2002 (12) TMI 616 - AT - Income Tax

Summary

Issues Involved:
1. Inclusion of provision for doubtful debts/advances in computation under section 115JA.
2. Inclusion of income tax of earlier years in computation under section 115JA.
3. Disallowance of assessee's claim of bad debt under section 36(1)(vii).
4. Levy of interest under sections 234B and 234C.

Detailed Analysis:

1. Inclusion of Provision for Doubtful Debts/Advances in Computation under Section 115JA:
The assessee challenged the inclusion of Rs. 2,50,80,539 in the computation under section 115JA, which included a provision for doubtful debts/advances of Rs. 2,49,73,218. The assessee argued that this provision was based on a suit filed against a debtor and was in line with the Foreign Exchange Manual issued by the Reserve Bank of India. The Assessing Officer disallowed the deduction under section 36(1)(vii) on the grounds that the debt had not been written off as irrecoverable in the accounts and the assessee had not established that the debt had become bad. The CIT(A) upheld this disallowance, noting that the provision was premature and the debts had not become irrecoverable during the relevant year. The CIT(A) also held that the provision should be treated as a reserve under clause (b) of Explanation to section 115JA(2), thus justifying the increase in book profit. The Tribunal upheld the CIT(A)'s decision, agreeing that the provision was unnecessary and should be treated as a reserve, not a provision.

2. Inclusion of Income Tax of Earlier Years in Computation under Section 115JA:
The assessee claimed a deduction of Rs. 1,07,321 for income tax of earlier years, arguing that it represented short recovery of income due to the non-receipt of a tax deduction certificate from a debtor. The CIT(A) rejected this claim on the ground that the amount had not been written off in the ledger account. The Tribunal, however, directed the Assessing Officer to allow the deduction, emphasizing that the assessee was justified in claiming the deduction if the amount had become irrecoverable despite diligent efforts.

3. Disallowance of Assessee's Claim of Bad Debt under Section 36(1)(vii):
The assessee's claim for bad debt under section 36(1)(vii) was disallowed by the CIT(A) and this disallowance was upheld by the Tribunal. The Tribunal noted that the claim could not be accepted in light of the amendment to section 36(1)(vii) by the Finance Act, 2001, which was retrospective from 1-4-1989.

4. Levy of Interest under Sections 234B and 234C:
The assessee contested the levy of interest under sections 234B and 234C, arguing that it was not liable to make any payment of advance tax under section 115JA. The Tribunal rejected this contention, siding with the Revenue and citing various High Court judgments that supported the levy of interest under these sections.

Conclusion:
The appeal was partly allowed, with the Tribunal directing the allowance of the deduction for income tax of earlier years while upholding the disallowance of the provision for doubtful debts/advances, the claim of bad debt under section 36(1)(vii), and the levy of interest under sections 234B and 234C.