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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.
Issues Involved:
1. Whether the provisions made for doubtful debts, advances, and investments fall within the purview of adjustments under section 115JA of the Income-tax Act, 1961. 2. Whether the Assessing Officer was justified in adding the provision for Wealth-tax to the book profits under section 115JA. 3. Whether the provision for doubtful debts, loans, and advances should be added back to "Book Profit" under section 115JB of the Act. 4. Whether the CIT(A) was correct in excluding the addition on account of diminution in the value of investments from the book profits under section 115JB. Detailed Analysis: 1. Provision for Doubtful Debts, Advances, and Investments under Section 115JA: The main issue was whether the provision for doubtful debts, advances, and investments falls under the adjustments mentioned in section 115JA. The Tribunal analyzed the nature of these provisions, referring to the definitions and interpretations provided under the Companies Act and various accounting standards. It was emphasized that the provision for doubtful debts is for diminution in the value of assets rather than for meeting any liability. The Tribunal concluded that such provisions do not fall under clause (c) of the Explanation to section 115JA, which pertains to provisions for meeting liabilities other than ascertained liabilities. Thus, the provision for doubtful debts should not be added back to the book profits under section 115JA. 2. Provision for Wealth-tax under Section 115JA: The Tribunal examined whether the provision for Wealth-tax should be added back to the book profits. It was noted that while clause (a) of the Explanation to section 115JA includes income-tax paid or payable, it does not mention Wealth-tax. Therefore, the provision for Wealth-tax does not fall within any of the items listed in the Explanation to section 115JA, and thus, should not be added back to the book profits. The CIT(A)'s decision to delete the addition made by the Assessing Officer in this regard was upheld. 3. Provision for Doubtful Debts, Loans, and Advances under Section 115JB: For the assessment year 2002-03, the Tribunal considered whether the provision for doubtful debts, loans, and advances should be added back to the book profits under section 115JB. The Tribunal reiterated its earlier position that such provisions are for diminution in the value of assets and not for meeting liabilities. Therefore, they do not fall under clause (c) of the Explanation to section 115JB. Additionally, it was determined that the provision was not excessive or unreasonable, and thus, clause (b) of the Explanation to section 115JB, which pertains to reserves, was also not applicable. Consequently, the addition of Rs. 92,74,305 to the book profit was deleted. 4. Diminution in the Value of Investments under Section 115JB: The Tribunal addressed whether the CIT(A) was correct in excluding the addition on account of diminution in the value of investments from the book profits. It was concluded that the provision for diminution in the value of investments is not covered by clause (c) of the Explanation to section 115JB, as it pertains to diminution in the value of assets rather than liabilities. Furthermore, the provision was not found to be excessive or unreasonable. Therefore, the CIT(A)'s decision to exclude the addition of Rs. 2,10,41,506 from the book profits was upheld. Conclusion: The appeals filed by the revenue in the cases of Usha Martin Industries Ltd., Balmer Lawrie & Co. Ltd., and Indian Container Leasing Co. Ltd. were dismissed. The appeal filed by Balmer Lawrie & Co. Ltd. was allowed, resulting in the deletion of the addition for provision for doubtful debts from the book profits.
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