TMI Blog2000 (11) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, at the hands of the Assessing Officer was justified. (iii) On the facts and circumstances of the case the learned Commissioner of the Income-tax (Appeals) erred in law as well as in facts in refusing to intervene with the assessment made by the Assessing Officer under the special provisions of section 115(J)." 2. The facts, in brief, are that the assessee-company in the return filed declared net profit for the purpose of Section 115-J at Rs. 19,171.75 lakhs. The Assessing Officer made adjustments on account of the provision for doubtful debts, loan and advances, accrued interest and sundries of Rs. 2869.89 lakhs among others and 30% of the book profit so computed was charged to tax under section 143(1A) of the income-tax Act. The Assessing Officer also charged interest under sections 234B and 234C of the Income-tax Act. The assessee-company moved an application under section 154 before the Assessing Officer wherein it was contended that the adjustment made was beyond the scope of section 143(1A) of the Act and that the demand raised was not valid. It was also contended that provisions of Section 115-J were not applicable to the facts of the assessee-company and in supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the finding so given by the Assessing Officer before the CIT(A) and the submissions made before the Assessing Officer was reiterated. The main objection raised was against the adjustment made of the provision for bad and doubtful debts, loans and advances etc. 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 outstandings are more than three years old except where a possibility of realisation is there. In the case of debts from Govt. Departments, public undertakings, provision is made depending upon the merits of each case. It was also explained that provision for doubtful loans and advances is made which are of unsecured nature anti considered bad or doubtful from the point of view of realisation and had remained outstanding for a considerable period of time. It was also explained that total amount of the provision made of Rs. 2869.85 lacs comprised of amount of bad and doubtful debts of Rs. 1152.21 lacs and the amount of bad and doubtful sundaries of Rs. 1717.64 lacs. It was further explained that for the purpose of determination of book profits as per provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the relevant period to the previous year. The provisions for doubtful debts, loans and advances and accrued interest and sundaries are provisions which cannot be considered as unascertained liabilities. In fact if the amounts had become bad the same would have been written of as bad debts rather than the provisions being made for the same, in the books of the company. Since the amounts in question are not an ascertained liability, provision had been made by the appellant company, has rightly been disallowed by the Assessing Officer. In view of the foregoing, it is held that the Assessing Officer has rightly denied the plea for rectification of the additions made in regard to the above provision, hence the appeal is dismissed on this ground." The CIT(Appeals) also upheld the action of the Assessing Officer about the applicability of provisions of section 115-J to the facts of the assessee's company. 2.3 It was also pleaded before the CIT(Appeals) that the assessee company filed a return on20-12-1990declaring loss of Rs. 186889.58 lakhs after adjusting unabsorbed depreciation of past years brought forward. The Assessing Officer processed this return under section 143(1)(a) afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed alongwith the return. The Assessing Officer is expected to determine the book profit under section 115J if the relevant income as per return of income is below 3096 of the book profit of the company for the year in question. Since as per return there was returned loss of Rs. 186889.58 lakhs, the Assessing Officer has rightly restored to the provisions of section 115J on the basis of the working at Annexure-III. No claim for deduction on account of carried forward losses or unabsorbed depreciation has been made by the appellant company in Annexure-III. As Annexure-V there is a statement of unabsorbed depreciation of earlier years. There is no statement indicating any loss of earlier years to be carried forward. There is no mention of any deduction on account of carried forward loss or unabsorbed depreciation in Annexure-II. Prima facie it is not possible to allow depreciation as indicated at Annexure-V as liabilities or otherwise on the same is not free from doubt. More so when no such claim had been made in the computation at Annexure-III for the purpose of section 115J." 2.4 The assessee-company being aggrieved with the finding so given by the CIT (Appeals) is now before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. We find that for the assessment year 1989-90 the assessee-company claimed lower of the losses or depreciation suffered since 1960-61 as deduction in computation of book profit under section 115J of the Income-tax Act. The assessee company's appeal for that assessment year was decided by the Tribunal in its order in Steel Authority of India Ltd. v. Dy. CIT [1991] 38 ITD 193 (Delhi) wherein the issue was dealt by the Tribunal in paras 10 to 20 against the assessee-company and in favour of the revenue. As the loss sustained in earlier years had already been got set off against the profits, the claim made for deduction on account of the lower of the loss or depreciation was therefore rejected. It was also held that provisions of section 115J are fully applicable to the assessee-company. Since the facts are identical to that of the assessment year 1989-90 there is we need not go into the merits of the claim made in this behalf and respectfully following the Tribunal's decision for the assessment year 1989-90 the claim made for the current year is rejected. 