TaxTMI 
TaxTMI 
2011 (8) TMI 1209
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.... the Apex Court in case of Commissioner of Income Tax vs. HCL Comnet Systems and Services Ltd. reported in [2008] 305 ITR 409 (SC), there was a statutory amendment made by introduction of Explanation (g) to Section 115JA by virtue of Finance (No.2) Act, 2009 with retrospective effect from 01.04.1998. 4.0 Short facts leading to the appeal are as follow: 4.1 The year of consideration is the Assessment Year 19981999. The assessee had made provision of Rs. 79,52,852/for doubtful debt. The issue arose with respect to treatment of such provision for the purpose of ascertaining book profit of the assessee company under Section 115JA of the Act. The Revenue was of the opinion that in view of Explanation to Section 115JA of the Act and in particular Clause(c) thereof, such amount should be added to the net profit of the company to compute book profit for the purpose of Section 115JA of the Act. 4.2 The issue ultimately reached the Tribunal. The Tribunal upheld the assessee's contention that such amount cannot be included in the book profit of the company under Section 115JA of the Act. 5.0 Before the Tribunal on behalf of assessee it was contended that the provisions for doubtf....
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.... income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; [(g) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (g) is debited to the profit and loss account, and as reduced by,-] (i) the amount withdrawn from reserves or provisions if any such amount is credited to the profit and loss account: Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 [but ending before t....
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....a), (b) or (c) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in sub-sections (4) and (4A) of that section; (ix) the amount of profits eligible for deduction under section 80HHE, computed under sub-section (3) of that section.]" 8.0 On the basis of the above statutory provisions and the decision of the Apex Court, counsel for the revenue submitted that by virtue of the statutory amendment and introduction of clause (g) to the explanation to Section 115JA the decision of the Apex Court would no longer apply. He pointed out that amendment was made with retrospective effect and would cover the present case also. 9.0 Counsel for the revenue further submitted that the provisions for bad and doubtful would be covered under the expression the amount set aside as provisions for diminution in the value of any assets. 10.0 On the other hand learned counsel Mr.Shah for the respondent assessee opposed the appeal contending that explanation (g) to Section 115JA shall apply only in a case where there is provision for diminution in the value of assets but not in case where the value of the assets comes to '....
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....refore, fall within the ambit of item (c) only if the amount is set aside as provision; the provision is made for meeting a liability; and the provision should be for other than ascertained liability, i.e., it should be for an unascertained liability. In other words, all the ingredients should be satisfied to attract item (c) of the Explanation to section 115JA. In our view, item (c) is not attracted. There are two types of "debts". A debt payable by the assessee is different from a debt receivable by the assessee. A debt is payable by the assessee where the assessee has to pay the amount to others whereas the debt receivable by the assessee is an amount which the assessee has to receive from others. In the present case, the "debt" under consideration is a "debt receivable" by the assessee. The provision for bad and doubtful debt, therefore, is made to cover up the probable diminution in the value of asset, i.e., debt which is an amount receivable by the assessee. Therefore, such a provision cannot be said to be a provision for liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. In the present case, the debt is the amount receivabl....