TMI Blog2006 (12) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... rore only Rs. 90 lakhs has been realized, then due to non-realisation of the debt of Rs. 10 lakhs there is no question of any liability upon the assessee. The debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision towards irrecoverability of the debt cannot be said to be provision for liability. Once it is held that the provision for bad and doubtful debt is not a provision for any liability, the question whether the liability is ascertained liability or unascertained liability does not arise. Whether clause (c) of the Explanation to section 115J A would not be applicable in respect of provision for bad and doubtful debts - We agree with the view taken by the ITAT, Pune Bench in the case of I.G. Vacuum Plasks (P.) Ltd. [ 2001 (4) TMI 203 - ITAT PUNE] , !TAT, Delhi Bench in the case of Eicher Motors Ltd. [ 2006 (1) TMI 183 - ITAT DELHI-C] and the !TAT, Kolkata Bench [ 2000 (3) TMI 170 - ITAT CALCUTTA-E] in the assessee's own case. At the cost of repetition, we reiterate that the provision for bad and doubtful debt is not a provision for liability but it is a provision for diminution in the value of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115J A. We find that as per clause (a) to Explanation any amount of income-tax paid or payable and the provision therefore is liable to be added to the book profit. However, there is no such provision for making the addition with regard to wealth-tax. Since the provision for wealth-tax does not fall within any of the items of the Explanation to section 115JA, we hold that the CIT(A) was justified in deleting the addition made by the Assessing Officer in this regard. Hence, we reject the revenue's appeal in the case of Usha Martin Industries Ltd. In the result, the appeals filed by the revenue in the cases of respective assessees are dismissed and appeal filed by the assessee, Balmer Lawrie Co. Ltd., is allowed. - Hon'ble Judges Vimal Gandhi, President, G.D. Agrawal, Vice President and Jugal Kishore, Accountant Member For the Appellants in I. T. A. Nos. 2437/Kol/2005 and for the respondents in 2449/Kol/2005 and 1485 and 1486/Cal/2002. : N. K. Poddar and A. K. Tibrewal For the Respondent in I. T. A. No. 1304/Cal/2000 : R. K. Mitra and B. K. Seal For the Appellants in I. T.A. No. 1304/Cal/2000, 2449/Kol/2005 and 1485 and 1486/Cal/2002 and for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceeding with this appeal. The assessee as well as revenue both has applied to the COD and the COD vide minutes dated 12-5-2006 permitted the assessee as well as revenue to proceed only with regard to ground No.1 of their respective appeals, which reads as under:- ITA No. 2437 (Kol.)/05 (Assessees appeal) : 1. That the Learned Commissioner of Income-tax (Appeals) erred in law and in fact in considering the provisions for doubtful debts, loans and advances amounting to Rs. 92,74,305 as provisions for meeting liabilities other than ascertained liabilities and adding it back to Book Profit under section 115JB of the Act. ITA No. 2449 (Kol.)/05 (Revenues appeal): 1. That the Ld. CIT(A) has erred in directing the Assessing Officer to exclude the addition of Rs. 2,10,41,506 on account of diminution in the value of investments of the assessee company in US-64 of UTI and the value of equity shares of India Marine Freight Containers Mfg. Ltd. denying the decision in the case of Eyre Smelting (P.) Ltd. and the statutory provisions of clause C of the Explanation to section 115JB. 3.1 He stated that the Special Bench is ceased in with both the above issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions in the net profit while computing its total income. It has, therefore, been contended by the ld. D.R. that these provisions made by the assessee for bad and doubtful debts were not ascertained liability in the opinion of the assessee itself. 8. The ld. D.R. has submitted that there is a basic difference between the bad debts and the doubtful debts as bad debt denotes the debts which has been ascertained and are not recoverable at all, whereas doubtful debts are always unascertained. It has been pointed out by the ld. D.R. that from the perusal of schedule of computation of net profit in accordance with the section 349 of the Companies Act filed by the assessee before R.O.C., which is also available at page 17 of the paper book, it is seen that such provision for doubtful debts has been added in the net profit determined by the assessee for the purpose of Director's remuneration. It has, therefore, been argued by the ld. D.R. that since the Companies Act itself recognize the concept of adding back of such provision for the purpose of arriving at the net profit under section 198 of the Companies Act, the Assessing Officer has no power to disturb such net profit calculate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the order framed under section 143(1)(a), but such order of Tribunal dated 28-3-2000 was without taking into consideration the decision of the Hon'ble Madras High Court in case of Beardsell Ltd. which was passed on 14-3-2000. Since this Tribunal while disposing the appeal against the order of section 143(1)(a) had no benefit of the decision of the Hon'ble Madras High Court in case of Beardsell Ltd., the action of ld. CIT(A), in relying such order of Tribunal is not sustainable. 