Brief of the case
In the case of The Commissioner of Income Tax vs. M/s. Salgaonkar Mining Industries Pvt. Ltd High Court of Goa has held that provision for doubtful debt is not required to add back while arriving book profit u/s 115JA.
Facts of the case
1. Assessee’s income, under the normal provisions of the Act, was less than 30 % of its book profits, the Assessing Officer invoked Section 115JA of the Act and in terms of the explanation therein, added a sum of Rs.20.5 lakhs to the book profits, to compute the income at Rs.2.76 crores. Besides, as the respondent assessee had not computed advance tax, interest under Sections 234B and 234C of the Act was also imposed aggregating to Rs.30.71 lakhs, while computing the amount payable to the Revenue by the respondent assessee.
2. Assessee filed appeal before CIT(A) and CIT(A) CIT(A) upheld the order of the Assessing Officer on both counts and so far as the adjustment of book profits in terms of explanation (c) to Section 115JA(2) of the Act, it was noted that the provision represented advances made by the respondent assessee to its sister concern and the non-recovery of the same was provided as provision for bad debts on an adhoc basis. The CIT(A) held the same to be covered by clause (c) of explanation to Section 115JA(2) of the Act as being in the nature of unascertained liability. So far as interest payable under Section 234B and 234C of the Act as default and delay of advance tax payment was concerned, the order of the Assessing Officer was upheld.
3. Assessee thereafter filed appeal before Tribunal and Tribunal held that the provision in respect of doubtful debts is not a liability much less an ascertained liability for the purposes of application of clause (c) of the explanation to Section 115JA(2) of the Act. Thus, the impugned order held that the book profits cannot be increased by Rs.20.05 lakhs being a provision for doubtful debts to determine book profits in accordance with Section 115JA of the Act. So far as interest payable in respect of the default and delay in payments of advance tax under Section 234B and 234C of the Act is concerned, the Tribunal held that the same was not payable in view of the decision of the Karnataka High Court in Kwality Biscuits Ltd. Vs. CIT, reported in 243 ITR 519 and subsequent dismissal of the Revenue’s Appeal by the Apex Court.
Aggrieved by the order of the tribunal assessee filed an appeal
A) Whether on the facts and in the circumstances of the case the ITAT was justified in deleting the addition of Rs.20,05,744/- being provision for doubtful debt on the ground, that the provision for doubtful debt are doubtful for recovery and therefore cannot be equated with liability, which is contrary to provisions of Section 115JA, by ignoring the finding of the CIT(A) that the entire provision represented advances towards sister concern and not trade debts and that it was an adhoc provision made towards advances of doubtful recovery and therefore cannot be treated as unascertained liability u/s 115JA ?
B) Whether on the facts and in the circumstances of the case the ITAT erred in law by deleting the interest u/s 234B&C of the IT Act, by relying on the decision of the Hon’ble Karnataka High Court in “Kwality Biscuit Ltd. V/s CIT (243 ITR 519) and Hon’ble Supreme Court in dismissing the Appeal filed by the Department against the said decision, in “284 ITR 434(SC)” which is not applicable to the Assessee’s case in view of sub-section (4) of Section 115JA of the IT Act?.
That an amount of Rs.20.5 lakhs, which has been debited to the profit and loss account under the head provision for doubtful debts, would stand covered by clause (c) of the explanation to Section 115JA(2) of the Act. It is further submitted that in the present facts, there is no justification for the Tribunal to delete the addition of provision for doubtful debts made to the book profits of Rs.20.5 lakhs under Section 115JA of the Act.
1. Assessee’s relied upon order of Tribunal viz. that the provision in respect of doubtful debts is not a liability much less an ascertained liability for the purposes of application of clause (c) of the explanation to Section 115JA(2) of the Act.
2. interest payable in respect of the default and delay in payments of advance tax under Section 234B and 234C of the Act is concerned, the Tribunal held that the same was not payable in view of the decision of the Karnataka High Court in Kwality Biscuits Ltd. Vs. CIT, reported in 243 ITR 519 and subsequent dismissal of the Revenue’s Appeal by the Apex Court.
