TMI Blog2008 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ranted. The short question which arises for determination in this civil appeal filed by the Department is : whether AO was justified in adding back the provision for doubtful debts of Rs.92,15,187/- to the net profit under clause (c) of the Explanation to Section 115JA of the Income-tax Act, 1961. In this civil appeal we are concerned with the Assessment Year 1997-98. Assessee-company was engaged in trading in data communication equipment and satellite communication services. During the course of assessment proceedings, the AO found that the assessee had debited an amount of Rs.92,15,187/- on account of bad debts to the `profit and loss account'. However, on the ground that it was a provision for bad and doubtful debts, the AO added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year. Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Explanation defines the words "book profit" which means "net profit" as shown in the profit and loss account for the relevant previous year. Such book profit has to be increased by Item Nos.(a) to (f) of the said Explanation if they are debited to the profit and loss account and from such profit Item Nos.(i) to (ix) of the Explanation are to be reduced. The figure arrived at after the above exercise is the book profit of the assessee for the relevant previous years. This Court has examined the powers of the AO while computing the book profits for the purposes of Section 115J in the case of Apollo Tyres Ltd. v. Commissioner of Income- tax - [2002] 255 ITR 273 (SC) which reads as under: "The Assessing Officer, while computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company." From the above, it is evident that the AO has to accept the authenticity of the accounts maintained in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, which are certified by the Auditors and pressed by the company in the general meeting. The AO has only the power of examining whether the books of accounts are duly certified by the authorities under the Companies Act and whether such books have been properly maintained in accordance with the Companies Act. The AO does not have the jurisdiction to go beyond the net profit shown in the profit and loss account except to the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. In other words, all the 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 "debt" under consideration is "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 asset, i.e., debt which is an amount receivable by the assessee. Therefore, such a provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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