2008 (1) TMI 8 - HC - Income Tax

Addition u/s 115JA - Provision for Assets versus Provision for Liability - Addition - AO made addition in respect of provision of doubtful debt and provision for damaged stock as unascertained liability - Further these provisions are ascertained liability as against unascertained liability

Summary

Issues:
Appeal against ITAT order deleting provisions for doubtful debts and damaged stock from book profits under Section 115JA of the Income Tax Act, 1961.

Analysis:
1. The Revenue challenged the ITAT order deleting additions of Rs.4,00,178 for doubtful debts and Rs.41,73,107 for damaged stock made by the Assessing Officer, contending that these provisions were related to assets, not liabilities, thus not representing unascertained liabilities.

2. The Assessing Officer added back the provisions as per Explanation (c) of Section 115JA(2) since they were not included in the computation of book profits. The CIT(A) deleted the additions, citing the Apollo Tyres Ltd. case, stating the provisions were ascertained liabilities and directing the book profit calculation as per the Assessee's declaration.

3. The ITAT upheld the CIT(A)'s decision, reasoning that the provisions were asset-related and not liabilities incurred by the Assessee. The stock write-offs were due to expired, leaked, or obsolete products, falling under ascertained liabilities prepared in accordance with Schedule-VI of the Companies Act for Section 115JA.

4. The Revenue argued that the Assessee failed to justify the provisions for bad debts and expired stock, citing legal precedents Commissioner of Income Tax vs. Eicher Ltd and State Bank of Patiala vs. Commissioner of Income Tax.

5. The ITAT found no fault in the Assessee's actions, as the provisions were based on genuine reasons like stock expiry, leakage, and obsolescence, all falling under ascertained liabilities for a company dealing with agricultural chemicals.

6. The Court dismissed the Revenue's appeal, stating no substantial legal question arose, affirming the ITAT's decision due to the provisions being ascertained liabilities and prepared in compliance with the Companies Act for Section 115JA. The Revenue was directed to pay costs to the Legal Services Committee.