2014 (10) TMI 857 - HC - Income Tax

High Court partially allows appeal, remits matter for further examination on treatment of provisions for doubtful debts.

The High Court partially allowed the appeal, setting aside previous orders and remitting the matter for further examination by the First Appellate ... MAT computation - Whether the provision for doubtful debts and the provision for loss of assets is required to be added back to the book profit as required under Section 115JA of the Act in terms of explanation to Section 115JA of the Act, in particular clauses (c) and (g)? - Held that:- From judgment of CIT v. Yokogawa India Ltd. [2011 (8) TMI 766 - KARNATAKA HIGH COURT] it is clear if the bad debt or doubtful debt is reduced from the loan and advances from the debtors on the assets side of the balance sheet, the Explanation to Section 115JA or 115JB of the Act is not at all attracted. If it is not reduced, Section 115JA of the Act is attracted. It is purely a question of fact. From the material on record it is not possible to make out whether the aforesaid bad and doubtful debts are reduced from the loan and advances of the debtors from the assets side of the balance sheet. Without ascertaining the said fact it is not possible to answer the substantial question of law one way or the other. Therefore, the proper thing to do is to set aside the impugned orders and remit the matter back to the First Appellate Authority with a direction to the Authority to look into the records and then record a finding one way or the other in the light of the aforesaid judgment. That would meet the ends of justice. Therefore, the substantial question of law is not answered. Impugned orders passed by both the Appellate Authorities are set aside and the matter is remitted back to the First Appellate Authority for fresh consideration in the light of the judgment and pass appropriate orders. Issues:1. Whether provision for doubtful debts and provision for loss of assets are required to be added back to the book profit under Section 115JA of the Income Tax Act, 1961Rs.Analysis:The High Court judgment involved an appeal by the Revenue challenging the Tribunal's decision regarding the treatment of provision for doubtful debts and provision for loss of assets in the computation of book profit under Section 115JA of the Income Tax Act, 1961. The assessee, a banking business, had claimed deductions for bad and doubtful debts as well as losses of assets in their income tax return for the assessment year 1999-2000. The Assessing Authority initially disallowed these deductions, considering them as provisions for future losses rather than ascertained liabilities. The Appellate Authority, however, allowed the deductions based on precedents and relevant provisions. The Tribunal upheld the Appellate Authority's decision, citing judgments and RBI guidelines. The primary issue was whether these deductions should be added back to the book profit as required under Section 115JA of the Act.The Court considered the precedent set in the case of CIT v. Yokogawa India Ltd., emphasizing the distinction between actual write-offs and provisions for bad and doubtful debts. It was clarified that if bad debts or doubtful debts are reduced from loans and advances on the balance sheet, the Explanation to Section 115JA or 115JB is not applicable. The Court highlighted the importance of factual verification in determining the treatment of these provisions in the computation of book profit. Since the material on record did not clarify whether the bad and doubtful debts were reduced from loans and advances, the Court set aside the previous orders and remitted the matter back to the First Appellate Authority for fresh consideration in light of the judgment. The Court emphasized the need for a factual finding before determining the applicability of Section 115JA to these provisions.In conclusion, the High Court partially allowed the appeal, setting aside the previous orders and remitting the matter back to the First Appellate Authority for a detailed examination in accordance with the legal principles discussed in the judgment. The Court highlighted the significance of factual verification in determining the treatment of provisions for doubtful debts and loss of assets in the computation of book profit under Section 115JA of the Income Tax Act, 1961.