12. It has, therefore, been pleaded by the ld. D.R. Shri M.W. Haque that the Assessing Officer has added the provisions for doubtful debts after taking into consideration the relevant facts and the legal interpretation as laid down in Income-tax Act and Companies Act and by following the decision of the Hon'ble Madras High Court in case of Beardsell Ltd. and the decision of this Tribunal in ICI India Ltd.'s case. The ld. D.R. also submitted that since the ld. CIT(A) has deleted the addition only on the basis of the decision of Tribunal in assessee's own case in section 143(1)(a) assessment, which was passed without having benefit of the decision of the Hon'ble Madras High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 220, which was rendered by following the decision of the Hon'ble Supreme Court in case of Howrah Trading Co. Ltd v. CIT [1959] 36 ITR 215. 15. Shri Mitra has submitted that for the purpose of constructing the provisions of the Act dealing with the assessment of Companies undefined words used in the Act should be interpreted by importing the definition enumerated to them in the Companies Act. He has stated that the terms provision and reserve have been defined in clause 7(1) of Part III of Schedule VI to the Companies Act, where the term provision has been defined to mean, subject to sub-clause (2) of the said clause, any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy. Whereas the term reserve has been defined in a negative way so as not to include any amount written off or retained by way of providing for depreciation, renewals or diminution in the value of assets or retained by way of providing for any known liability. Shri Mitra has further pointed out that clause 7(2) of the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 19. The ld. counsel for the assessee in support of his above argument has placed reliance on the following decisions:- (i) Usha Martin Industries Ltd v. Jt. CIT [2003] 81 TTJ (Kol.) 518; (ii) Asstt. CIT v. Eicher Motors Ltd. [2006] 101 TTJ (Delhi) 369; (iii) Steel Authority of India Ltd. v. Dy. CIT [2001] 76 ITD 69 (Delhi) (TM); (iv) CIT v. Echjay Forgings (P.) Ltd. [2001] 251 ITR 151 (Bom.); (v) Asstt CIT v. J.G. Vacuum Flasks (P.) Ltd. [2002] 83 ITD 242 (Pune). The ld. counsel Shri Mitra has submitted that the case laws relied by the ld. Departmental Representative for the revenue in case of Beardsell Ltd. and the decision of this Tribunal in case of ICI India Ltd. is distinguishable as though this has been dealt with under various perspectives. And at the same time they have not considered the main issue that whether the provisions for doubtful debts is a deduction from the value of assets or a liability and such issue has only been discussed by the Hon'ble Calcutta Tribunal in assessee's own case, apart from Pune Bench in case of J.G. Vacuum Flasks, which is very much relevant for determination of the issue for the consideration of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubtful debts can be held as unascertained liability. He has filed detailed paper book in which he has annexed extract from the Companies Act and the extract of various publications such as dictionary for accountants, terms used in financial statements, text books on accountancy, accounting standard announced by I.C.A.I., etc. and decisions of various Courts and Tribunals. 22. Ld. senior counsel Shri Poddar has first drawn the attention of this Bench on pages 8, 11, 13, 16, 18, 19 and 20 of paper book, wherein the extract from the Companies Act, 1956 has been annexed. It has been pointed out by Shri Poddar that from the perusal of different nature of liabilities and assets as mentioned therein in Schedule VI of Companies Act, it is apparent that all liabilities are specified and clearly mentioned. ld. Senior counsel has pointed out that the current liabilities and provisions have been defined in a broader way in Schedule VI of the Companies Act wherein the nature of liabilities and provisions along with the contingent liability has clearly been mentioned and nowhere provision for bad and doubtful debts appeared in such current liabilities and provisions as required to be menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit and loss account; and the expression 'revenue reserve' shall mean any reserve other than a capital reserve. 23.4 Shri Poddar has thereafter contended that the above provision as laid down in Schedule VI of Companies Act has to be understood with the help of various legal interpretations as laid down in various dictionaries for Accountants and the authority. He thereafter has first referred to the Dictionary for Accountants by Eric L. Kohler, for the meaning of the word provision , wherein it reads as under:- Provision-1. A charge for an estimated expense or loss or for a shrinkage in the cost of an asset offsetting an addition to a valuation account such as a reserve or accumulation of depreciation or the accrual of a liability such as an income-tax. 2. (British usage) (a) An amount entered on the books of account covering an estimated or accrued liability, (b) The amount of a reserve for depreciation, bad debts or inventory decline; a valuation account. 