TaxTMI 
TaxTMI 
2001 (4) TMI 203
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....e. Rs. 3,55,76,078. The project Exports made by the Company was under an unconditional and irrevocable guarantee issued by National Bank of Commerce, Tanzania. The customer viz., M/s. Anchemedue Ltd. as well as the guarantor bank have failed to pay the instalments of Rs. 2,08,68,416 which have become due upto 31-3-1989. The claim of the Company for recovery of the amount from Export Credit Guarantee Corporation Ltd. in terms of the insurance cover has been rejected by Export Credit Guarantee Corporation Ltd. on technical grounds. In view of this, a provision for doubtful debts has been made for Rs. 2,08,68,416 being the amount of instalments that have fallen due by 31-3-1989. No provision has been made for the balance of Rs. 1,86,60,559. The Company is however, making all efforts for recovery of the dues from M/s. Anchemedue Ltd. and/or Guarantor National Bank of Commerce and from Export Credit Guarantee Corporation Ltd. under the insurance cover." In view of the above Note, Assessing Officer observed as under: "A perusal of the above said note has shown that what has been provided is only of provision being the amount of instalments that was due to the assessee company by 31....
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....bsp; 9,19,607 ---------------- A sum of Rs. 2,75,882 was held to be income chargeable to tax (30% of the above amount of book profits). 3. The matter was carried before the CIT(A) who held that provisions for doubtful debts was not on account of any contingencies but was on account of real loss which was ascertainable at the time of completion of the accounts and was not covered by any clause of the Explanation to section 115J. It was also held by him that the issue was covered by two decisions of the Tribunal as Apollo Tyres Ltd. v. Dy. CIT [1992] 43 ITD 464 (Coch.) and ITO v. Kesho Ram [1993] 199 ITR 164 (Punj. & Har.). Aggrieved by the same, revenue is in appeal before the Tribunal. 4. The learned ....
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....nue had not disputed the contention of the assessee that such provision was for ascertained liability. 5. On the other hand, the learned counsel for the assessee has fully supported the order of the CIT(A). According to him, the provision for doubtful debts was for diminishing the value of the assets and not for any liability. Therefore, CIT(A) was right in holding that the issue was not covered by any clause of the Explanation to section 115J. He also relied on the decision of the Special Bench of the Tribunal in the case of Sutlej Cotton Mills Ltd. v. Asstt. CIT [1993] 45 ITD 22 (Cal.) for the proposition that the net profit could not be disturbed unless inclusion of any item is called for under any clause of the Explanation to section 115J. Regarding the entries in the books of account, it was admitted by him that party account had not been written off but it was contended that for claiming a debt as bad debt, it is not necessary to write off the party account. According to him, a debt could be written off either by crediting the party account or by giving corresponding entry of credit to the bad and doubtful account. In this regard, he relied on the decision of the Gujarat H....
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....e for doubtful debts fall within the clause (c) of the above Explanation. 7. The perusal of the aforesaid clause shows that (1) there must be provision made by the assessee; (2) such provision must be to meet the liability of the assessee; and (3) such liability should be other than the ascertained liability. Further, it is seen that clause (a) of the Explanation speaks of the adjustment of the 'provision for losses of subsidiary companies'. This makes it clear that the legislature did not intend for adjustment to all types of provisions irrespective of their nature. Had it been so intended, it could have mentioned as "all provisions made by assessee" instead of specifying the two types of provisions. Consequently, if any provision made by the assessee does not fall either in clause (c) or clause (d), then, in our opinion no adjustment can be made in this section. 8. We have given our deep thoughts to the issue before us and are of the considered opinion that the provision for doubtful debt cannot be considered as provision for liability, much less the ascertained liability. By no stretch of imagination it cannot be said that there is any liability of the assessee in prasenti....