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TMI Blog2018 (12) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... on the following substantial question of law:- "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in confirming the action of the Assessing Officer in adding back the provision for bad debts in the computation 'book profits' in terms of Section 115 JA of the Act for the purpose of taxation?" 3.It is not disputed by the counsel on either side that identical question was answered by this Court in L.R.N.Finance Ltd. vs. Assistant Commissioner of Income-tax, Company Circle, Salem reported in [2018] 93 taxmann.com 106 (Madras). The operative portions of the judgment read as follows:- 4. It is not in dispute that the questions of law, which arise for consideration have been decided in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness, "it is bound to have" bad and doubtful debts for which "it may" in anticipation, make a provision in the balance-sheet by having a separate fund or an account to meet such anticipated liability. We are afraid that the aforesaid assumption is totally unjustified and proceeds on mere surmises and conjectures. This is not a case, when at the time fund is earmarked, there is a known liability - one which has either arisen or anticipated legitimately, by the assessee - and the fund to meet such eventuality cannot be treated as "reserves". The observations of this Court that the liability should be one "which has actually arisen or is anticipated legitimately by the assessee", cannot be extended to hold, that in the case of an assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question is, whether the liability was "known" or "anticipated" on the date when the balance sheet was prepared and the question is not whether the assessee "can anticipate" or "reasonably anticipate" on the date when the balance sheet was prepared about "the bad and doubtful debts". Further, the Hon'ble Supreme Court pointed that the High Court was in error in surmising that the assessee being a banking company is bound to get 'bad and doubtful debts'. 6. In a subsequent decision in the case of Commissioner of Income Tax vs. HCL Comnet Systems & Services Ltd., reported in (2008) 305 ITR 0409, the Hon'be Supreme Court held as follows: "10. As stated above, the said Explanation has provided six items, i.e., Item Nos.(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said to be a provision for liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. In the present case, the debt is the 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, in our view Item (c) of the Explanation is not attracted to the facts of the present case. In the circumstances, the AO was not justified in adding back the provision for doubtful debts of Rs. 92,15,187/- under clause (c) of the Explanation to Section 115JA of the 1961 Act." 7. It was pointed out in the aforementioned decision that, an assessee's case would fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been inserted with retrospective effect. Therefore, to take a decision on the said fact, the matter has to be necessarily remanded to the assessing officer for fresh consideration. Further, the contention advanced by the learned counsel for the assessee is that even assuming that the proviso is applicable, then the proviso is not unconditional, as it lays down various parameters, which are required to be fulfilled. 10. In the result, the tax case appeal filed by the assessee is allowed and the substantial questions of law are answered in favour of the assessee and against the Revenue. The matter is remanded to the assessing officer to decide as to the applicability of amendment to Section 115JA vide Finance (2) Act, 2000 with retrospecti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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