23.5 He has thereafter referred to the Black Law Dictionary for the meaning of provision, which reads as under:- Foresight of the chance of an event happening, sufficient to indicate that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or for a known liability. The reserves are primarily of two types: capital reserves and revenue reserves. 24. It has been pleaded by the ld. Senior Counsel Shri N.K Poddar that for the better understanding of the nature of provision for bad and doubtful debts, it is useful to read both reserve and provision together and has pointed out that these two expressions have been elaborately discussed and interpreted in the books of accountancy by various famous authors and authorities in the field of accountancy and has annexed the extract of such books in the paper book, wherein the words reserve and surplus has been interpreted and is being reproduced hereunder for the better convenience:- Reserves and Provisions (Extract from Books of Accountancy written by William Pickles (Third Edition) (1) Reserves - amounts set aside out of profits and other surpluses which are not designed to meet any liability, contingency, commitment or diminution in value of assets known to exist at the date of the balance sheet. (2) Provisions - amounts set aside out of profits and other surpluses to provide for- (a) depreciation, renewals, or diminution in value of assets, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that the percentage of bad debts to outstanding debtors does not fluctuate widely from year to year and in such cases this method may, as a rule, quite safely be employed. 25.1 Mr. Poddar has also elaborately pointed out the approach of various Courts on the basis of the following judgments:- (i) Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 (SC); (ii) Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 (SC); (iii) CIT v. Eyre Smelting (P.) Ltd. [1979] 118 ITR 857 (Cal.); (iv) CIT v. Jugantar (P) Ltd. [1981] 128 ITR 619 (Cal.); (v) CIT v. Echjay Forgings (P.) Ltd. [2001] 251 ITR 153 (Bom.); (vi) Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 (SC); (Vii) M.J. Exports Ltd. v. Jt. CIT [2004] 88 ITD 18 (Mum.). 26. Concluding his argument, Shri Poddar has submitted that Explanation (c) to section 115JA(2) is not applicable in case of assessee in view of clause (7)(1)(a) of Part III of Companies Schedule, wherein the word provision has clearly been defined as any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, or retained by way of providing for any known lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income; (d) Hon'ble Chennai High Court has dealt with the issue in an elaborate way and such decision of the Hon'ble Madras High Court has not been overruled by the Apex Court; (e) The decision of this Bench in ITA No. 2189/Cal./1995 dated 18-11-2002 in case of ICI India Ltd. is squarely applicable to the present case as the same has been passed even after considering and discussing the decision of Echjay Forgings (P.) Ltd.'s case by Hon'ble Mumbai High Court which has been relied heavily by the ld. counsels for different assessees, whereas the judgment of Usha Martin Industries Ltd.'s case by this Tribunal was without considering the decision of the Hon'ble Madras High Court; (f) The decision of Eichar Motors Ltd.'s case relied by ld. counsel for assessees, has been passed without considering the decision of the Hon'ble Madras High Court; (g) The case laws relied by Shri Poddar are not applicable. (h) Ld. Senior D.R. Shri Jain has alternatively submitted that if clause (c) is held to be inapplicable, then clause (b) should be invoked which says for disallowance of reserve made by the assessee. The provision made by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 597 Add: (a) Provision for doubtful debts, advances and investments-as discussed. : 1,56,00,000 (b) Provision for wealth-tax as per accounts : 1,25,000 1,57,25,000 Book profit 16,09,15,597 30% thereof . . . 4,82,74,680 Tax payable under section 115JA at 43% . . . 2,07,58,112 32. Before the C.I.T.(A), the assessee challenged the addition of Rs. 1.56 crores and Rs. 1,25,000 made by the Assessing Officer. Both the above additions were deleted by the C.I.T.(A). Hence this appeal by the Revenue. 33. We will first take up the addition with regard to provision for doubtful debts amounting to Rs. 1.56 crores. Section 115JA as it stood at the relevant time reads as under:- Deemed income relating to certain companies 115JA. .