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2011 (11) TMI 448 - HC - Income Tax


Issues:
1. Interpretation of provisions of Sec. 10A for exemption claim.
2. Treatment of bad and doubtful debts for calculating book profit under Sec. 115JB.

Issue 1:
The case involved appeals by the Revenue against the ITAT's order granting exemption under Sec. 10A to the respondent assessee for the assessment year 1999-2000. The Assessing Officer had disallowed the exemption, citing non-compliance with Sec. 10A(2)(i)(b), 10A(2)(ii), and 10A(2)(iii). The Commissioner of Income Tax (Appeals) upheld the disallowance based on non-compliance with Sec. 10A(2)(ii), considering the establishment a reconstruction of the old unit. However, the ITAT reversed this decision, finding the STP unit to be an independent establishment and allowed the appeals. The High Court analyzed the facts and held that the conditions of Sec. 10A(2)(i) and 10A(2)(iii) were satisfied by the assessee. The ITAT's conclusion that it was not a case of reconstruction was upheld, emphasizing that assets purchased after a certain date were located at the STP unit, indicating independence from the earlier unit. The High Court referred to legal precedents to support its decision, emphasizing the commercial independence of the new unit from the old one. The first substantial question of law was answered in favor of the assessee, dismissing the Revenue's appeal.

Issue 2:
The second substantial question of law dealt with the treatment of bad and doubtful debts for computing book profit under Sec. 115JB. The respondent argued that bad and doubtful debts should not be added back for this purpose, citing a Supreme Court decision that clarified such debts are not liabilities and should not be included in calculating book profit. The High Court agreed with the respondent, citing the Supreme Court's reasoning that a provision for bad debts does not represent a liability as the debt is receivable by the assessee, not payable. Therefore, the provision for doubtful debts cannot be considered a provision for a liability. Based on this legal principle, the High Court answered the second substantial question of law in favor of the assessee, dismissing the Revenue's appeal. The appeals were ultimately dismissed by the High Court.

 

 

 

 

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