Case Law Details
Prior to the introduction of clause(i) to the explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems and Services Ltd. (supra), the then existing clause (c) did not cover a case where the assessee made a provision for bad or doubtful debt. With insertion of clause (i) to the explanation with retrospective effect, any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JB of the Act. However, if this was not a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset aside of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual write off would not be hit by clause (i) of the explanation to section 115JB.
Full Text of the High Court Judgment / Order is as follows:-
1. This reference to the larger Bench was made by the Division Bench by an order dated 23.8.2016.
2. Brief facts leading to the reference are as under. The respondent assessee is a company registered under the Companies Act. For the assessment year 2003-2004, the assessee had filed return of income declaring nil income. The Assessing Officer framed the order of assessment on 27.03.2006, after which, notice under section 148 of the Income Tax Act [‘the Act’ for short] was issued on 06.02.2007 to reopen the assessment. The main point of divergence in such reassessment between the Revenue and assessee was the provision of Rs.6.28 crores (rounded off) made by the assessee for bad and doubtful debts. The Assessing Officer added such sum 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 question of law:
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Thank you very much for providing a brief knowledge of above cases.
The above case is nothing but eye wash for the general public to state Banks are taking legal course etc. There is a need to form committees formed from National level to Panchayat level for recovery of bad debts and non performing assets, thus profits of the banks decreased and to cover up losses, service chargers are revised and burden the common account holders.