-(1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithdrawn from any reserves or provisions if any such amount is credited to the profit and loss account: Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after 1-4-1997 shall not be reduced from the book profit unless the book profit 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, the loss shall not include depreciation; 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of a company. As per this section, the Assessing Officer has to first compute the total income of the assessee as per the provisions of the Income-tax Act. Thereafter, he has to compute 30 per cent of the book profit. Then he has to compare the total income as computed as per the provisions of Income-tax Act with 30 per cent of book profit computed as per section 115JA. If 30 per cent of the book profit is more than the total income, then 30 per cent of the book profit shall be deemed to be the total income of the assessee for such previous year. As per sub-section (2) the assessee has to prepare the profit and loss account for the relevant previous year in accordance with the provisions of Parts-II III of Schedule VI to the Companies Act. The Explanation defines the words book profit which means net profit as shown in the P/L Account for the relevant previous year. Such book profit has to be increased by the item Nos. (a) to (f) of the Explanation if they are debited to the P/L 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 would be the book profit of the assessee for the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The Assessing Officer does not have the jurisdiction to go behind the net profit shown in the P/L Account except to the extent provided in the Explanation. Thereafter Assessing Officer has to make adjustment permissible under Explanation given in section 115J. The above observation of the Hon'ble Apex Court given with reference to section 115J would be squarely applicable with regard to the provision of section 115JA also because both the provisions are pari materia. It was contended by the Ld. DR. that the assessee itself added the provision for bad and doubtful debt while computing its total income. Therefore, the same should also be included in the book profit for the purpose of section 115JA. We are unable to accept this contention of the Ld. D.R. because the computation of total income for the purpose of Income-tax Act is not relevant while computing the book profit. As we have already observed that the Assessing Officer has to prepare two parallel computation - one for determining the total income as per provisions of the Income-tax Act and other for determining the book profit as per section 115JA. While computing the total income, he has to make the additions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,56,00 Provision for wealth tax as per account 1,25 Profit on sale of fixed assets considering 1,28 9,69,24 Depreciation under section 350 24,32,04 Less: Depreciation under section 350 12,12,86 12,19,18 Add : Directors remuneration 56,39 12,75,57 38. We find that section 198 of the Companies Act provides overall maximum limit for managerial remuneration payable to the Directors which is at 11 per cent of the net profit of the company computed in the manner laid down in sections 349 to 351 of the Companies Act. Section 349 of the Companies Act reads as under:- Determination of net profits 349. .-(1) In computing for the purpose of section 348, the net profits of a company in any financial year- (a) credit shall be given for the sums specified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans and advances; (i) expenses on repairs, whether to immovable or to movable property, provided the repairs are not of a capital nature; (j) outgoings [inclusive of contributions made under clause (e) of sub-section (1) of section 293]; (k) depreciation to the extent specified in section 350; (i) the excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year which begins at or after the commencement of this Act, insofar as such excess has not been deducted in any subsequent year preceding the year in respect of which the net profits have to be ascertained; (m) any compensation of damages to be paid in virtue of any legal liability, including a liability arising from a breach of contract; (n) any sum paid by way of insurance against the risk of meeting any liability such as is referred to in clause (m); (o) debts considered bad and written off or adjusted during the year of account. (5) In making the computation aforesaid, the following sums shall not be deducted:- (a) the remuneration payable to the managing agent; (b) income-tax and super-tax payable by the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under:- The amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities. Thus, the assessee's case would fall within the ambit of item (c) if (i) the amount is set aside to any provision; (ii) the provision is made for meeting liability; and (iii) the provision should be for other than ascertained liability, i. e., it should be for unascertained liability. All the above three ingredients should be satisfied so as to bring the provision within the ambit of item (c) of the Explanation to section 115JA. 40. In the case of the assessee it is not in dispute that a sum of Rs. 1.56 crores has been set aside as provision for bad and doubtful debts. Therefore, now the question remains whether this provision is for meeting the liability? If answer is yes, whether such liability was unascertained liability. 41. It is vehemently contended by the Ld. D.R. that the provision of bad and doubtful debt is a provision for unascertained liability, in support of which heavy reliance has been placed upon the decision of Hon'ble Madras High Court in the case of Beardsell Ltd and the decision of I.T.A.T., Kolkata Bench in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities, the provision made has to be included in book profit, for the purpose of taxation under section 115J of the Act. The respondent claimed exclusion for the sum 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. 