5.1 As regards the ground raised against the adjustment made of the provision for bad and doubtful debts, loan, advance etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------ 8. It is apparent from here that the Assessing Officer has picked up the figures for adjustment in his adjustment explanatory sheet. If we carefully look at the above narration, it will be seen that doubtful debts constituted one part only of the total 1705.42 lakhs, and this figure also included. Provision on account of loans and advances and accrued interest. Apparently the figure of 3507.58 lakhs appearing under the narration 'sundries' was an independent sub head and did not have anything to do with either the doubtful debts or the loans and advances or the accrued interest. Thus unless and until the Assessing Officer had obtained the details and information regarding the exact bifurcation of provisions under various heads described above, it could not have been said as to what amount pertained to which particular head and whether the head 'sundries' also included any doubtful debts. As has already been stated above if any further enquiry was necessary in connection with the claim of deduction, the deduction cannot be said to be prima facie inadmissible. If we further peruse the documents accompanying the return it will be seen that in Schedule No. 1.9 (which is a sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Even if the credit is made in 'Bad Debt Reserve Account' against debit to the Profit Loss Account, the writing off is complete. In view of the above, it cannot be said that the writing off done by the present appellant was defective. If we examine the Tax Audit Report, it will be observed that in their report in Form No. 3CD, Item 9C the Auditors have left the space in front of the column "Particulars of any liability of a contingent nature debited to the Profit Loss Account" blank. It is thus apparent that there was no information in the return or the accompanying documents to show prima facie that the sum of Rs. 5276 lakhs debited to the Profit Loss Account was on account of provision for any liability of a contingent nature. 10. Having regard to all the aforementioned facts and circumstances I am of the view that there was no information or material available in the return and the accounts or documents accompanying it on the basis of which it could be said that deduction claimed of a sum of Rs. 5,276 lakhs was prima facie inadmissible, so as to disallow it at the intimation stage. The Assessing Officer was, therefore, not justified in rejecting the application of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision therefore; or (b) the amounts carried to any reserves other than the reserves specified in section 80HHD or sub-section (1) of section 33AC, by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; or (g) the amount withdrawn from the reserve account under section 80HHD, where it has been utilised for any purpose other than those referred to in sub-section (4) of that section; or (h) the amount credited to the reserve account under section 80HHD, to the extent that amount has not been utilised within the period specified in sub-section (4) of that section. 5.6 It would be seen from above that none of the clauses under the Explanation provides for add back of the amount representing provision for bad and doubtful debts. The Assessing Officer has, however, made the adjustment of provision for bad and doubtful debts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts of appellant for the relevant accounting year should be allowed as deduction while computing the liability to tax under the special provisions of section 115(J) of the Income-tax Act, 1961. (ii) On the facts and circumstances of the case, the learned CIT(Appeals) erred in law as well as in facts in holding that the denial of the plea for rectification made by the assessee at the hands of the Assessing Officer was justified. (iii) On the facts and circumstances of the case, the learned CIT (Appeals) erred in law as well as in facts in refusing to intervene with the assessment made by the Assessing Officer under the special provisions of Section 115(J). Relief claimed on appeal (i) The Assessing Officer having jurisdiction over this appellant be directed to accept the contention of this appellant that the provisions made for bad and doubtful debts and doubtful advances etc., in the appellant's accounts for the relevant accounting year, in fact denoted the provisions for ascertained liabilities entitled to the deduction envisaged by Clause-C of the first part of the explanation below sub-section IA of Section 115J of the Income tax Act, 1961. (ii) The Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook profit of a company is to be reduced by the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the 1st proviso to section 205(1) of the Companies Act, 1956 are applicable. As this provision is in the nature of a relief or deduction or exemption to the assessee, it has to be construed strictly and in favour of assessee only. The amount of loss or depreciation which has to be set off against the book profits is thus as per the provisions of clause (b) of the 1st proviso to section 205(1) of the Companies