1993 (9) TMI 90

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.... that the provision for doubtful debts and the provision for doubtful advances cannot be treated as free reserves and cannot be included for the purpose of computing the capital of the company for the purposes of surtax ?" The facts of the case are brief. The assessee is a limited company. During the previous year relevant to the assessment year 1975-76, the assessee made a provision for doubtful debts amounting to Rs. 19,56,668 and also a provision for doubtful advances amounting to Rs. 1,20,933. In the course of the assessment of the assessee under the Companies (Profits) Surtax Act, 1964, it was contended by the assessee that these two amounts, though named as provision, were in fact reserves and were part of the capital of the assess....

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.... kept apart for providing for any known or existing liability. But, if such provision is made in excess of the amount that would be reasonably necessary for such purpose, the excess would be treated as a "reserve". In the instant case, the "provision for doubtful debts" and "provision for doubtful advances" are not provisions for any known or existing liability. These amounts are also not deductible in computing the income of the assessee as is evident from section 36 of the Income-tax Act which deals with allowability of deduction for bad debts in computation of income from business. Section 36, as it stood at the material time and so far as relevant, reads as under : "36. Officer deductions.-(1) The deductions provided for in the follo....