2013 (8) TMI 957 - AT - Income Tax

Provision for contractual obligations - Provision for doubtful debts in the P&L Accounts - Held that - Matter be restored back to the file of the Assessing Officer to examine the issue de novo

Summary

Issues Involved:
1. Disallowance of Provision for Contractual Obligations.
2. Disallowance of Provision for Doubtful Debts.
3. Set-off of Brought Forward Business Loss and Unabsorbed Depreciation.
4. Levy of Interest under Section 234B.
5. Cancellation of Penalty under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Disallowance of Provision for Contractual Obligations:
The assessee had debited an amount of Rs. 6,46,92,683/- as provision for contractual obligations. The Assessing Officer (AO) disallowed this provision, considering it a contingent liability. The assessee argued that the amount pertained to ongoing contractual obligations and was based on estimates. The CIT(A) confirmed the AO's disallowance. The Tribunal found merit in the Department's argument that the Tribunal's previous order for AY 1998-99 should have been brought to the AO's notice. The matter was remanded back to the AO for re-examination in light of the Tribunal's earlier decision, which allowed similar provisions as ascertained liabilities.

2. Disallowance of Provision for Doubtful Debts:
The AO disallowed Rs. 37,995,597/- as provision for doubtful debts, treating it as contingent. The assessee argued that the provision was written off as per the Supreme Court's decision in Vijaya Bank vs. CIT, which allowed such write-offs if they reduced the asset side of the balance sheet. The Tribunal noted that neither the AO nor the CIT(A) had examined the issue in light of the Supreme Court's decision. The matter was remanded back to the AO for re-examination.

3. Set-off of Brought Forward Business Loss and Unabsorbed Depreciation:
The assessee claimed set-off of brought forward business loss and unabsorbed depreciation, which was not granted by the CIT(A). This issue was not separately analyzed in detail but was implicitly included in the remand for re-examination of the primary disallowances.

4. Levy of Interest under Section 234B:
The issue of levy of interest under Section 234B was raised for AY 2006-07. The Tribunal did not provide a separate analysis for this issue, indicating that it was part of the broader appeal considerations.

5. Cancellation of Penalty under Section 271(1)(c):
The AO had levied a penalty of Rs. 3,75,76,200/- for furnishing inaccurate particulars of income. The CIT(A) canceled the penalty, relying on the Delhi High Court's decision in CIT vs. Nalwa Sons Investments Ltd., which held that penalty is not leviable if income is assessed under Section 115JB (Minimum Alternate Tax) rather than normal provisions. The Tribunal upheld the CIT(A)'s decision, confirming that since the tax was paid on book profits under Section 115JB, the concealment did not lead to tax evasion.

Conclusion:
The Tribunal remanded the issues of disallowance of provisions for contractual obligations and doubtful debts back to the AO for re-examination in light of relevant judicial precedents. The set-off of brought forward losses and unabsorbed depreciation was implicitly included in this remand. The penalty under Section 271(1)(c) was canceled, and the departmental appeal was dismissed.