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2016 (4) TMI 380 - ITAT DELHI

2016 (4) TMI 380 - ITAT DELHI - TMI - Adjustment of book profit by increasing it by provision for bad and doubtful debts - Held that:- Clause (i) covers the amount debited to the profit and loss account which are set aside as provision for diminution in the value of any assets. Provision of bad and doubtful debts also results diminution in the value of its assets i.e. debt. Therefore in our view the provision for bad and doubtful debts are required to be added to book profit as per clause (i) of .....

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ffered by assessee to =income from other sources '. Therefore in the interest of justice we set aside this ground of appeal of the assessee back to the file of AD to decide the same on merit after affording reasonable opportunity of hearing to assessee. - ITA No.3063/De1l20 12, ITA No.3064/De1l2012 - Dated:- 7-3-2016 - SHRI A. T. VARKEY, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Sh.Sanjeev Sapra, CA& Mohit Sapra, CA For The Revenue : Sh.Susan George, S .....

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2. That the income declared by the Appellant u/s 115JB of the income tax act ought to have been accepted and made the basis of assessment. At any rate without prejudice, the income assessed under section 115 JB is very excessive. 3. That the interest income of ₹ 8924317 ought to have been assessed as income from business and the authorities below were not justify to tax such income under the head other sources. At any rate without prejudice the interest income assessed under the head other .....

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appeal. 3. In ITA No.3064/Del/2012 the assessee has raised the following grounds:- 1. That no justification subsisted on the part of the authorities below to hold that provision for bad and doubtful debts amounting to ₹ 599044/- was to be added back while working out the profit u/s 115JB of the income tax act. 2. That the income declared by the salons u/s 115 JB of the income tax act ought to have been accepted and made the basis of assessment. At any rate without prejudice, the income as .....

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st the business loss of this year and therefore, from this angle also, the income tax levied on interest income was duly illegal. 5. That the levy of interest under section 234B is illegal and at any rate, without prejudice wary excessive. 6. That the appellant reserves its right to add, amend/modify the grounds of appeal. 4. First we take up the appeal No.3063/Del/2012. 5. The assessee is a company which is engaged in the business of FM Radio Broadcasting under the channel identity of 93.5 Radi .....

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the AOhad treated it as income from other sources. 6. The first ground of appeal is against adjustment of book profit by increasing it by Rs.I027504I - on account of provision for bad and doubtful debts. The AO has made this addition because of amendment under the provision of section 115JB(2) of Finance Act, 2009 with retrospective effect 01.04.2001. Therefore the AO was of the view that book profit is required to be increased by the amount set aside as provision for diminution in the value of .....

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d AR of the assessee submitted that the assessee has debited to profit and loss account Rs.I0275041 - and has also reduced this amount from sundry debtors. For this he drew our attention to Page 8 of the Paper book wherein under the head "Administrative and other cost" same is reflected. He also submitted that in Schedule E of the Annual Account shows that this amount has been reduced from the sundry debtors. He further submitted that now the issue is squarely covered in favour of the .....

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s been inserted which provided for increasing the book profit of the assessee by amount or amounts set aside as provision for diminution in value of any assets. 11. It was contended before us that the issue is now squarely covered by the decision of honourable Karnataka High court in case of CIT V Yokogawa India Ltd [17 taxmann.com15[kar]. We have carefully perused the decision and we found that the issue before Honourable Karnataka High court was whether the provision of bad and doubtful debts .....

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ut the validity of retrospective applicability of clause ( i) of that section which provides about addition to the book profit amount or amounts set aside as provisions for diminution in the value of assets in 355 ITR 51 (Del) in whirlpool of India limited V Union of India and others. Though this decision is regarding validity of retrospective applicability of the introduction of clause (i) w.e.f 1-4-2001 but it has given some insight about this provision introduced. Hon high court has held that .....

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de for meeting a liability other than an ascertained liability and, therefore, the book profit had to be increased by the amount of the provision. The case of the companies which were liable to tax under section 115JB was that a provision for bad and doubtful debts cannot be regarded as a provision made for meeting a liability, let alone an unascertained liability, because a debt is not a liability but is an asset of the company and what in effect the company does, when making the provision for .....

