TMI Blog2006 (11) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 229 (Gau) of 1998 was admitted for hearing of the following questions of law : "1. Whether, on the facts and circumstances of the case and in view of the provisions of section 115J(1A) of the Act, the learned Income-tax Appellate Tribunal was justified in holding that the provision for the doubtful debts has to be added back to the profits for the purpose of determination of the book profit under section 115J of the Act? 2. Whether, section 115J is overriding in nature and other provisions of the Act have no bearing in computing the taxable book profit under the said section ? 3. Whether, of the facts and circumstances of the case the provision for doubtful debts will not amount to diminishing in the value of the assets, i.e., the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee also preferred a cross-appeal. The learned Tribunal disposed of the appeal and the cross- appeal by the order dated October 8, 2002, setting aside the order of the Commissioner of Income-tax (Appeals) affirming the order of assessment dated March 11, 1997. Rectification application filed by the assessee was 2002, also rejected. Hence, this appeal. 3 The assessee made a provision for doubtful debt of Rs. 11,52,221 by debiting from the profit and loss account during the relevant assessment year in addition to Rs. 13,93,825 provided in earlier years as considered adequate by the management in view of the continued efforts for recovery. The assessee being a company is required to prepare its profit and loss account in accordance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iting off such a doubtful debt cannot be a pre-condition for computation of the profit and loss account by a company as provided in section 115J of the Act. Dr. Saraf also relied upon the decisions of the hon'ble Supreme Court in State Bank of Patiala v. CIT [1996] 219 ITR 706 and National Rayon Corporation Ltd. v. CIT [1997] 227 ITR 764 (SC), wherein the distinction between "provisions" and "reserves" has been discussed, in order to show that in the case at hand the amount ear marked as liability by the board of directors against unrecovered debts is nothing short of provision in respect of ascertained liability within the meaning of section 115J. Dr. Saraf also relied upon a decision of the Bombay High Court in CIT v. Echjay For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liability has not been determined, a fund to meet such a liability cannot be treated as reserve. In National Rayon Corporation Ltd. [1997] 227 ITR 764, the Supreme Court observed that if an amount is retained by way of providing for a known liability, that amount shall not be treated as reserve. This observation has been rendered in the context of provisions of clause 7(2) (b) of the Act of 1964. In Echjay Forgings P. Ltd . [2001] 251 ITR 15, the Bombay High Court was seized with a number of questions including the question about the legality and validity of addition of Rs. 1,64,411 being the provision for doubtful debts. The Bombay High Court also held that a provision made for ascertained liability is not to be added into the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profit and loss account. The Assessing Officer is not authorized to scrutinize the accounts duly submitted with audit report and to question the decision of the board of directors. (see National Rayon Corporation Ltd. v. CIT [1997] 227 ITR 764 (SC) and Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 (SC)). 7 Mr. Bhuyan, learned counsel for the Revenue relied upon the decisions of the hon'ble Supreme Court in Murarilal Mahabir Prasad v. B. R. Vad [1976] 37 STC 77 and Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273. In Murarilal Mahabir Prasad v. B. R. Vad [1976] 37 STC 77, in para 12, the principles of interpretation of the language of taxing statute has been explained. The decision in Apollo Tyres Ltd. [2002] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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