2018 (3) TMI 960 - HC - Income Tax

Minimum Alternate Tax (MAT) determination payable u/s 115J and 115JA - whether book profits, the provision for bad and doubtful debts has to be added on to determine MAT payable under Sections 115J and 115JA applicable in the respective assessment years? - Held that - The provision for bad and doubtful debts is not a provision for liability. There was no provision available in the statute to add on the provision for bad and doubtful debts, which results in diminution of assets, to the book profits as computed under Sections 115J and 115JA. The lacuna noticed by the Honourable Supreme Court was supplied by the Union Parliament by way of amendment which has retrospective effect. This is a permissible legislative exercise and hence there can be no claim raised based on the Honourable Supreme Court s decision for the year 1998- 99 in Commissioner of Income Tax v. HCL Comnet Systems and Services Ltd. 2008 (9) TMI 18 - SUPREME COURT . The legal infirmity noticed has been now removed and it is possible for adding back the provision for bad and doubtful debts, which as per the Honourable Supreme Court s decision results only in diminution of assets. We, hence, answer the question for the assessment year 1998-99 with respect to Section 115JA in favour of the Revenue and against the assessee. If the remand order has been complied with, then necessarily, the same shall be revised in accordance with the findings in this Income Tax Appeal.

Summary

Issues:
Computation of book profits for assessment years 1988-89 and 1998-99 under Sections 115J and 115JA of the Income Tax Act, 1961.

Analysis:
For the assessment year 1988-89, the issue revolves around whether the provision for bad and doubtful debts should be added to determine Minimum Alternate Tax (MAT) under Section 115J. The court referred to a Supreme Court decision which clarified that such provision is not a liability but a measure to cover the probable diminution in asset value. Consequently, the court ruled in favor of the assessee, aligning with the Tribunal's decision.

Moving on to the assessment year 1998-99, the introduction of clause (g) in the Explanation to Section 115JA altered the scenario. This clause included provisions for diminution in asset value, retroactively effective from 1.4.1998. The court noted that the provision for bad and doubtful debts, resulting in diminution of assets, can now be added back to the book profits as per the legislative amendment. This amendment rectified the legal gap identified by the Supreme Court, allowing for the inclusion of such provisions in the computation of book profits.

The court emphasized that the legislative amendment filled the void highlighted by the Supreme Court, enabling the addition of provisions for diminution in asset value to book profits. Consequently, for the assessment year 1998-99, the court ruled in favor of the Revenue and against the assessee. The judgment specified that if the remand order had been followed, adjustments should be made in line with the court's decision. As a result, ITA No.856 of 2009 was rejected, while ITA No.934 of 2009 was allowed, with no costs incurred.