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2018 (10) TMI 1303 - HC - Income TaxMAT - additions u/s 115J - provisions for liability towards incomplete projects - whether in the nature of foreseeable loss, which is an ascertainable liability and is reflected in the Profit And Loss account accepted by the Registrar of Companies - Held that:- In the present case, the company on the finalisation of accounts in a particular previous year, computes the profit and loss of each contract, up to the stage at which it has been completed. This cannot be said to be an ascertained liability especially since the contract is not completed and the loss or profit can be finally determined only on completion of the contract, at which point, definitely the assessee can claim it. AO while computing the income under Section 115-J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J. We are of the opinion that the losses can be determined only at the completion of the contract and even as per the accounting standards, there is a high degree of uncertainty in determining the future loss of a running contract. Clause (c) of Section 115J(1A) permits the Assessing Officer to add back the provisions made so as to reflect the correct profits and to determine the income as per Section 115J as has been noticed in Apollo Tyres(2002 (5) TMI 5 - SUPREME COURT). The provision was introduced to bring to tax companies who adjust their accounts in such a manner resulting in zero tax phenomenon. The attempt of such a computation, as made by the legislature, is to ensure payment of a minimum corporate tax on the profits as declared in its own accounts. The Explanation permits additions to be made so that the actual profits derived is taxed. What is not reflected for reasons only of provisions made with respect to contingent liabilities, are also brought to tax. Whether the provision for bad and doubtful debts could be added back for the purpose of determining the income under Section 115JA? - Held that:- Assessing Officer is directed not to make any addition with respect to the provision for bad and doubtful debts, insofar as the computation of income under Section 115JA of the Income Tax Act for the subject year. See Commissioner of Income Tax v. HCL Comnet Systems and Services Ltd [2008 (9) TMI 18 - SUPREME COURT].
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