TMI Blog2002 (4) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... Act") towards provision of Rs. 1,00,200 for diminution in value of investments and of Rs. 8,08,434 on account of doubtful loans and advances. The CIT(A) totally misdirected himself in applying clause ( b ) of Explanation to sub-section (1A) of section 115J of the Act and holding that the said provisions are actually reserves and could only be appropriated after the profits were ascertained. The CIT(A) further erred in wrongly interpreting the Supreme Court decision in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 as regards the distinction between provision and reserves ." 2. The assessee Company is engaged in export of Textiles manufactured by the Bombay Dyeing and Manufacturing Company Limited. During the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns for" and submitted that the provisions made in the Profit and Loss account, this could not be faulted on the ground that these were not in accordance with the Companies Act. Any other addition to the profit could be made only in the circumstances mentioned in Explanation to section 115J(1A). According to the Ld. Counsel, the provisions under discussion did not fall within the ambit of any of the items listed in the Explanation . In particular, item ( c ) speaks of provisions made for meeting liabilities and the provisions under discussion were made in respect of assets and not caught by item ( c ) of the Explanation . The ld. counsel further submitted that the CIT(A) himself directed in applying clause ( b ) of Explanation to sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956 as adjusted by the amounts mentioned under Explanation of sub-section (1A) of section 115J of the Act. One such adjustment specified in clause ( c ) of the Explanation is that the amount or amounts set aside to provision made for meeting liabilities other than ascertained liabilities is to be added back of the "Book Profits" to determine the deemed total income under section 115J of the Act. In our opinion, the provisions made for diminution in value of Investment and for doubtful loans cannot be covered by the said clause ( c ) inasmuch as such provisions are in respect of an asset and not for unascertainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rve is in commercial accountancy fairly well-known. Provisions made against anticipated lesses and contingencies are charges against profits and, therefore, to be taken into account against gross receipts in the profit and loss account and the balance-sheet. On the other hand, reserves are appropriations of profits, the assets by which they are represented being retained to form part of the capital employed in the business. Provisions are usually shown in the balance-sheet by way of deductions from the assets in respect of which they are made whereas general reserves and reserve funds are shown as part of the proprietor s interest. An amount set aside out of profits and other surpluses, not designed to meet a liability, contingency, commitm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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