2011 (7) TMI 654 - HC - Income Tax

MAT - whether provision for bad and doubtful debts should be added back for the purpose of computation u/s 115JB? - AY 2004- 05 - Held that - Clause (i) of Explanation 1 inserted in section 115JB(2) by the Finance (No. 2) Act 2009 effective retrospectively from April 1 2001. According to clause (i) any amount or amounts set aside as provision for diminution in the value of any asset shall not reduce the book profits of an assessee. It was submitted that provision for bad and doubtful debts would be covered thereunder. See CIT Versus Steriplate P. Ltd. 2011 (5) TMI 645 - Punjab and Haryana High Court - issue needs to be decided afresh by the AO - Appeal allowed by way of remand.

Summary

Issues:
Interpretation of provision for bad and doubtful debts under section 115JB of the Income-tax Act, 1961.

Detailed Analysis:
The judgment dealt with Income-tax Appeal Nos. 586 and 761 of 2008, where the Revenue challenged the order of the Income-tax Appellate Tribunal regarding the treatment of provision for bad and doubtful debts under section 115JB of the Income-tax Act, 1961 for the assessment year 2004-05. The substantial question of law was whether the provision for bad and doubtful debts should be added back for computation under section 115JB.

The assessee, a company engaged in cellular services, had claimed a provision for doubtful debts in its profit and loss account. The Assessing Officer had made an adjustment to the net profit, resulting in an increased income and a demand for payment. The Commissioner of Income-tax (Appeals) deleted the addition, stating that it did not fall under the relevant clause of the Explanation to section 115JB.

The Revenue appealed to the Tribunal, which upheld the decision of the Commissioner of Income-tax (Appeals), leading to the current appeal before the High Court. The Revenue argued that a new clause in Explanation 1 to section 115JB(2) was inserted retrospectively, which would cover the provision for bad and doubtful debts. The assessee cited a Supreme Court judgment but acknowledged the retrospective amendment and suggested further consideration by the Assessing Officer.

The High Court observed that a similar issue had been addressed in a previous case and noted that the introduction of the new clause in Explanation 1 was effective from April 1, 2001. Therefore, the matter needed fresh consideration by the Assessing Officer in light of the retrospective amendment. The High Court allowed the appeals and remitted the matter to the Assessing Officer for a fresh decision in accordance with the law.

In conclusion, the High Court's judgment clarified the retrospective application of the new clause in Explanation 1 to section 115JB(2) and directed the Assessing Officer to reconsider the treatment of the provision for bad and doubtful debts in compliance with the law.