High Court decision / observations
1. It is very clear from the language of clause (c) of the explanation to Section 115JA(2) of the Act that it only refers to the amount set aside for provisions made for meeting liabilities, which are not ascertained. In the present case, indisputably, the amount of Rs.20.5 lakhs sought to be added to the book profits, is in fact a provision made in respect of unlikely recovery of an advance made by the respondent to its sister concern. Thus, the same is not in the nature of a liability of the respondent assessee, but is in the nature of a recoverable from its sister concern. Such a provision causes a possible diminution in the value of asset i.e. amount recoverable.
2. Thus, on the plain reading, clause (c) of the explanation to Section 115JA(2) of the Act, would have no application to the present facts. In any case, the aforesaid issue now stands concluded in favour of the respondent assesee, by the decisions of the Apex Court in CIT V. HCL Connect Systems and Services Ltd, reported in 305 ITR 405. In this case, the Court, in respect of assessment year 1997-1998 (same in this case), has held that a provision for bad and doubtful debts would not be covered by clause (c) of the explanation to Section 115JA(2) of the Act. This is so because even if debt is not recoverable by an assessee, it cannot become as liability of the assessee.
3. Similarly, the Apex Court in Joint Commissioner of Income Tax Vs. M/s. Rolta India Ltd, reported in 330 ITR 470, wherein it held that where the provision has not been made for meeting liability, no occasion to apply clause (c) of the explanation to Section 115JA(2) of the Act can arise. The Apex Court observed that :
“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 “debt” under consideration is “debt receivable” by the assessee.”
In this case also, there is no debt payable by the respondent assessee, but it is a debt receivable and would not stand covered by clause (c) of the explanation to Section 115JA(2) of the Act. Thus, the issue stands concluded in favour of the respondent by the decision of the Apex Court in HCL Connect System and Services Ltd (supra) and Rolta India Ltd (supra). Hence, appeal file by revenue on this count is dismissed.
4. On question B- The Counsel for both sides are agreed that this question stands concluded in favour of the Revenue, by the decision of the Apex Court in Joint Commissioner of Income Tax Vs. Rolta India Ltd. Wherein it was held that:
“Section 115JA was inserted by the Finance Act, 1996 with effect from 1-4-1997. After insertion of section 115JA, section 115JB was inserted by the Finance Act, 2000 with effect from 1-4-2001. It is clear from reading of sections 115JA and 115JB that the question, whether a company is liable to pay tax under either provision, does not assume importance because specific provision(s) is/are made in the section saying that all other provisions of the Act shall apply to the MAT company. Similarly, amendments have been made in the relevant Finance Act providing for payment of advance tax under sections 115JA and 115JB. So far as interest leviable under section 234B is concerned, the section is clear that it applies to all companies. The pre-requisite condition for applicability of section 234B is that the assessee is liable to pay tax under section 208 and the expression ‘assessed tax’ is defined to mean the tax on the total income determined under section 143(1) or under section 143(3) as reduced by the amount of tax deducted or collected at source. Thus, there is no exclusion of section 115J/115JA in the levy of interest under section 234B. The expression ‘assessed tax’ is defined to mean the tax assessed on regular assessment which means the tax determined on the application of section 115J/115JA in the regular assessment.
The Karnataka High Court had in the case of Jindal Thermal Power Co. Ltd. v. Dy. CIT  154 Taxman 547 has held that section 115JB is a self-contained code pertaining to MAT, which imposed liability for payment of advance tax on MAT companies and, therefore, where such companies defaulted in payment of advance tax in respect of tax payable under section 115JB, they were liable to pay interest under sections 234B and 234C. Thus, it can be concluded that interest under sections 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under sections 115JA and 115JB. For the aforestated reasons, Circular No. 13 of 2001, dated 9-11-2001, issued by the CBDT has no application. Moreover, in any event, para 2 of that circular itself indicates that a large number of companies liable to be taxed under MAT provisions of section 115JB were not making advance tax payments. In the said circular, it has been clarified that section 115JB is a self-contained code and, thus, all companies were liable for payment of advance tax under section 115JB and, consequently, provisions of sections 234B and 234C imposing interest on default in payment of advance tax were also applicable”
Therefore, in view of above decision of apex court, Revenue appeal is allowed regarding charging of interest u/s 234B&C.
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