2006 (8) TMI 138 - HC - Income Tax

Book profits u/s 115JA - AO added the amount being the provision made by the assessee for bad and doubtful debts for the purposes of increasing book profits - assessee contended that the book profits could not be increased because of Explanation (c) under section 115JA(2) - bare perusal of the above Explanation (c) makes it clear that the increase shall be of the amount or amounts set aside for meeting liabilities other than ascertained liabilities. In the present case there does not appear to be any dispute about the fact that the liability was ascertained. - since in our opinion a reading of Explanation (c) of section 115JA(2) itself is very clear. The Commissioner of Income-tax (Appeals) allowed the appeal of the assessee and that was upheld by the Tribunal in the impugned order. - we do not find that the Tribunal has taken an unreasonable view.

Summary

Issues:
1. Interpretation of provisions for increasing book profits under section 115JA of the Income-tax Act.
2. Applicability of Explanation (c) under section 115JA(2) of the Act.
3. Consideration of provisions of Part III of Schedule VI to the Companies Act.
4. Reasonableness of the Tribunal's decision.

Analysis:
1. The primary issue in this case revolves around the decision of the Assessing Officer to add the provision made by the assessee for bad and doubtful debts to increase book profits under section 115JA of the Income-tax Act for the assessment year 1999-2000. The Assessing Officer failed to provide any reasoning for this increase, leading to a challenge by the assessee.

2. The assessee contended that the book profits could not be increased as done by the Assessing Officer, citing Explanation (c) under section 115JA(2) of the Act. This Explanation specifies that the increase should be of amounts set aside for meeting liabilities other than ascertained liabilities. Since the liability in this case was ascertained, Explanation (c) was deemed inapplicable.

3. The Commissioner of Income-tax (Appeals) also considered the provisions of Part III of Schedule VI to the Companies Act, particularly Clause 7(1)(a) which defines "provision" as amounts set aside for known liabilities with undetermined amounts. However, in this case, the liability amount was determined accurately, rendering the Companies Act provisions irrelevant.

4. The Tribunal upheld the appeal of the assessee, emphasizing the clarity of Explanation (c) of section 115JA(2) of the Income-tax Act. The High Court concurred with the Tribunal's decision, noting that it was reasonable and justified based on a plain reading of the statute. Consequently, the High Court found no substantial question of law warranting their consideration and dismissed the appeal.

This comprehensive analysis of the judgment highlights the key legal issues, interpretations of relevant provisions, and the reasoning behind the decisions made by the authorities involved in the case.