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TMI Blog2008 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ication 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 the aforestated amount to the book profits as per Explanation (c) to Section 115JA of the Income-tax Act, 1961 ("1961 Act", for short). On appeal, the CIT(A) allowed the assessee's appeal. That decision of CIT(A) stood affirmed by the Tribunal and also by the High Court vide its impugned judgment dated 18.5.07 in ITA No.56 of 2007. At the outset, we quote hereinbelow Section 115JA read with clause (c) of the Explanation which defines the expression "book profit" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. Explanation.-For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub- section (2), as increased by- (a) & (b) xxx xxx xxx (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d), (e) & (f) xxx xxx xxx; if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 book profits of a company under Section 115-J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied 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 extent provided in the Explanation. Thereafter, the AO has to make adjustment permissible under the Explanation given in Section 115JA of the 1961 Act. It may be noted, that the adjustments required to be made to the net profit disclosed in the profit and loss account for the purposes of Section 349 of the Companies Act are quite different from the adjustment required to be made under the Explanation to Section 115JA of the 1961 Act. For the purposes of Section 115JA, the AO can increase th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 cannot be said to be a provision for 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 the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, in our view Item (c) of the Explanation is not attracted to the facts of the present case. In the circ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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