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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 ..... 2 OF 2008 - - - Dated:- 29-8-2011 - N. KUMAR AND RAVI MALIMATH, JJ. K.V. Aravind and M.V. Seshachala for the Appellant. K.P. Kumar for the Respondent. JUDGMENT N. Kumar, J. The revenue has preferred this appeal challenging the order passed by the Tribunal which upheld the view of the Appellate Commissioner that the addition made by the Assessing Authority on account of provision of doubtful debts claimed by the assessee is not proper. 2. This appeal pertains to the assessment year 2004-05. The assessee is engaged in manufacturing, trading and distribution 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred an appeal to the Tribunal. The Tribunal agreed with the finding of the Appellate Commissioner dismissed the appeal Aggrieved by the same, the revenue is in appeal. 4. The appeal was admitted to consider the following substantial question of law: "Whether the Appellate Authorities were correct in holding that the provisions made for bad and doubtful debts cannot be added back in accordance with the Explanation (c) to Section 115JB(1) of the Act as the same is not an ascertained liability when computing the book profits under Section 115JB of the Act? 5. The assessee in the 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain Companies. If the income-tax payable by a Company on the total income is less than 18% of book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of 18%. Explanation added to the said provision makes it clear that for the purpose of this Section book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-Section (2) is increased by the amounts mentioned therein at Clauses (a) to (h) as 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 circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere are two types of debt. A debt payable by the assessee is different from a debt receivable by the assessee. A debt is payable by the assessee where the assessee has to pay the amount to others whereas the debt receivable by the assessee is an amount which the assessee has to receive from others. In the present case the debt under consideration is debt receivable by the assessee. The provision for bad and doubtful debt, therefore, is made to cover up probably the diminution in the value of assets that is debt which is an amount receivable by the assessee. Therefore, such a provision 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 presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there is a dichotomy between actual write off on the one hand and provision for bad and doubtful debt on the other. A mere debit to the profit and loss account would constitute a bad and doubtful debt, but it would not constitute actual write off and that was the very reason why the explanation stood inserted. Prior to the Finance Act, 2001 many assessees used to take the benefit of deduction under Section 36(1)(vii) of the 1961 Act by merely debiting the impugned bad debt to the profit and loss account and, therefore, the Parliament stepped in by way of Explanation to say that a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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