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2016 (5) TMI 713 - CALCUTTA HIGH COURT

2016 (5) TMI 713 - CALCUTTA HIGH COURT - [2016] 385 ITR 130 - MAT - Computing income under section 115J - ITAT making addition to the book profit in respect of assessment years 1997-98 and 1998-99 respectively and directing for deletion of the said amounts while computing the book profit of the assessee for the purpose of section 115J - Held that:- Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in th .....

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view of the matter, the first question is answered in the affirmative and in favour of the assessee. It is, however, clarified that similar disallowance was there by the assessing officer of a sum of ₹ 325.15 crores for the assessment year 1998-99 which has also been set aside by the learned Tribunal and we confirm that order. - Addition on account of provision for doubtful debt on account of provision for diminution in value of investment while computing book profit of the assessee - .....

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ation is a “debt receivable” by the assessee. The provision for bad and doubtful debt, therefore, is made to cover up the probable diminution in the value of the asset, i.e., debt which is an amount receivable by the assessee. Therefore, such a provision cannot be said to be a provision for a liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. In the present case, the debt is the amount receivable by the assessee and not any liability payable by .....

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- JUSTICE GIRISH CHANDRA GUPTA AND JUSTICE SIDDHARTHA CHATTOPADHYAY For Appellant: Mr. M. Nizamuddin, Advocate For Respondent: Mr. J.P. Khaitan, Sr. Advocate, with Mr. S. Basu, Advocate GIRISH CHANDRA GUPTA, J.: The subject matter of challenge in this appeal is an order dated October 13, 2006, passed by the learned Income Tax Appellate Tribunal, D Bench, Kolkata, in ITA Nos.448 and 449(Kol.)/2006, pertaining to the assessment years 1997-98 and 1998-99. The revenue has come up in appeal. The ques .....

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115J of the Income Tax Act, 1961 by disregarding that said amounts have been claimed by the assessee in earlier year and was already allowed? (2) Whether on the facts and in the circumstances of the case Tribunal was justified in deleting the addition of ₹ 16.2 crores on account of provision for doubtful debt and ₹ 15.36 crores on account of provision for diminution in value of investment by ₹ 15.36 crore while computing book profit of the assessee, by misinterpreting and not c .....

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the assessee s submission. Pursuant to the aforesaid order of the Apex Court, after reconsidering the matter the Reserve Bank of India directed that the processing charges already collected in excess of the prescribed rates should be credited to the accounts of the certificate holders. Such direction was issued on March 22, 1996. On the basis thereof, the assessee claimed deduction of a sum of ₹ 613.21 crores in the assessment year 1996-97. The break up of the aforesaid sum of ₹ 613. .....

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udgment and order dated October 31, 2001, reversed the orders of the Assessing Officer and the CIT(A) and allowed the entire claim of the assessee in respect of the sum of ₹ 613.21 crores. For the assessment year 1997-98, the Assessing Officer made normal computation by his order dated March 30, 2000 disallowing a sum of ₹ 120.32 crores debited by the assessee to the profit and loss account on account of refund or repayment to the depositors, being the money which was collected by wa .....

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(b) ₹ 26,42,72,000/- on account of provision for doubtful debts; and (c) ₹ 15,36,98,000/- on account of provision for diminution in value of investment. Aggrieved by the order of the Assessing Oofficer, the assessee preferred an appeal. The CIT(A) reversed the disallowance of a sum of ₹ 26,42,72,000/- on account of provision for doubtful debts and the sum of ₹ 15,36,98,000/- on account of provision for diminution in value of investment. He, however, affirmed disallowance .....

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mputing the regular income in assessment year 1996-97 with the computation of book profit in assessment year 1997-98. It is settled law that the computation of total income for the purpose of Income Tax Act and the computation of book profit for the purpose of section 115JA are two separate and distinct computations. As per section 115JA, the A.O. has to make these two computations separately. First he has to compute the total income as per the provisions of the Income Tax Act. Thereafter, he ha .....

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d in the books of account or P/L Account. Thus, it was not claimed from the book of profit of financial year 1995-96 relevant to assessment year 1996-97. The claim of deduction from total income of ₹ 613.21 crores in assessment year 1996-97 will not debar the assessee from debiting the amount in the books of account in the subsequent years. In fact, debiting of the amount in the books of account is essential; otherwise the balance sheet of the assessee will not depict the true and fair fin .....

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again claimed the deduction of ₹ 120.39 crores while computing its total income. The same is disallowed by the A.O. if the assessee files the appeal against the addition of ₹ 120.39 crores to the total income, then revenue would be quite justified in contending that the deduction of ₹ 120.39 crores is claimed twice while computing the total income of the assessee. However, so far as the computation of book profit is concerned, the claim of deduction from the book profit is only .....

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ed Tribunal that the assessee is seeking to claim the benefit twice over. For the first time, it has claimed the benefit for the assessment year 1996-97 and is also seeking to take the benefit of the same expenditure in the current assessment year, i.e. to say 1997-98. This submission advanced by Mr. Nizamuddin is altogether fallacious. In the assessment year 1996-97, admittedly the books of accounts of the assessee were not debited by the sum of ₹ 613.21 crores. The deduction was initiall .....

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cases shall take place on the basis of deemed income. It is a fact that the assessee has debited a sum of ₹ 120.39 crores to his books of accounts only in the assessment year 1997-98 and that debit entry is on account of an ascertained liability based on an order of the Reserve Bank of India. Therefore, with regard to justifiability of that debit entry, there was never any doubt. The Apex Court has, in the case of Apollo Tyres, reported in (2002) 255 ITR 273, held as follows: Therefore, we .....

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n to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J. Once there is no dispute that the books of account were maintained in accordance with law and were duly certified, the assessing officer s limited jurisdiction is as indicated by Their Lordships in the case of Apollo Tyres(supra). It was therefore not open to the assessing officer to disallow the debit entry of a sum of ₹ 120.39 crores. Therefore, the order p .....

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r doubtful debts and the provision for diminution in the value of investment are now covered by the explanation (g) to sub-section (2) of section 115JA which provides as follows: (g) the amount or amounts set aside as provision for diminution in the value of any asset. It may be pointed out that the aforesaid clause (g) was introduced with effect from April 1, 1998. Disallowances were made in the assessment year 1997- 98. Therefore, the amendment which became operative with effect from April 1, .....

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e 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 can be added back to the net profit only if item (c) stands attracted. Item (c) deals with amount(s) set aside as provision made for meeting liabilities, other than ascertained liabilities. The assessee s case would, therefore, fall within the ambit of item (c) only if the amount is set aside as provision; t .....

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