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CIT v. Usha Martin Industries Ltd. [2006J 105 ITJ (Kol.) 543 (SB) ; [2007J 288ITR (AT) 63 (Kol) [SBJ that such a provision cannot be considered as a provision for meeting an unascertained liability and that in truth and substance it was a provision for the diminution of the value of the debt and, therefore, it fell outside clause (e) of the Explanation and the book profit cannot be increased by the amount of the provision. This view of the Special Bench of the Tribunal was upheld by the Delhi H .....

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nd loss account prepared as per Parts II and III of Schedule VI to the Companies Act only to the extent permissible under the Explanation thereto. As stated above, the said Explanation has provided six items, i.e., item Nos. (a) to (f) which if debited to the profit and loss account can be added back to the net profit for computing the book profit. In this case, we are concerned with item No. (c) which refers to the provision for bad and doubtful debts. The provision for bad and doubtful debts c .....

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he ingredients should be satisfied to attract item (c) of the Explanation to section 115JA. In our view, item (c) is not attracted. There are two types of 'debt'. A debt payable by the assessee is different from a debt receivable by the assessee. A debt is payable by the assessee where the assessee has to pay the amount to others whereas the debt receivable by the assessee is an amount which the assessee has to receive from others. In the present case, the 'debt' under considerat .....

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ble by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. " 4. After the judgment of the Supreme Court was rendered in favour of the company-assessees, the Finance (No.2) Bill, 2009, was introduced in the Lok Sabha on July 6, 2009, to give effect to the financial proposals of the Central Government for the financial year 2009-10. The Bill proposed an amendment to section 115JB as follows (see page 85 of 314 IT .....

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second proviso, in Explanation 1, after clause (h), for the words, brackets and letters 'if any amount referred to in clauses (a) to (h) is debited to the profit and loss account, and as reduced by', the following shall be substituted and shall be deemed to have been substituted with effect from the 1st day of April, 2001, namely ;- '(i) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (i) is debited to .....

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t to the assessment year commencing on or after the 1st April, 2007, is less than ten per cent. of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable for the relevant previous year shall be ten per cent. of such book profit. It is proposed to amend sub-section (1) of said section 115)B to provide that if the Income-tax payable on the total income as computed under the Income-tax Act in respect of any previous year relevant to the assessme .....

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n 1 to sub-section (2) of the said section so as to provide that any provision for diminution in the value of any asset will also be included in the computation of book profit under the said section. This amendment will take effect retrospectively from April 1, 2001, and will, accordingly, apply in relation to the assessment year 2001-02 and subsequent assessment years. " 5. In the Memorandum Explaining the Provisions in the Finance (No.2) Bill, 2009, the Central Board of Direct Taxes state .....

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art III of Schedule VI to the Companies Act, 1956, as increased or reduced by certain adjustments, as specified in that section. It is proposed to insert a new clause (i) in Explanation 1 after sub- section (2) of the said section so as to provide that if any provision for diminution in the value of any asset has been debited to the profit and loss account, it shall be added to the net profit as shown in the profit and loss account for the purpose of computation of book profit. Similar amendment .....

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in relation to the assessment year 2001-02 and subsequent assessment years. " 13. From reading of above decision it is clear that clause (i) covers the amount debited to the profit and loss account which are set aside as provision for diminution in the value of any assets. Provision of bad and doubtful debts also results diminution in the value of its assets i.e. debt. Therefore in our view the provision for bad and doubtful debts are required to be added to book profit as per clause (i) of .....

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dentical issue has been decided by the co-ordinate bench of this Tribunal in ITANo. ITA No. 1316/Del/2011, ITA No. 1720/Del/2011, ITA No. 1317/Del/2011, ITA No. 1721/Del/2011, ITA No. 5081/Del/2011, ITA No. 4364/Del/2011 dated 24.11.2015, wherein this issue is set aside to the file of AO.- 16. We have carefully considered the rival contentions and found that identical issue has been decided by us in those appeals as under :- "30. Ground No 3 of the appeal of assessee is against interest inc .....

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y. 31. We have considered the rival submission as well as a the orders of lower authorities on the issue. Before eIT (A) the details of such interest income was not furnished by AR of the assessee and same was no such details have been furnished before us. In the assessment order also, AD has not mentioned the reason for changing the head of bank interest income from +-Business Income -offered by assessee to =income from other sources '. Therefore in the interest of justice we set aside this .....

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