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In the case of Steel Authority of India Ltd. vs. Deputy Commissioner of Income-tax (76ITD69) it was claimed by the assessing officer that the provision for doubtful debts, loans, advances etc., was in the nature of provision and not ascertained liabilities and hence called for adjustment as per clause (c) below Explanation to Sub-section (1) to Section 115J of the Income-tax Act. It was contended on behalf of the assessee before the CIT (Appeals) that the provisions for bad and doubtful debts is made against the payments from customers where outstanding are more than three years old except where a possibility of realization is there.

The Third member bench of the Delhi Tribunal held that the adjustment could be made under clause (c) only for the amount provided for unascertained liabilities or contingent liabilities. The provision made and added back by the Assessing Officer is not for meeting the unascertained or contingent liability but it is for bad and doubtful debts, which are in fact assets and not liabilities.

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