TMI Blog2023 (3) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax LTU (Appeals), Chennai, dated 19.06.2008, and pertains to assessment year 1998-99. 2. The assessee has raised the following grounds of appeal: 1. The order of the learned Commissioner of Income Tax-LTU (Appeals) is contrary to law, facts and circumstances of the case. 2. The Commissioner of Income Tax-LTU (Appeals) has erred in confirming the action of the Assessing Officer in adding back the provision for doubtful advance to the book profits in the computation of income under Sec.115JA. 3. The Commissioner of Income Tax-LTU (Appeals) has erred to distinguish between the provision for debt receivable and provisions for debt payable. 4. The Commissioner of Income Tax-LTU (Appeals) failed to note that Clause (c) of the Explanation appended below Section 115JA(2) of the Act provides that amounts set aside to provisions made for meeting liabilities other than ascertained liabilities should be added back to the net profit as per the profit and loss account for the purpose of computing the book profit within the meaning of the said statute. 5. The Commissioner of Income Tax-LTU (Appeals) failed to note that the items which come within the ambit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.263 of the Act, on 30.07.2007 and determined total income of Rs.18,90,77,676/- u/s.115JAA of the Act, by adding provision for doubtful advance at Rs.5,64,13,050/-. The assessee carried the matter in appeal before the First Appellate Authority, and the Ld.CIT(A) for the reasons stated in their appellate order dated 19.06.2008, dismissed appeal filed by the assessee. The assessee carried the matter in further appeal before the Tribunal. The ITAT, Chennai benches in ITA No.2144/Mds/2008 vide order dated 08.05.2009, allowed appeal filed by the assessee and deleted the additions made towards book profit computed u/s.115JA of the Act, towards provision for bad and doubtful debts by following the decision of the Hon ble Supreme Court in the case of CIT v. HCL Comnet Systems Services Ltd., reported in 305 ITR 409. The Revenue challenged the order of the Tribunal in further appeal u/s.260-A of the Act, before the Hon ble High Court of Madras. The High Court of Judicature at Madras vide their order dated 30.11.2022, set aside the order of the Tribunal and restored the issue back to the file of the Tribunal with a direction to re-consider the issue of computation of book profit by taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or ii. the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or iii. the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation. For the purposes of this clause, - a) the loss shall not include depreciation; b) the provisions of this clause shall not apply if the amount of loss forward or unabsorbed depreciation is nil; or iv. the amount of profits derived by an industrial undertaking from the business of generation or generation and distribution of power; or v) the amount of profits derived by an industrial undertaking located in an industrially backward State or district as referred to in sub- section (4) and sub-section (5) of section 80-IB, for the assessment years such industrial undertaking is eligible to claim a deduction of hundred per cent of the profits and gains under sub-section (4) or subsection (5) of section 80-1B; or vi. the amount of profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, we are of the view mat the impugned order deserves to be set aside and the case should be remitted back to the Tribunal to re-examine the issue fresh in the light of the above amendment brought to the definition of Book Profit by Finance (No.2) Act, 2009 with effect from 01.04.1998. Otherwise, the above amendment would be rendered otiose. Therefore, we remit the case back to the Tribunal without answering to the substantial questions of law raised to re-examine the issue afresh in the light of the above observation, leaving all issues open to be canvassed by both the appellant and the respondent. 22. Considering the fact that the impugned order pertains to the Assessment Year 1998- 99, the Tribunal may endeavour to pass a final order in the denovo proceeding within a period of six months from the date of receipt of a copy of this order. 23. This Tax Case Appeal stands disposed with the above observation by way of remand to the Tribunal. No costs. 4. The present appeal is posted for hearing in pursuant to direction of the Hon ble High Court of Madras in Tax Case Appeal No.1316 of 2009 dated 30.11.2022. The Ld.Counsel for the assessee referring to certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.Counsel for the assessee in the case of CIT v. HCL Comnet Systems Services Ltd., is not applicable to the facts of the present case. Further, as per Clause (g) of the Explanation to Sec.115JA(2) of the Act, the book profit should be added by the amount or amounts set aside as provision for diminution in the value of the assets. In our considered view, provision for doubtful debts is nothing but amount set aside as provision for diminution in the value of the assets, because, debtors is an asset. Therefore, as per Clause (g), if any amount is set aside as provision for debts, then same needs to be added back to book profit computed u/s.115JAA of the Act, and this view is support by the decision of the Hon ble High Court of Madras in the case of EID Parry (India) Ltd. v. ACIT, where it has been clearly held that provision for doubtful debts was provision for diminution in the value of the assets, and thus, same could not be excluded while computing book profit u/s.115JAA of the Act. The relevant findings of the Hon ble High Court are as under: 5. We have heard Mr.M.P.Senthil Kumar, learned Counsel for the appellant assessee and Mr.T.Ravikumar, learned Senior Standing Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not fall under Clause (1) of the Explanation to Section 115J of the Act, since the Income Tax is only mentioned therein. In support of such contention, the learned Counsel placed reliance on the decision of the High Court of Bombay in the case of Commissioner of Income Tax vs. Echjay Forgings (P) Ltd. reported in (2001) 251 ITR 15 (Bom). 12. Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the Revenue contended that the purchase tax or the purchase tax on cane subsidy or the wealth tax was not paid by the assessee but only a provision was made. It is submitted that in all the Appeals, the First Appellate Authority as well as the Tribunal have concurrently held that no scientific method has been adopted by the assessee for making the provision. Further, by referring to the relevant provisions of The Sugarcane [Control] Order, 1966, more particularly, order No.5-A (1), (3), (4), (7) and (9) submitted that the liability arises only after Notification was issued by the Central Government and therefore, no provision can be made. Further, by referring to the Assessment Order, it is submitted that there is a gross discrepancy in the provision made as substantial amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not arise in the Assessment Years under consideration and only in the next year. In the absence of any data to show that scientific method was adopted, we are of the considered view that the provisions made by the assessee towards purchase tax, purchase tax on cane subsidy and wealth tax are to be treated as unascertained liability. Therefore, the factual finding recorded by two authorities and the Tribunal is fully justified. 17. So far as the wealth tax is concerned, the decision relied on by the assessee in the case of Shree Sajjan Mills Ltd supra was rightly distinguished by the authorities below and the Tribunal has held in the said case that the amount on wealth tax, which was paid should not be added to the net profit. However, in the case of assessee before us, he has made only a provision for the wealth tax liability and that too was an adhoc amount, which stands crystalized as on 31st March of the relevant year. Therefore, we fully agree with the view taken by the Tribunal in the affirming orders passed by the Assessing Officer and the Commissioner of Income Tax. Accordingly, the substantial questions of law nos.2, 3 and 4 are answered against the assessee. 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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