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TMI Blog2011 (8) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of process control instruments and undertaking related services and had furnished its return of income for the assessment year 2004-05 on 01.11.2004 declaring a total loss of Rs. 1,07,23,313/-. The return was processed under Section 143(1) of the Act and was subjected to scrutiny. During the scrutiny, the claim of deduction under Section 10A was computed to nil besides effecting certain additions and the order came to be passed on 26.12.2006. Aggrieved by the said order passed by the Assessing Authority, the assessee preferred an appeal raising nine grounds. One such ground raised was the amount added in respect of provision for doubtful debts of Rs. 10,84,33,130/- in computing book profits under Section 115JB of the Act (book profits) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance sheet as at 31st March 2004 showed a sum of Rs. 7,131.51 lakhs as amount from the debtors. For the relevant assessment year a sum of Rs. 296.30 lakhs was shown as doubtful debt. Infact a sum of Rs. 1,212.26 lakhs is the accumulated doubtful debt and it is shown as opening balance. However, under debtors, (unsecured) a total amount of Rs. 8640.07 is the amount shown as debt due to the Company. Out of the said amount a sum of Rs. 1,508.56 lakhs which represents the doubtful debts was given deduction to in the balance sheet and the total debts due is shown as Rs. 7,131.51 lakhs. In other words, provision for doubtful debts is deducted from the total assets of the Company and therefore they had claimed the aforesaid deductions. In add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubtful debts. The doubtful debts written off are not mentioned in the said Explanation as what is added is only to arrive at the book profit. Under those circumstances the appellate Commissioner as well as the Tribunal were justified in setting aside the addition made by the assessing officer. 7. The learned counsel for the Revenue submitted that Clause (i) stands added to the said Explanation which has come into effect from 1-4-2001 and therefore as the said amounts are set aside as provision for diminishing in the value of assets by virtue of retrospective operation, the said amounts have to be added only to arrive at the book profit and therefore the order passed by the Tribunal is illegal and requires to be set aside. In that contex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cannot be said to be a provision for liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. 8. In the present case, the debt is an amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore it was held that Item (c) of the Explanation is not attracted to the facts of the case. Item (c) in Section 115JA and 115-JB(1) are identical. In order to attract the Explanation the debt which is doubtful or bad should satisfy the requirement contemplated in Item (c) of the Explanation. It is the amount or amounts set aside as provisions made for meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. The Apex Court accepted the said legal position. However it was clarified that besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and, consequentially, at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance sheet was shown as net of the provision for the impugned bad debt. Then the said amount representing bad debt or d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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