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2013 (2) TMI 405 - HC - Income TaxMAT - Book Adjustments - Whether the phrase ascertained liability as used in Explanation (c) of Section 115J(1A) includes in its sweep, the entire amount set aside for payment of bonus or merely the actual payment of bonus? - Held that - However, if it was only an estimation then it could not be regarded as an ascertained liability. Since, the position is not clear on facts AO should determine as to whether the computation of the provision for bonus was on the basis of Payment of Bonus Act, 1965. If so, the said provision would have to be treated as an ascertained liability. On the contrary, if he finds the provision for payment of bonus was not in accordance with the provisions of the Payment of Bonus Act, 1965 and it was merely an estimation then the original assessment of the assessing officer would hold. Rural Branches - provision for bad and doubtful debts, Reserve for bad and doubtful debt further provision & Reserve for bad & doubtful debts 5% of taxable income - Whether Tribunal was right in holding that the said items were unascertained liabilities and therefore added back to the book profits of the assessee by invoking Section 115-J(1A) read with Explanation (c) of the Act? - Held that - Decided in favour of assessee as relying on Commissioner of Income Tax-IV, Delhi Versus M/s HCL Comnet Systems & Services Ltd. 2008 (9) TMI 18 - SUPREME COURT
Issues:
1. Applicability of Section 115-J to a banking company. 2. Interpretation of "ascertained liability" in Explanation (c) of Section 115J(1A) of the Income Tax Act, 1961. 3. Treatment of specific items as unascertained liabilities under Section 115-J(1A) read with Explanation (c) of the Act. Issue 1: Applicability of Section 115-J to a banking company The appellant challenged the order by the Income Tax Appellate Tribunal, questioning the applicability of Section 115-J to a banking company for the assessment year 1989-90. The High Court framed specific questions for consideration, including the applicability of Section 115-J to a banking company. The learned counsel for the appellant argued that the issues raised were in favor of the assessee, citing a decision of the Bombay High Court. The High Court concurred with the Bombay High Court's decision, emphasizing that if the provision for bonus was computed based on the Payment of Bonus Act, 1965, it would be considered an ascertained liability. However, if it was merely an estimation, it could not be deemed as such. The assessing officer was directed to determine the basis of computation for the provision for bonus to establish its status as an ascertained liability. Issue 2: Interpretation of "ascertained liability" The interpretation of "ascertained liability" in Explanation (c) of Section 115J(1A) was a crucial aspect of the case. The revenue raised concerns regarding whether the provision for payment of bonus was genuinely an ascertained liability or a mere estimation. The appellant contended that the provision was calculated in accordance with the Payment of Bonus Act, 1965, making it an ascertained liability. The High Court stressed the importance of the basis of computation in determining the nature of the provision. It was highlighted that if the provision was based on the statutory provisions, it would qualify as an ascertained liability; otherwise, it would not. The Court directed the assessing officer to investigate and decide on the nature of the provision for bonus to ascertain its treatment as an ascertained liability. Issue 3: Treatment of specific items as unascertained liabilities The third issue revolved around the treatment of specific items, such as provisions for bad and doubtful debts, as unascertained liabilities under Section 115-J(1A) read with Explanation (c) of the Act. The appellant relied on a Supreme Court decision to support their argument that the items in question were not unascertained liabilities. The High Court agreed with the appellant, ruling in favor of the assessee and against the revenue concerning the treatment of these items. Consequently, the appellant withdrew the first question raised, and the appeal was allowed based on the decisions regarding the interpretation of "ascertained liability" and the treatment of specific items as liabilities. This detailed analysis of the judgment addresses the issues of the applicability of Section 115-J to a banking company, the interpretation of "ascertained liability," and the treatment of specific items as unascertained liabilities under the Income Tax Act, 1961. The High Court's decision provides clarity on these complex legal matters, offering guidance on the computation and treatment of liabilities for taxation purposes.
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