M.J. Exports Private Limited Vs JCIT (Bombay High Court)
Bombay High Court held that amount indicated in profit and loss account as provision for doubtful debts/ advances cannot be treated as ‘reserve’ and therefore, the book profit could not be increased by the said amount under clause (b) of the Explanation to section 115JA of the Income Tax Act.
Facts- The Assessee has filed the present Appeal under provisions of Section 260A of the Income Tax Act, 1961 challenging the judgment and order dated 31 December 2002 passed by ITAT, rejecting the Appeal filed by it to the extent of addition of amount of Rs.2,49,73,218/- in the book profit under clause (b) of Explanation to Section 115JA of the Act. ITAT has confirmed the order passed by CIT(A), who in turn had confirmed the order of AO by treating the provision made by the Assessee towards doubtful debt/advances as ‘reserves’ under clause (b) instead of treating the same as ‘provision’ made for meeting liabilities under clause (c) by modifying the order of AO to this limited extent.
Conclusion- In our view, the Assessing Officer grossly erred in doing so. The Assessing Officer ignored the fact that the said amount was not debt payable by the Assessee but the same was debt receivable by it. Therefore, the amount did not represent liability of the Assessee but in fact was its asset.
