2018 (12) TMI 1769 - HC - Income Tax

Banking company disputes Rs. 15 crores NPA provision in income tax computation under Section 115JA

The case involved a banking company disputing the addition of a provision for Non-performing Assets of Rs. 15 crores when computing book profits under ... Book profits computation u/s 115JA - inclusion of loss of assets which had not been actually written off - HELD THAT:- In the subsequent judgment of this Court in the case of COMMISSIONER OF INCOME TAX, MANGALURU Vs. SYNDICATE BANK SYNDICATE HOUSE [2014 (10) TMI 857 - KARNATAKA HIGH COURT] while following the earlier order in the assessee’s own case, the matter was remanded to the First Appellate Authority, with a direction to the authority to look into the records and to record a finding as to whether the bad and doubtful debts are reduced from the loans and advances of the debtors from the assets side of the balance sheet. In view of the fact that the said issue has to be ascertained by the authority, we do not find it necessary that the said substantial question of law raised requires to be answered. Therefore, the matter stands remitted to the Commissioner of Income Tax (Appeals), with a direction to look into the records and to record a finding as to whether the bad and doubtful debts are reduced from the loan and advances of the debtors from the assets side of the balance sheet and thereafter, to re-compute the income under Section 115JA of the Act. The contention of the assessee if raised withregard to the applicability of Section 115JA of the Act, is kept open for adjudication before the Commissioner of Income Tax (Appeals). Issues:1. Interpretation of provisions for Non-performing Assets under Section 115JA of the Income Tax Act.2. Applicability of Section 36(1)(vii) and Section 36(2) in relation to provisions for doubtful debts.3. Requirement to reduce bad and doubtful debts from loans and advances of debtors for the Explanation to Section 115JA or JB to not be attracted.Analysis:1. The case involved a banking company that filed a return of income for the assessment year 1999-2000, declaring a total income under Section-143(3) of the Income Tax Act and showing income under Section-115JA as a significant amount. The Assessing Officer added back a provision for Non-performing Assets of Rs. 15 crores, leading to an appeal and subsequent challenges before the Tribunal by the revenue.2. The substantial question of law considered was whether the provision of Rs. 15 crores, representing loss of assets not actually written off, should be added back when computing book profits under Section 115JA of the Act. Reference was made to a Supreme Court case and subsequent amendments to the Explanation of Section 115JA, emphasizing the treatment of provisions for diminution in asset value.3. Previous judgments, including one related to the same assessee, highlighted the importance of reducing bad and doubtful debts from loans and advances of debtors on the assets side of the balance sheet to avoid the application of the Explanation to Section 115JA or JB. The case was remanded to the Commissioner of Income Tax (Appeals) for further examination and re-computation of income under Section 115JA, keeping the question of the Act's applicability open for adjudication.In conclusion, the appeal was disposed of, emphasizing the need for a detailed assessment by the concerned authority regarding the reduction of bad and doubtful debts from the assets side of the balance sheet to determine the correct computation of income under Section 115JA of the Income Tax Act.