2002 (10) TMI 39 - HC - Income Tax

1. Whether, is the Tribunal right in holding that with reference to the book profit as shown in the profit and loss account of the company the additions made by the Assessing Officer by way of disallowance of the provision for foreseeable loss on con tract, the provision for bad and doubtful debts and the provision for obsolescence of stores, are not in accordance with the provisions of section 115J ? - 2. Whether, on the facts and in the circumstances of the case, cannot the addition in this case be upheld as a prima facie adjustment in accordance with section 143(1)(a) ? -3. Whether, the Tribunal is right in law in holding that the proviso to section 143(1)(a) permits only the disallowance of any loss carried forward, deduction, allowance or relief claimed in the return which on the basis of the information is prima facie inadmissible ? the adjustment made in this case is also not within the scope of prima facie disallowance under section 143(1)(a) as clarified by the Central Board in the Circular No. 689, dated August 24, 1994 ? - The matter requires reconsideration at the hands of the Tribunal. Hence, the addition of interest on income-tax cannot be added. Further, the matter is remanded regarding the applicability of section 115J(1A), Explanations (a) and (c) of the Act to the Tribunal.

Summary

Issues:
1. Interpretation of provisions under section 115J of the Income-tax Act regarding additions made by the Assessing Officer.
2. Applicability of section 143(1)(a) in making adjustments.
3. Determination of liabilities and provisions under section 115J(1A) of the Act.

Analysis:

Issue 1: Interpretation of provisions under section 115J
The judgment deals with two separate cases, I. T. R. No. 26 of 1999 and I. T. A. No. 212 of 2002, concerning the assessment years 1989-90 and 1990-91 respectively. The main contention revolves around the additions made by the Assessing Officer, including disallowance of provisions for foreseeable loss on contract and interest on income-tax. The court analyzed the provisions of section 115J of the Act, emphasizing that additions should strictly adhere to the statutory language. It was observed that interest on income-tax is not explicitly mentioned in the section, hence cannot be added. Regarding the provision for foreseeable loss on contract, the court delved into the distinction between liabilities and provisions, emphasizing that only amounts set aside for provisions for meeting liabilities other than ascertained liabilities should be added back.

Issue 2: Applicability of section 143(1)(a) in making adjustments
The judgment also addresses the applicability of section 143(1)(a) in making adjustments. The court considered whether adjustments made by the Assessing Officer could be upheld as prima facie adjustments under this section. It was argued that the adjustments made were not within the scope of prima facie disallowance as clarified by the Central Board. The court emphasized the need for a strict interpretation of the provisions to determine the admissibility of adjustments under this section.

Issue 3: Determination of liabilities and provisions under section 115J(1A) of the Act
The court further examined the provisions under section 115J(1A) of the Act, particularly Explanation (c), which allows for additions related to provisions made for meeting liabilities other than ascertained liabilities. The court scrutinized the nature of the provisions made by the assessee, such as for foreseeable loss on contract, bad and doubtful debts, and obsolescence of stores. It was highlighted that provisions created for anticipated losses do not necessarily constitute liabilities. The court emphasized the distinction between provisions and liabilities, citing definitions under the Companies Act and directing the matter for reconsideration by the Tribunal for a thorough examination in accordance with the law.

In conclusion, the court remanded both appeals for fresh consideration, highlighting the importance of a precise interpretation of statutory provisions and the need for a comprehensive review of the issues raised by both the Revenue and the assessee.