TMI Blog1998 (9) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment was made on the same income. The CIT passed an order under s. 263 by which the assessment was set aside as he found that the assessment was prejudicial to the interest of Revenue and patently erroneous. The assessee had debited to its P L a/c a sum of Rs. 40,19,920 on account of loss on revaluation of investments and Rs. 6,80,560 on account of provision for doubtful debts respectively. The AO while computing the taxable income as per the provisions of s. 115J failed to add back these amounts to the profit as shown in its audited P L a/c. 3. The assessee s authorised representative filed the copy of the audited accounts and annual report and drew our attention to p. 15 of the P L a/c, which contains details of expenses in Schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule VI, which defines the provision to mean any amount written off or retained by way of providing for depreciation renewals or diminution in value of assets or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy. As per the authorised representative the legislature has only picked up from the definition in Part III, the provision made for meeting liabilities under cl. (c) to the Explanation given under s. 115J. Therefore, the provision for the diminution in the value of assets is not covered under the Explanation to s. 115J and the direction given by the CIT is contrary to the provisions of IT Act and, therefore, the order of the CIT is liable to be vacated. 4. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revaluation of investment is not an expenditure incurred by the assessee and neither a provision as the nomenclature appears on p. 15 to the annual report. Therefore, it should be added to the book profits. The learned Departmental Representative also relied on the decision of the Supreme Court in the case of McDowell Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC). 5. We have heard the rival contentions in depth and perused the record. Sec. 115J requires every assessee being a company to prepare its P L a/c for the relevant previous year for the purpose of the s. 115J in accordance with the provisions of Parts II and III and Schedule VI to the Companies Act, 1956. The profit so arrived at shall be increased by the it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown by the assessee in its P L a/c was not in accordance with the provisions of Parts II and III of the Sixth Schedule to the Companies Act, 1956, and the loss on revaluation of investment should have been added to the net profit as shown in the P L a/c so as to make net profit in the P L a/c in accordance with Parts II and III of the Sixth Schedule of the Companies Act, 1956. The AO need not apply Explanation to the section, but he is fully justified and can add such type of expenditure which are not debited in the P L a/c of the assessee in accordance with Parts II and III of the Sixth Schedule to the Companies Act to determine the net profit in accordance therewith. 7. On the issue of provision for bad and doubtful debts as debited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the balance sheet, is the same, as in a case where the liability has actually arisen (a present known liability) and the fund to meet such liability cannot be treated as reserve . In the view of the High Court, since the assessee is a banking company, it would be reasonable and legitimate to assume that in the course of its business, it is bound to have bad and doubtful debts for which it may , in anticipation, make a provision in the balance sheet by having a separate fund or an account to meet such anticipated liability. We are afraid that the aforesaid assumption is totally unjustified and proceeds on mere surmises and conjectures. This is not a case, when at the time fund is earmarked, there is a known liability one whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urmised that the observations quoted at p. 748 will even cover cases, where the liability was not factually anticipated on the date of the preparation of the balance sheet, but also will apply to cases, where the company ought and can anticipate on the date of the preparation of the balance sheet." 8. The power of revision under s. 263 can be exercised by the CIT when the following factors co-exist : (a) there should be a proceeding under the Act, (b) in such proceeding the ITO must have passed an order; and (c) the CIT should consider that the said order is erroneous and prejudicial to the interests of the Revenue. The assessee s authorised representative has not challenged the lacking of any of the above factors in the order passed un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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