TaxTMI 
TaxTMI 
TaxTMI 
2017 (8) TMI 451
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....um for computing the book profit of the assessee for the purpose of Minimum Alternative Tax ['MAT' for short] liability under section 115JB of the Act. The assessee carried the matter in appeal. The Commissioner (Appeals) allowed the appeal, upon which, the Revenue approached the Tribunal. The Tribunal, by the judgement which is challenged in this Tax Appeal, observed that "the assessee had made provision for bad and doubtful debts and the same has been charged to the Profit and Loss Account for the year ended 31st March 2003. In the Balance Sheet as on 31st March 2003 of the assessee, it can be seen that the provision of bad and doubtful debts has been reduced from the gross debtors and the net sundry debtors are shown as asset in the balance sheet. Thus, the provision for bad and doubtful debts cannot be termed as a provision for liability but is in the nature of diminution in the value of asset. In view of aforesaid facts, we are of the view that the facts in the present case are identical to that of the case of Yokogwa India Ltd. (supra)". 3. The Revenue's appeal against the said judgement of the Tribunal was admitted for considering the following substantial quest....
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....fore, later judgement in case of Indian Petrochemicals Corporation Ltd. (supra) lays down the correct law?" 5. We have heard the learned counsel for the parties at length who have also cited several authorities. We would weave their contentions and relied upon authorities, in our discussion on the controversy at hand without separately recording the contentions and referred decisions. 6. Chapter XXIIB of the Act pertains to special provisions relating to certain companies and contains provisions for collection of Minimum Alternative Tax. Sections 115JA and 115JB contain somewhat similar provisions but were applied during different periods. Since in our case what is applicable is section 115JB, we may refer to the said section. Under subsection (1) of section 115JB, notwithstanding anything contained in any other provision of the Act, in case of a company where the tax payable on the total income is less than the prescribed percentage of its book profit, the book profit would be deemed to be total income of the assessee and the assessee would pay tax at such prescribed rate on such income. Subsection (2) of section 115JB provides the manner, in which, such book profit shall be co....
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....ed that such provisions for the doubtful debt cannot be added for the computation of book profit for Section 115JA of the Act since there is no clause which speaks of adding back such provisions for diminution of value of assets. It is not in dispute that such provisions for doubtful debts would be which amount to diminution of value of assets. That being the position, in our opinion the case of the assessee is squarely covered under the clause (g) to explanation to Section 115JA. As already held by Delhi High Court in case of CIT vs. ILPEA Paramount P. Ltd, (supra), the decision of the Apex Court in the case of HCL Comnet Systems and Services Ltd. (supra) cannot be applied in view of change in the statutory provisions with retrospective effect. It is true that the explanatory notes leading to the said amendment does not refer to the decision of the Apex Court in the case of HCL Comnet Systems and Services Ltd. (supra). This, however, would not in any manner take away the fact that by virtue of clause (g) to the explanation, the said decision would no longer apply in the present case since the Apex Court had examined the position from the angle of the existing statutory provisions.....
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....e any reason for interference and therefore we answer the question in favour of assessee and against the revenue. Accordingly, Tax Appeal No. 1775 of 2008 stands dismissed." 12. We are called upon to decide the correctness of the view taken by this Court in cases of Deepak Nitrite Limited(supra) and Indian Petrochemicals Corporation Ltd. (supra). In the process, we would also have to ascertain whether there is any conflict between the said two decisions. In order to do so, we may revisit the judgement of Supreme Court in case of HCL Comnet Systems and Services Ltd. (supra) more minutely. As noted, it was a case where the assessee had debited certain sum on account of bad debts to the Profit and Loss account. The Assessing Officer added the said sum for computation of book profit for the purpose of section 115JA of the Act with the aid of clause (c) to the explanation. The Court held that in such a case, clause (c) would not be applicable. It was observed as under: "10. As stated above, the said Explanation has provided six items, i.e., Item Nos.(a) to (f) which if debited to the profit and loss account can be added back to the net profit for computing the book profit. In this c....
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....computation of book profit for the purpose of 115JA of the Act. This clause, however, would not cover a provision made for a debt which is receivable by the assessee. It was observed that the provision for bad and doubtful debts which is made to cover up probable diminution in the value of the asset, cannot be said to be a provision for liability because even if the debt is not recoverable, no liability could be fastened on the assessee. 14. To overcome such view of the Supreme Court, the Revenue added clauses (g) and (i) to the explanations in section 115JA and 115JB of the Act respectively with retrospective effect. With such addition now the book profit for the purpose of section 115JB of the Act would be increased by the amount or amounts set aside as provisions for diminution in the value of any asset. The explanatory note for introduction of such amendment clarified that the new clause (i) was inserted "so as to provide that if any provision for diminution in the value of any asset has been debited to the profit and loss account, it shall be added to the net profit as shown in the profit and loss account for the purpose of computation of book profit." This legislative change....
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....on in its accounts for bad debts and interest thereon and even though the amount is not actually written off by debiting the profit and loss account of the assessee and crediting the amount to the account of the debtor, the assessee was still entitled to deduction under section 36(1)(vii). [See CIT v. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom) and Vithaldas H. Dhanjibhai Bardanwala vs. CIT (1981) 130 ITR 95 (Guj)] Such state of law prevailed up to and including the assessment year 1988-89. However, by insertion (with effect from April 1, 1989) of a new Explanation in section 36(1)(vii), it has been clarified that any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee. The said amendment indicates that before April 1, 1989, even a provision could be treated as a write off. However, after April 1, 1989, a distinct dichotomy is brought in by way of the said Explanation to section 36(1) (vii). Consequently, after April 1, 1989, a mere provision for bad debt would not be entitled to deduction under Section 36(1)(vii). To understand the above dichotomy, one must understand 'ho....
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....said provision from it's accounts by reducing the corresponding amount from Loans and Advances/debtors on the asset side of the Balance Sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the asset side of the Balance Sheet was shown as net of the provision "for impugned bad debt". In the judgement of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala [supra], a mere debit to the Profit and Loss Account was sufficient to constitute actual write off whereas, after the Explanation, the assessee(s) is now required not only to debit the Profit and Loss Account but simultaneously also reduce loans and advances or the debtors from the asset side of the Balance Sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Court in it's impugned judgement. In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under Section 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in it&....
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....In context of applicability of clause(i) to the explanation, relying on the decision of Supreme Court in case of Vijaya Bank(supra), the Court observed that there is a dichotomy between actual write off and provision for bad and doubtful debt. A mere debit to the Profit and Loss account would constitute a bad and doubtful debt but it would not constitute actual write off. However, if simultaneously such amount is obliterated from the accounts by reducing corresponding loans and advances on the asset side, the same would amount to a write off. It was concluded as under : "...Therefore, after the Explanation the assessee is now required not only to debit the P&L A/c but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debt. Therefore, in the first place if the bad debt or doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to s. 115JA or JB is not at all attracted." 22. In case of K....