42. The I.T.A.T., Kolkata Bench in the case of ICI India Ltd. followed the above decision and held as under:- 6. We have considered the rival contentions of both the parties and have gone through the orders of the authorities below: We observe that the Assessing Officer has made a prima facie adjustment of provision made for bad and doubtful debts and advances treating the same as uncertained liability by passing of order under section 154 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of Chartered Accountants of India in the guidance notes issued for its members. Similar definition is given in the books of accountancy by William Pickles. Thus, the provision can be for (1) depreciation; (ii) renewals; (iii) diminution in the value of assets; and (iv) for any known liability of which the amount cannot be determined with substantial accuracy. 43.1 Now the question is whether the provision for bad and doubtful debt is the provision for diminution in the value of asset or for known liability of which the amount cannot be determined with substantial accuracy. The provision for bad and doubtful debt is made when the assessee is of the opinion that its entire debt may not be realized and part of the debt may become irrecoverable. However, when the amount of such irrecoverable debt cannot be ascertained with substantial accuracy, the provision is made for bad and doubtful debt. Debts are of two types. One - debt payable by the assessee i.e., where the assessee has to pay amount to others. This would be liability in the hands of the assessee. Second debt receivable by the assessee, i.e., where the assessee has to receive the amount from others. This would be asset i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, i.e., whether the provision for bad and doubtful debt is a provision of the diminution of the value of the asset or a provision of known liability. Similarly, I.T.A.T., Kolkata Bench in the case of ICI India Ltd. also proceeded with the presumption that the provision made for bad and doubtful debt was a provision for liability and, therefore, relying upon the decision of Hon'ble Madras High Court in the case of Beardsell Ltd. confirmed the addition in this regard. The learned counsel for the assessee has relied upon the decision of Hon'ble Bombay High Court in the case of Echjay Forgings (P.) Ltd. However, we find that in the above case also the question whether the provision for bad and doubtful debt is diminution in the value of the asset or a provision for liability was neither argued nor considered. The Hon'ble High Court deleted the addition because they agreed with the assessee's contention that the provision was for ascertained liability. Therefore, the above case would also not be applicable while considering whether the provision for bad and doubtful debt is at all a provision for liability. 43.3 The learned counsel for the assessee has relied upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting a liability at all. No doubt, this plea was not taken before the CIT(A), but having regard to the nature of the plea, which is purely a legal plea requiring no investigation into facts, he is permitted to raise the same. A provision for bad and doubtful debts is made with the view to guarding against the non-recovery of certain debts which are considered by the company as bad and doubtful. It implies that monies receivable by the company may not be realized. Explanation (c) refers to amount set aside to provisions made 'for meeting liabilities'. By making the provision for bad and doubtful debts, the assessee is not guarding against any liability which it may be called upon to pay. For instance, a provision made for gratuity payable to the employees may properly be called a provision made for meeting a liability. But, when a provision is made to guard against the possible non-recovery of amounts due to the assessee, it cannot be described as provision made for meeting a liability. The ICAI, in its guidance note on 'Terms used in Financial Statements' had defined a 'liability' as 'the financial obligation of an enterprise other than owners funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by whatever name called . 44.1 The Ld. D.R. has relied upon the judgment of the Han'ble. Supreme Court in case of CITv. lyoti Ltd. [1996] 219 ITR 3881, wherein the Hon'ble Supreme Court has held as under :-- That a clear finding of fact was reached by the Tribunal that the bad debt reserve was created by the assessee-company out of the profit and loss account without reference to the outstanding sundry debtors and was not created with a view to meeting any anticipated liability. It was also not the Revenue's case that the amount set apart for bad and doubtful debts reserve was less than or equal to the amount necessary to be provided for meeting an ascertained liability. On the other hand, the amount appeared to be more. than what was reasonably necessary to be provided for, in respect of the bad and doubtful debts as the amount of bad and doubtful debts itself was not an ascertained amount. The provision of Rs. 85,000 for doubtful debts had to be treated as a reserve which could be legitimately included in computing the capital base of the assessee. 