2015 (5) TMI 231 - HC - Income Tax

Book Adjustments u/s 115JA - Minimum Alternate Tax (MAT) - Provision for doubtful debts - entire provision represented advances towards sister concern and not trade debts - Held that - It is very clear from the language of clause (c) of the explanation to Section 115JA(2) of the Act that it only refers to the amount set aside for provisions made for meeting liabilities, which are not ascertained. In the present case, indisputably, the amount of ₹ 20.5 lakhs sought to be added to the book profits, is in fact a provision made in respect of unlikely recovery of an advance made by the respondent to its sister concern. Thus, the same is not in the nature of a liability of the respondent assessee, but is in the nature of a recoverable from its sister concern. Such a provision causes a possible diminution in the value of asset i.e. amount recoverable. Thus there is no debt payable by the respondent assessee, but it is a debt receivable and would not stand covered by clause (c) of the explanation to Section 115JA(2) of the Act. Thus, the issue stands concluded in favour of the respondent by the decision of the Apex Court in HCL Connect System and Services Ltd (2008 (9) TMI 18 - SUPREME COURT) and Rolta India Ltd (2011 (1) TMI 5 - SUPREME COURT OF INDIA) - Decided in favour of the respondent Assessee Interest u/s 234B&C - ITAT deleted addition - Held that - This question stands concluded in favour of the Revenue, by the decision of the Apex Court in Joint Commissioner of Income Tax Vs. Rolta India Ltd. (2011 (1) TMI 5 - SUPREME COURT OF INDIA). Decided in favour of Revenue.

Summary

Issues:
1. Addition of provision for doubtful debt to book profits under Section 115JA of the Income Tax Act, 1961.
2. Imposition of interest under Sections 234B and 234C of the Income Tax Act.

Analysis:

Issue 1: Addition of Provision for Doubtful Debt
The respondent assessee filed its return of income for assessment year 1997-1998, and the Assessing Officer invoked Section 115JA of the Act to add a sum to the book profits. The CIT(A) upheld this addition, considering the provision for doubtful debts as an unascertained liability. However, the Tribunal held that provision for doubtful debts is not a liability and cannot be added to book profits under Section 115JA. The Tribunal referred to relevant case laws to support its decision, emphasizing that a provision for bad and doubtful debts does not fall under clause (c) of the explanation to Section 115JA(2) of the Act. The Tribunal concluded that the provision for doubtful debts does not increase book profits. The High Court agreed with the Tribunal's interpretation, citing previous judgments and dismissed the appeal on this issue.

Issue 2: Imposition of Interest under Sections 234B and 234C
The CIT(A) upheld the imposition of interest under Sections 234B and 234C on the respondent assessee for default and delay in advance tax payment. However, the Tribunal ruled in favor of the respondent, citing a decision of the Karnataka High Court and the subsequent dismissal of the Revenue's appeal by the Supreme Court. The Tribunal held that the interest was not payable in this case. The High Court concurred with the Tribunal's decision, stating that the issue was conclusively settled in favor of the Revenue by a decision of the Apex Court. Consequently, the High Court allowed the appeal on this issue.

In conclusion, the High Court partly allowed the appeal, dismissing the appeal regarding the addition of the provision for doubtful debt to book profits and allowing the appeal concerning the imposition of interest under Sections 234B and 234C. The judgment provides a detailed analysis of the legal provisions, case laws, and reasoning behind the decisions on both issues, ensuring a comprehensive understanding of the matter at hand.