2023 (3) TMI 556 - AT - Income Tax

MAT Computation - determining the book profit u/s.115JA - adding back the provision for doubtful advance to the book profits in the computation of income under Sec.115JA - distinguish between the provision for debt receivable and provisions for debt payable - HELD THAT - . In this view of the matter and by respectfully following the decision of EID Parry (India) Ltd. 2019 (7) TMI 29 - MADRAS HIGH COURT we are of the considered view that there is no error in the computation of book profit u/s.115JAA of the Act, by adding provision for doubtful debts, and thus, we are inclined to upholding the findings of the Ld.CIT(A) and dismiss the appeal filed by the assessee.

Summary

Issues Involved:
1. Validity of adding back the provision for doubtful advance to book profits u/s 115JA.
2. Distinction between provision for debt receivable and debt payable.
3. Interpretation of Clause (c) of the Explanation to Section 115JA(2).
4. Applicability of Supreme Court judgments on the jurisdiction of the Assessing Officer regarding book profits.

Summary:

1. Validity of Adding Back Provision for Doubtful Advance to Book Profits u/s 115JA:
The assessee challenged the addition of the provision for doubtful advance to book profits computed u/s 115JA. The ITAT initially deleted the addition following the Supreme Court's decision in CIT v. HCL Comnet Systems & Services Ltd., which held that the Assessing Officer does not have jurisdiction to go beyond the net profit shown in the profit and loss account except as provided in the explanation to Section 115JA.

2. Distinction Between Provision for Debt Receivable and Debt Payable:
The Commissioner of Income Tax-LTU (Appeals) was argued to have erred in distinguishing between provisions for debt receivable and debt payable. The assessee contended that Clause (c) of the Explanation to Section 115JA(2) pertains only to liabilities and not to provisions for doubtful debts.

3. Interpretation of Clause (c) of the Explanation to Section 115JA(2):
The assessee argued that Clause (c) should only apply to liabilities, and since provision for doubtful advance is not a liability, it should not be added back. The Tribunal, however, noted the amendment by the Finance (No.2) Act, 2009, which inserted Clause (g) to the Explanation to Section 115JA(2) with retrospective effect from 01.04.1998, covering provisions for diminution in the value of assets, including doubtful debts.

4. Applicability of Supreme Court Judgments:
The Tribunal noted that the Supreme Court's decision in CIT v. HCL Comnet Systems & Services Ltd. did not consider the amendment brought by the Finance (No.2) Act, 2009. The High Court of Madras directed the Tribunal to re-examine the issue in light of this amendment. The Tribunal, following the High Court's guidance and the decision in EID Parry (India) Ltd. v. ACIT, upheld the addition of the provision for doubtful debts to book profits.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the addition of the provision for doubtful debts to the book profits computed u/s 115JA, in line with the retrospective amendment and relevant judicial precedents. The appeal was disposed of with directions to re-examine the issue afresh considering the amendment to Section 115JA.