Act, 1956. The said provisions of the Companies Act only speaks of reduction of the lower of the business loss or depreciation of the different years since 1960 and does not give any indication by any express words that if there is any profit during the intervening years, the same is also to be adjusted against the amount of loss or depreciation to be deducted from the year for which dividend is to be declared. Hence the provisions of clause (b) of the 1st proviso to section 205(1) of the Companies Act stipulates deduction from the book profits of the lower o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assessment year 1988-89) the company showed profit and loss account balance as profit of Rs. 7526.99 lakhs against which it adjusted losses of earlier years to the extent of Rs. 11,228.85 lakhs leaving a debit of Rs. 3701.86 lakhs, which is after providing depreciation as per Companies Act. 7. Again for the period ended 31-3-89 (relevant to assessment year 1989-90) the company deducted loss of Rs. 3701.80 lakhs of earlier years on page 30 of the printed account that it was done after set off of depreciation from the book profits of Rs. 27,364.36 lakhs, leaving a net balance of Rs. 23,662.50 lakhs, which was carried forward to the company's balance sheet. It would, therefore, appear that there was no book loss as is put forth by the appellant company. 8. Further even according to accountancy principles there could be only one profit and loss account and not two separate profit and loss accounts, one for profits and other for losses. That is perhaps the only cogent and fair way of depicting the true and correct affairs of a company. The appellant's arguments that profit in the intervening years should be ignored add another fiction to a fiction (as called by the learned repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to deduction envisaged by clause (c) of the first part of the explanation below sub-section (1A) of section 115J of the Income-tax Act, 1961. It was further submitted that learned CIT(A) should have directed the Assessing Officer to rectify the assessment made by him after taking into consideration the relief as indicated above and to conclude the assessment accordingly. The learned counsel for the assessee pointed out that on identical facts, the revenue made adjustment on account of provision for bad and doubtful debt etc., in the subsequent assessment year 1991-92 and same was directed to be deleted by CIT(A). According to the learned counsel, the revenue has not challenged the said decision of the CIT(A) before Tribunal and same has been accepted. Having done so, there is no justification for making any addition on account of provision for bad and doubtful debts etc., by way of adjustment in current assessment year i.e., 1990-91. 8. The learned DR, on the other hand, has relied upon the orders of lower authorities and he also made extensive submissions in support thereof. it was submitted that Assessing Officer has validly made the adjustment with regard to provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully applicable to the assessee-company. Since the facts are identical to that of the assessment year 1989-90 there is no need to go into the merits of the claim made in this behalf and respectfully following the Tribunal's decision for the assessment year 1989-90 the claim made for the current year is rejected. 10. As regards the ground raised against the adjustment made of provision for bad and doubtful debts, it is seen that the books profit as per section 115J requires to be computed in accordance with the provisions of Parts I to XI of Schedule VI to the Companies Act subject to the adjustment made therein as per various clauses of the Explanation to the section. The assessee-company has computed the book profit as per provisions of Parts II and HI of Schedule VI of the Companies Act. Though in Schedule VI Part II, B vertical form provides for deduction of provisions from current liabilities and proviso but Part III of this Schedule does interpret in sub-clause (1) of clause 7 of Part In of Schedule VI, 'For the purpose of Parts I and II of this Schedule, unless context otherwise require (a) the expression 'provision' shall, subject to sub-clause (2) of this clause, mean a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bts, loans and advances in the book profit computed under section 115J by way of adjustment under section 143(1)(a) of the Income-tax Act, 1961?" ORDER THIRD MEMBER Per Shri M.K Chaturvedi, Vice President --- This appeal came before me as a Third Member to express my opinion on the following question: "Whether, on the facts and circumstances of the case, the Assessing Officer was justified in adding back the provision for doubtful debts, loans and advances in the book profit computed under section 115J by way of adjustment under section 143(1)(a) of the Income-tax Act, 1961?" 2. I have heard the rival submissions in the light of material placed before me. Shri Ganesan, the learned counsel for the assessee appeared before me and argued the case. The Revenue was represented by Shri Satish Goel. The assessee is a public sector undertaking running several steel plants. It declared net profit in the return for the purpose of section 115J of the Income-tax Act, 1961, at Rs. 19171.75 lakhs. The Assessing Officer made adjustments on account of the provision for doubtful debts, loan and advances, accrued interest and sundries of Rs. 2869.89 lakhs for the purpose of computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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