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2006 (1) TMI 183 - AT - Income TaxCompany as bad or doubtful - Computation of book profit for the purpose of s. 115JA - Exempted dividend income u/s 14A - HELD THAT:- A provision for bad and doubtful debts is made with the view to guarding against the non-recovery of certain debts which are considered by the company as bad or doubtful. It implies that monies receivable by the company may not be realised. Explanation (c) refers to amount set aside to provisions made "for meeting liabilities". By making the provision for bad and doubtful debts, the assessee is not guarding against any liability which it may be called upon to pay. For instance, a provision made for gratuity payable to the employees may properly be called a provision made for meeting a liability. But, when a provision is made to guard against the possible non-recovery of amounts due to the assessee, it cannot be described as provision made for meeting a liability. The Institute of Chartered Accountants of India (ICAI), in its guidance note on "Terms used in Financial Statements" (filed by the assessee) had defined a "liability" as "the financial obligation of an enterprise other than owners' funds". Therefore, on this ground also, the decision of the CIT(A) requires to be upheld. We do so and dismiss the ground. Exempted dividend income u/s 14A - Sec. 14A does not seek to touch upon the above controversy at all. In fact, it cannot, because the controversy has been settled in favour of the Revenue both judicially as well as statutorily as noted above. Now, s. 14A, as explained by the Memorandum Explaining the Provisions of the Finance Bill, 2001, which we have already quoted above, seeks to nullify the effect of certain judgments in which it has been held that in the case of an indivisible business, no part of the expenditure incurred by the assessee can be disallowed as relating to the exempted income. There is no dispute that the entire dividend, which is exempt u/s 10(33) was received from M/s Eicher Motors Ltd. by a single dividend warrant and no effort or expenses were necessary or were incurred to earn such income. There is also no material brought before us to show that the assessee's contention that no part of the interest can be attributed to the earning of the dividend income since the shares were acquired from the own funds in the earlier years and not from borrowed funds, is factually incorrect. In these circumstances, we have to agree with the assessee that there is no material on the basis of which the AO would estimate and disallow a sum by invoking s. 14A. We, therefore, agree with the decision of the CIT(A), affirm the same and dismiss the ground No. 3. In the result, the appeal is dismissed with no order as to costs.
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