues reported in the audited financial statements and income tax returns filed by the appellant, however, a certain portion of the amount billed remains uncollected due to defaults by the consumers. The appellant company a DISCOM, has a standard operating procedure for recovery of outstanding dues and disconnection of the electricity connection if the amount is not deposited by the consumer. During the previous year pertaining to the assessment year 2014-15, the total provision made was Rs. 47.31 cores. However the total amount of debtors actually written off during the year was Rs.127.58 crores and, hence, the net amount of provision is a credit to the P&L account of Rs. 80.27 crores). The AO has failed to take the bad debts written off from provision of doubtful debts into account and has disallowed and added back only the provision for doubtful debts. 6.3 As per section 36(1) (viia) of the I.T. Act the provision for bad and doubtful debts are allowed as deduction only for Schedules Banks, Public Financial Institutions and NBFCs. The appellant does not fall in any of these categories as it is an electricity distribution company. Moreover, the appellant has not submitted the necessary documentary evidences in support of its grounds of appeal during the appellant proceedings to prove that no provision was debited to the Profit and Loss account during the relevant Financial Year. Therefore, in view of the above facts and the provisions of section 36(1)(viia) of the I.T. Act, the amount of Rs.47.31 crores disallowed by the AO is confirmed. This ground of appeal is hereby dismissed. 6.4 Accordingly, this ground of app of appeal is treated as dismissed.” 5. Ld. AR next carried us a sheet titled “Computation of Total Income” filed at Page 2 of Paper-Book, the same is scanned and re-produced below: Madhya Pradesh Madhya Kshetra Vidut Vitaran Company Limited, ITA No. 252/Ind/2023 - AY 2014-15 Page 4 of 6 Madhya Pradesh Madhya Kshetra Vidut Vitaran Company Limited, ITA No. 252/Ind/2023 - AY 2014-15 Page 5 of 6 6. Referring to above sheet, Ld. AR pointed out that the assessee has suo moto made addition/disallowance of Rs. 47,31,00,000/- while computing taxable income under the head “Income from Business & Profession” before filing return. However, this factual aspect did not surface before AO due to non-furnishing of reply by assessee when called upon by AO and also before CIT(A) due to lack of proper representation by previous counsel. Therefore, the lower authorities were not aware of the disallowance already made by assessee and resorted to make/uphold disallowance. Ld. AR submitted that since the assessee has already made suo moto disallowance before filing return of income, the disallowance made/upheld by lower-authorities has resulted in double addition of same. Therefore, this issue must be remanded to the file of AO for a fresh adjudication and giving necessary relief to assessee. 7. Ld. DR for revenue did not have any objection if the issue is remanded to AO for factual verification of claim of assessee but, however, prays that the assessee must be directed to furnish adequate explanation to AO without seeking unnecessary adjournments. 8. We have considered submissions of both sides and carefully perused the case-record including the orders of lower-authorities. In present case, the AO has made an addition of Rs. 47,31,00,000/- by disallowing the deduction of ‘Provision for Bad & doubtful debts’ claimed by assessee. While the assessee is not disputing the legal view taken by lower-authorities (i.e. the claim of “Provision for Bad & Doubtful debts” is not an allowable Madhya Pradesh Madhya Kshetra Vidut Vitaran Company Limited, ITA No. 252/Ind/2023 - AY 2014-15 Page 6 of 6 deduction to assessee), the assessee’s limited prayer is such that it has already made suo moto disallowance before filing return of income. The assessee has filed a copy of “Computation of Total Income” in support of this claim, which we have already re-produced in foregoing para. Learned Representatives of both sides are ad idem that this issue ought to be remitted to the file of AO for a fresh adjudication after factual verification of assessee’s claim. Therefore, taking into account submissions of both sides, we remand this issue to the file of AO for a fresh adjudication. We direct the assessee to make an adequate representation when called upon by AO. Needless to mention that the AO shall give proper opportunities to assessee to explain its claim and the assessee shall also avail those opportunities without seeking unnecessary adjournments. 9. In the result, this appeal is allowed for statistical purpose. Order pronounced in open court on 30/04/2025 Sd/- Sd/- (PARESH M. JOSHI) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक/Dated : 30/04/2025 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPYSr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore "