TaxTMI 
TaxTMI 
2002 (12) TMI 616
X X X X Extracts X X X X
X X X X Extracts X X X X
....se, the assessee has challenged the sum of Rs. 2,50,80,539 as not includible in the computation under section 115JA. This sum comprises of the following amounts :- Provision for doubtful debts/advances Rs. 2,49,73,218 Income tax of earlier years Rs. 1,07,321 Total Rs. 2,50,80,539 3. The assessee's grounds of appeal Nos. 1 to 5 are directed against inclusion of these two amounts. Facts of the case in this respect briefly are that the assessee debited an amount of Rs. 2,49,73,218 to the Profit & Loss account under the sub-head "provision for doubtful debts/advances". In the course of assessment proceedings the assessee gave break-up of this provision, which has been enumerated at page 6 of the assessment order. The major amount in this provision pertains to the debts owed to the assessee by M/s. Regal International Inc. USA amounting to Rs. 2,35,27,628. This amount was stated to be due to the assessee on account of export of medicines to the party from 2nd November, 1995 to 14th May, 1996. Total export to the party was to the extent of Rs. 3,82,11,388 out of which Rs. 1,46,83,760 had been received as at the end of the previous year relevant to Asst. Yea....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amounting to Rs. 2,49,73,218. 4. While computing the book profit under section 115JA apart from relying upon the contentions in the main body of the assessment order, the learned Assessing Officer further held that the sum of Rs. 2,49,73,218 was required to be added to the profits as per the Profit & Loss account in view of addition envisaged under clause (c) of Explanation to section 115JA(2). According to the Assessing Officer, the provision was not towards any ascertained liabilities as the assessee was still making efforts to recover the amount. Thus, the Assessing Officer apart from disallowing the assessee's claim of deduction of this provision in computation of total income under section 143(3) also included the amount in the computation of book profit under section 115JA of the Act. 5. Aggrieved by the assessment order and the computation under section 115JA, the assessee preferred appeal before the learned CIT(A). The assessee argued that it had made provision for doubtful debt on the basis of suit filed by him against the debtor. The assessee also pointed out that only a sum of Rs. 1,46,83,760 could be recovered as against the total exports to the tune of Rs. 3,82,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A) did not accept the interpretation of the assessee on the ground that the material date was 31st March, 1997 when the accounting year for assessment year 1997-98 ended. The learned CIT(A) also held that insofar as actual write off was concerned the permission could not have been obtained by the assessee as late as two years from the last transaction. According to the learned CIT(A) to allow assessee's claim of deduction under section 36(1)(vii) of the sum of Rs. 2,35,27,628 would amount to deviating from the guidelines of Reserve Bank of India. Thirdly, the learned CIT(A) held that the assessee had regular export transaction with M/s. Regal International Inc. USA and the assessee had not established that the debt had become irrecoverable during the previous year relevant to assessment year 1997‑98 itself. As a matter of tact in the earlier part of the previous year, the export transactions with the party were still continuing. The assessee had also filed a suit for recovery against the party which too had not been finalized. On the contrary as a result of this suit, the assessee company was subsequently able to recover substantial amounts from the party. In the books of acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation of profits under section 115JA from net profit as declared in the Profit & Loss account of the assessee. He, however, increased such net profit by the sum of Rs. 2,49,73,218 on the ground that provision for doubtful debts/advances was required to be added in view of clause (c) of Explanation to section 115JA(2). This clause (c) pertained to the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities. Provision for doubtful debts debited to Profit & Loss account of the assessee had nothing to do with any of the liabilities payable by the assessee. It concerned itself with the amount of debts due to the assessee which constituted an asset in the hands of the assessee and not liability. Thus, Explanation (c ) had no relevance at all insofar as the amount in question was concerned. The learned CIT(A) instead invoked clause (b) of the Explanation. According to the learned CIT(A), the provision for doubtful debts was uncalled for and it was in fact a reserve which was required to be added to the net profit as shown in the Profit & Loss account. Both the expressions "provision" and "reserve" have been defined in Part III of Schedule....