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2019 (12) TMI 831 - HC - Income TaxDoubtful advances and debts as allowable deduction u/s 115JB - HELD THAT - Question can be answered in favour of the revenue and against the assessee by virtue of the retrospective amendment of section 115JB explanation (1)(i) with effect from 1st April 2001. We answer the question accordingly. Customs duty exemption - mercantile system of accounting - income of the year of incremental growth in FoB value of exports of the year of receipt of certificate/licence - HELD THAT - Under a customs notification dated 8th April 2005 the goods imported against a duty credit certificate issued under the target plus scheme in the relevant foreign trade policy were exempted from duty. This duty credit certificate was issued to star export house on the basis of incremental growth in FOB value of exports made during the financial year 2003-2004. The respondent assessee was following the mercantile system of accounting. It had accounted for the amount representing the exemption from duty in the accounts of the financial year in which the certificate was issued. This has been disallowed by the income tax authority. Assessing Officer, the Commissioner of Income Tax (Appeals) and the tribunal ruled in favour of the assessee.
Issues:
1. Customs duty exemption treated as income under mercantile accounting system. 2. Allowability of provision for doubtful advances and debts under section 115JB of the Income Tax Act, 1961. Issue 1: Customs duty exemption treated as income under mercantile accounting system: The High Court of Calcutta addressed the first issue regarding the treatment of customs duty exemption as income under the mercantile accounting system. The case revolved around a customs notification exempting goods imported against a duty credit certificate issued under the target plus scheme. The certificate was based on the incremental growth in FOB value of exports during a specific financial year. The respondent assessee, following the mercantile system of accounting, accounted for the duty exemption amount in the financial year when the certificate was issued. However, the income tax authority disallowed this treatment. The Assessing Officer, the Commissioner of Income Tax (Appeals), and the tribunal had ruled in favor of the assessee. The High Court found no error in the accounting method adopted by the assessee and upheld the tribunal's order dated 13th April 2016. Consequently, the Court dismissed the appeal with regard to this question, answering it in favor of the assessee and against the revenue. Issue 2: Allowability of provision for doubtful advances and debts under section 115JB of the Income Tax Act, 1961: Regarding the second issue, the Court noted that the question of whether the provision for doubtful advances and debts was an allowable deduction under section 115JB of the Income Tax Act, 1961, had been resolved in favor of the revenue due to a retrospective amendment of the Act. The Court acknowledged the amendment to section 115JB explanation (1)(i) with effect from 1st April 2001, leading to a conclusion in favor of the revenue and against the assessee. Consequently, the Court disposed of the appeal (ITA No. 152 of 2018) in accordance with the above orders, thereby addressing both issues raised in the appeal. This detailed analysis of the High Court of Calcutta's judgment provides a comprehensive overview of the legal issues involved and the Court's decisions on each matter.
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