2014 (4) TMI 938 - AT - Income Tax

Minimum alternate tax (MAT) - Addition of reserves - adjustment of book profits - Retrospective amendment in clause (g) of Explanation (2) to section 115JA - Whether the CIT(A) erred in deleting the addition made to book profit in respect of provisions for bad and doubtful debts holding that the provisions are made against the ascertained liability - Held that - The decision in Whirlpool of India Limited and Another Vs. Union of India and Others. 2013 (3) TMI 414 - DELHI HIGH COURT followed the purpose of the Explanation is to broaden the base amount on which tax is payable by the company - No new levy is imposed - The tax-base stands widened by the amendment in as much as the amount or amounts set aside as provision for diminution in the value of any asset and debited to the profit and loss account shall be added to the book profit - the amendment does not provide for any new levy of income tax, there is no question of it being struck down on the ground of retrospectivity the order of the CIT(A) set aside Decided in favour of Revenue.

Summary

Issues:
- Interpretation of provisions for bad and doubtful debts in book profit for assessment year 1998-99 under section 115JA.

Analysis:
The appeal by the revenue challenged the deletion of the addition made to book profit for provisions for bad and doubtful debts by the CIT(A). The Tribunal initially decided the appeal following a Special Bench decision but was later directed by the High Court to reconsider the issue in light of an amendment to Explanation (2) of section 115JA with retrospective effect from 01.04.1998. The High Court emphasized the need for fresh consideration due to the legislative change.

The Tribunal proceeded with an ex-parte hearing as the assessee did not appear. The revenue relied on the decision of the Delhi High Court in a similar case and highlighted the legislative intent behind the retrospective amendment. The High Court's decision emphasized the distinction between provisions of Section 80J and Section 115JB, stating that the amendment aimed to prevent companies from manipulating asset values to reduce book profits. The Tribunal, following the Delhi High Court decision, ruled in favor of the revenue, setting aside the CIT(A) order and restoring the AO's decision.

The Tribunal's decision was based on the retrospective amendment in clause (g) of Explanation (2) to section 115JA and the legislative intent to curb tax avoidance practices. The judgment highlighted the significance of preventing companies from reducing book profits through provisions for doubtful debts or asset devaluation. The ruling aligned with the High Court's directive and upheld the revenue's appeal, emphasizing the need to consider the broader legislative context and purpose behind the retrospective amendment.

In conclusion, the Tribunal allowed the revenue's appeal, setting aside the CIT(A) order and restoring the AO's decision in light of the retrospective legislative amendment and the High Court's directive for reconsideration. The judgment underscored the legislative intent to prevent tax avoidance practices and maintain the integrity of book profit calculations under section 115JA.