2010 (2) TMI 45 - HC - Income Tax

Adjustment u/s 115JA - provision for doubtful debts provision for doubtful advances and provision for gratuity held that - the issue relating to provision for gratuity stands decided against the revenue and in favour of the assessee by virtue of a decision of this Court in CIT v. Hewlett Packard India 2008 - TMI - 3577 - HIGH COURT OF DELHI - The questions with regard to the provision for doubtful debts and provision for doubtful advances have to be answered in favour of the revenue and against the assessee because of the retrospective amendment introduced in Section 115JA of the said Act. By virtue of Finance (No.2) Act 2009 clause (g) has been inserted in the Explanation contained in Section 115JA (2). By virtue of the said amendment the amount or amounts set aside as provision for diminution in the value of any asset is specifically mentioned. The Supreme Court in the case of CIT v. HCL Comnet Systems & Services 2008 -TMI - 30808 - SUPREME COURT held that provision for doubtful debts and doubtful advances did not fall within clause (c) of the said Explanation inasmuch as they amounted to provision in respect of diminution in the value of asset. Consequent to retrospective amendement the question insofar as it relates to provision for doubtful debts and provision for doubtful advances requires to be answered in favour of the revenue and against the assessee

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was correct in law in deleting certain additions made by the Assessing Officer?
2. Interpretation of provisions for doubtful debts, advances, and gratuity under Section 115JA of the Income Tax Act.

Issue 1:
The High Court heard an appeal against the Tribunal's order relating to the assessment year 2000-2001. The main question was whether the Tribunal was correct in deleting certain additions made by the Assessing Officer. The additions included provisions for doubtful debts, advances, and gratuity in the computation under Section 115JA of the Act.

Issue 2:
Regarding the provisions for doubtful debts and advances, the Court referred to a retrospective amendment introduced in Section 115JA by the Finance Act. The amendment specifically covered provisions for diminution in the value of assets, which included doubtful debts and advances. The Court cited a Supreme Court decision to support that these provisions did not fall under the previous explanation. With the retrospective effect, the provisions for doubtful debts and advances were now explicitly covered. Therefore, the Court ruled in favor of the revenue and against the assessee on these aspects.

Judgment:
The Court decided in favor of the assessee concerning the provision for gratuity based on a previous decision. However, the provisions for doubtful debts and advances were ruled in favor of the revenue due to the retrospective amendment. The judgment disposed of the appeal accordingly, with the judges, Badar Durrez Ahmed and Siddharth Mridul, delivering the decision.