TMI Blog2000 (3) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of section 115J of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). In the said return, a sum of Rs. 46,64,750 was shown as "provision for doubtful debts" and the same was claimed to be exempted from including in the taxable profit. The Deputy Commissioner referred to above disallowed the provision created by the assessee for bad and doubtful debt of Rs. 46,64,750 on the ground that the provision made is not for ascertained liabilities as mentioned in section 115J(1)(c) of the Act and, accordingly, included in the net profit in the profit and loss account for the relevant previous year. The respondent-company filed a petition under section 154 of the Act for rectification of the order passed by the Deputy Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and had not also reduced the same in the profit of the business of the respondent-company ; that the respondent herein is not correct in claiming the above said debt as non-liability of the assessee, and that therefore, the order passed by the Deputy Commissioner of Income-tax referred to above has to be sustained, The Commissioner of Income-tax (Appeals), Madras-34, found that the debt shown as "doubtful debt" had not been written off in the profit and loss account ; that it is only a mere provision and not an actual ascertained liability to give relief as claimed by the respondent-company. In view of the fact that adjustment has to be made on the basis of the information available in the return, accounts and documents, as per section 143( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to adjudicate upon any debatable issue under section 143(1)(a) of the Act. Accordingly, the Tribunal allowed the appeal of the assessee and directed the assessing authority to rectify the mistake under section 154 of the Act. It is this order, which formed the basis for filing this appeal to decide the following point at issue : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in deleting the addition of Rs. 46,64,750 under section 115J(1A) read with clause (c) of Explanation to section 115J(1A) by making adjustment under section 143(1)(a) of the Income-tax Act 1961 ?" The only contention raised by the appellant herein is that the sum of Rs. 46,64,750, is not an ascertained liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 46,64,750 from the profit and loss account on the ground that the same has been made as provision for irrecoverable debts due to the respondent-company. If a debt has become irrecoverable as claimed by the respondent-company, the said company ought to have written off the debt and should have deducted it from the profit of the business to the extent written off. A debt, the recovery of which is doubtful, will not amount to writing off the same by the assessee concerned. It cannot also be termed to be an ascertained liability as mentioned in section 115J of the Act. It is not in dispute that the respondent-company had filed a return for the assessment year referred to above, wherein the said sum of Rs. 46,64,750 has been shown as a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee though the quantum of the liability has not been determined, a fund to meet such present liability cannot be treated as a 'reserve'. A fund, however, created for payment of a liability which had not already arisen or fallen due but is only a provision with regard to the sum that might become liable to be paid is 'other reserves' within the meaning of rule I of the Second Schedule to the Companies (Profits) Surtax Act, 1964, and should be taken into account in computing the capital of the company for the purpose of the Act." The apex court has also held in State Bank of Patiala v. CIT [1996] 219 ITR 706, that "if the sums set apart in the balance-sheets are only 'provisions' the assessee will not be entitled to the relief ..... X X X X Extracts X X X X X X X X Extracts X X X X
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