44.2 The Ld. D.R. has further relied on the judgment of the Hon'ble Supreme Court in case of State Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugantar (P) Ltd. in support of his contention that the provision for bad and doubtful debt is made for anticipatory contingencies to meet the diminution in the value of assets from unrealized debts and, therefore, the same cannot be treated as reserve for the purpose of computing the capital under the Companies (Profits) Surtax Act, 1964. He has also relied upon the decision of Hon'ble Apex Court in the case of Vazir Sultan Tobacco Co. Ltd. Wherein the Hon'ble Apex Court has considered the meaning of words provision and reserves for the purpose of Super Profits-tax Act, 1963. However, in the cases under consideration before us we are concerned with the meaning of the word reserve for the purpose of section 115JA of the Income-tax Act. As per section 115JA, accounts are to be prepared as per Parts-II III of Schedule-VI to the Companies Act. Part-III of Schedule-VI to the Companies Act defined the words provision and reserve . As per clause 7(1)(b) of Part-III of Schedule-VI to the Companies Act, the expression reserves means as under:- .... the expression 'reserve' shall not, subject as aforesaid, include any amount written off or retained by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on 31-3-1997. The provision as on 31-3-1996 was Rs. 64 lakhs. Thus the additional provision of Rs. 1.56 crores is made for the year under consideration. The balance sheet of the assessee is duly audited and certified by the Chartered Accountants and it has nowhere reported that the provision for bad and doubtful debt is excessive in the opinion of either directors or auditors. We also find that the total outstanding debt as on 31-3-1997 was more than Rs. 86 crores against which the provision for bad and doubtful debt was Rs. 2.20 crores, which is even less than 3 per cent of the total debt. The Assessing Officer in the assessment order has nowhere stated that the provision made by the assessee for bad and doubtful debt is excessive or unreasonable considering the purpose for which the provision is made. At the time of hearing before us also, the revenue except making a claim that the provision for bad and doubtful debt should be considered as 'reserve' under clause (b) of Explanation to section 115JA, has not proved how the provision made for bad and doubtful debt is excessive or unreasonable. In view of the above, we are unable to accept the revenue's claim that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for diminution in the value of assets : Rs. 2,10,41,506. The CIT(A) deleted the addition of Rs. 2,10,41,506 against which the revenue is in appeal vide ITA No. 2449 (Kol.)/2005. The assessee is in appeal against the addition for provision for doubtful debts, loans and advances sustained by the CIT (A). We find that the Assessing Officer has made the addition under Explanation (c) to section 115JB. The CIT (A) has upheld the finding of the Assessing Officer following the decision of Hon'ble Madras High Court in the case of Beardsell Ltd. However, he has alternatively upheld the addition under clause (b) of Explanation to section 115JB. 47.2 After considering the arguments of the parties in the case of Usha Martin Industries Ltd., we have already held that the provision for bad and doubtful debt does not fall within the ambit of item (c) of the Explanation to section 115JA. Items under Explanation in section 115JA and in section 115JB are identical. Therefore, our finding given with regard to item (c) of the Explanation to section 115JA would be squarely applicable to the case of the assessee, i.e., Balmer Lawrie Co. Ltd. Accordingly, we hold that the addition for bad and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation of the assessee is improper or incorrect. The Assessing Officer has also not given any finding that the provision made by the assessee for diminution in the value of investment is unreasonable or incorrect. At the time of hearing before us also, the revenue has not brought on record any evidence to prove that the provision made by the assessee for diminution in the value of investment is unreasonable or excessive. Accordingly, we do not find any justification to interfere with the order of the CIT(A) in this regard. The same is sustained and the revenue's appeal is rejected. 49. Now we come to revenue's appeals in the case of Indian Container Leasing Co. Ltd. For assessment years 1997-98 and 1998-99. The common ground raised in both these appeals reads as under:- That on the facts and circumstances of the case and in law the Ld. CIT(A) has erred to delete the provision for liability in the computation of booked profit under section 115JA. 49.1 The facts of the case are that for both the years the Assessing Officer computed the total income of the assessee under section 115JA of the Income-tax Act in which he made the addition for provision for bad a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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