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see, the amount debited to Profit & Loss account was prima facie in the nature of provision and therefore the learned CIT(A) grossly erred in ignoring provisions of clause 7(b) of Part III of Schedule VI of the Companies Act. 11. Thereafter the learned Counsel for the assessee also placed strong reliance on the judgment of ITAT Mumbai Bench 'C' in the case of Rashtriya Chemicals & Fertilisers Ltd. [IT Appeal No. 5127 (Bom.) of 1994, dated 29-11-1997] for assessment year 1990-91 and on the judgment of ITAT Mumbai Bench 'D' in the case of Maharashtra State Electricity Board [IT Appeal No. 955 (Mum.) of 2001, dated 6-8-2001] for assessment year 1997-98. 12. The learned D.R. argued that under the provisions of section 211(2) of the Companies Act, it has been laid down that the accounts of a company must give true and fair view of the profits of the company. Provisions of Part II of Schedules VI to the Companies Act also laid down that the profit and loss account of a company shall be so made out as to disclose clearly the results of the working of the company during the period covered by the account. The provisions of Part II and Part III of Schedule VI are therefore subservient ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut it has not been disputed before us that the learned CIT(A) had the powers and jurisdiction to invoke Explanation (c) instead of Explanation (b ). It is settled legal position that CIT(A) has plenary of powers over the assessment order in appeal before him and he can do what the Assessing Officer has omitted or failed to do. The CIT(A) also has powers of enhancement of income as assessed by the Assessing Officer. Moreover, it is settled legal position now that wrong reference to a section does not vitiate an order if the order is lawfully made under some other section of the Act. The mention of a particular section or the label or nomenclature stated is not determinative of the correctness or validity of the assessment. Reference in this behalf may be made to the judgments Hukum Chand Mills Ltd. v. State of MP [1964] 52 ITR 583 (SC), L. Hazari Mal Kuthiala v. ITO [1961] 41 ITR 12 (SC), CIT v. Motilal Padampat Sugar Mills Co. (P.) Ltd. [1979] 118 ITR 825 (All.) and CIT v. National Builders [1991] 192 ITR 2501 (Delhi). 14. Apart from the two decisions of the Tribunal discussed in the preceding paragraph, the learned Counsel for the assessee placed heavy reliance upon the judgmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion "reserves" appearing in Explanation (b ) has been qualified to be "by whatever name called". It is therefore clear that the Assessing Officer while proceeding to make an adjustment under Explanation (b ) has power to examine whether any "provision" created in the accounts of the assessee may be considered or construed to be a 'reserve' and not 'provision'. Further, we find that such a course of action has been contemplated in clause 7(2) of Part III of Schedule VI to the Companies Act itself. This clause 7 reads as under :- "7(1) For the purpose of Parts I and II of this Schedule, unless the context otherwise requires,- (a )the expression "provision" shall, subject to sub-clause (2) of this clause, mean 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; (b)the expression "reserve" shall not, subject as aforesaid, include any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or treating the amount as 'reserve' and not as 'provision' and thereby adding the same back in accordance with Explanation (b ) to section 115JA(2) of the Act. We, therefore, uphold the order of the learned CIT(A) in this respect. 15. The second issue raised in this appeal relates to the sum of Rs. 1,07,321 in respect of the amount debited to the profit and loss account under the head "income tax of earlier years". The learned Counsel for the assessee explained that in respect of interest receivable from M/s. Mahendra G. Mehta, the assessee had credited gross interest of Rs. 4,73,309. The party deducted tax at source amounting to Rs. 1,07,321 but failed to give necessary certificate of deduction of tax at source to the assessee. In spite of best efforts, such certificate could never be obtained from the party and therefore finally the assessee had to write off the amount as representing short recovery of the income. The learned CIT(A) has rejected the assessee's contention on the ground that no such amount had been written off in the ledger account of the party. During the course of hearing before us, the learned Counsel for the assessee argued that as the assessee included the ....