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2006 (12) TMI 171 - AT - Income TaxMinimum Alternate Tax - loss declared - Whether, the provisions made for doubtful debts, advances & investments, i.e., for unascertained liabilities, falls within the purview of adjustments u/s 115JA and whether the Assessing Officer was justified to make adjust of Rs. 1,56,00,000 in this case in computing the books profits? - diminution in the value of asset or for known liability of which the amount cannot be determined with substantial accuracy? - HELD THAT:- The provision for bad and doubtful debt is the provision for diminution in the value of asset, i.e., debt. The provision for bad and doubtful debt cannot be said to be a provision for liability, because even if a debt is not recovered, no liability would be fastened upon the assessee. In the above example if as against the outstanding debt of Rs. 1 crore only Rs. 90 lakhs has been realized, then due to non-realisation of the debt of Rs. 10 lakhs there is no question of any liability upon the assessee. The debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision towards irrecoverability of the debt cannot be said to be provision for liability. Once it is held that the provision for bad and doubtful debt is not a provision for any liability, the question whether the liability is ascertained liability or unascertained liability does not arise. Whether clause (c) of the Explanation to section 115J A would not be applicable in respect of provision for bad and doubtful debts - We agree with the view taken by the ITAT, Pune Bench in the case of I.G. Vacuum Plasks (P.) Ltd. [2001 (4) TMI 203 - ITAT PUNE], !TAT, Delhi Bench in the case of Eicher Motors Ltd. [2006 (1) TMI 183 - ITAT DELHI-C] and the !TAT, Kolkata Bench [2000 (3) TMI 170 - ITAT CALCUTTA-E] in the assessee's own case. At the cost of repetition, we reiterate that the provision for bad and doubtful debt is not a provision for liability but it is a provision for diminution in the value of the assets. Once the provision is not for any liability, the question whether the liability is ascertained or unascertained does not arise. We, therefore, hold that clause (c) of the Explanation to section 115J A would not be applicable in respect of provision for bad and doubtful debts. We find that in the accounts, the assessee had made the provision for bad and doubtful debts of Rs. 2.20 crores as on 31-3-1997. The provision as on 31-3-1996 was Rs. 64 lakhs. Thus the additional provision of Rs. 1.56 crores is made for the year under consideration. The balance sheet of the assessee is duly audited and certified by the Chartered Accountants and it has nowhere reported that the provision for bad and doubtful debt is excessive in the opinion of either directors or auditors. We also find that the total outstanding debt as on 31-3-1997 was more than Rs. 86 crores against which the provision for bad and doubtful debt was Rs. 2.20 crores, which is even less than 3 per cent of the total debt. The Assessing Officer in the assessment order has nowhere stated that the provision made by the assessee for bad and doubtful debt is excessive or unreasonable considering the purpose for which the provision is made. At the time of hearing before us also, the revenue except making a claim that the provision for bad and doubtful debt should be considered as 'reserve' under clause (b) of Explanation to section 115JA, has not proved how the provision made for bad and doubtful debt is excessive or unreasonable. Thus, we are unable to accept the revenue's claim that the provision for bad and doubtful debt in the case of the assessee, viz., Usha Martin Industries Ltd. Would fall within clause (b) of the Explanation to section 115JA of the Income-tax Act. Accordingly, we uphold the order of the CIT(A) deleting the addition of Rs. 1.56 crores made by the Assessing Officer in respect of provision for bad and doubtful debt. In the case of Usha Martin Industries Ltd. The Assessing Officer has also made the addition of Rs. 1,25,000 in respect of provision for wealth-tax. The same was deleted by the CIT(A) - We have already stated above that for the purpose of section 115JA the addition to the book profit, which is computed as per Parts-II & III of Schedule-VI to the Companies Act, can be made only if it is permissible by item Nos. (a) to (f) of the Explanation to section 115J A. We find that as per clause (a) to Explanation "any amount of income-tax paid or payable and the provision therefore" is liable to be added to the book profit. However, there is no such provision for making the addition with regard to wealth-tax. Since the provision for wealth-tax does not fall within any of the items of the Explanation to section 115JA, we hold that the CIT(A) was justified in deleting the addition made by the Assessing Officer in this regard. Hence, we reject the revenue's appeal in the case of Usha Martin Industries Ltd. In the result, the appeals filed by the revenue in the cases of respective assessees are dismissed and appeal filed by the assessee, Balmer Lawrie & Co. Ltd., is allowed.
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