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TMI Blog1987 (3) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years as appearing in Balance Sheets were as under : --------------------------------------------------------------------------------------------------------------------------------------------------- Asst. Accounting Debenture Redemption 8.5 % Deben- Debentures Year Year Reserve tures re- ------------------------------------------ Transfer Balance deemable redeemed from P. & (in lakhs) 1976/84 during L. A/c. (in lakhs) the during the yr. end-yr. ing (in lakhs) (in lakhs) Rs. Rs. Rs. Rs. --------------------------------------------------------------------------------------------------------------------------------------------------- 1 2 3 4 5 6 ------------------------------------------------------------------------------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting year ending 31-7-1964 and 31-7-1965 to preference share capital redemption reserve account for redemption of redeemable cumulative preference shares of Rs. 6 lakhs redeemable on 31-12-1970 or earlier at the option of the assessee. The High Court held that the said reserve was created u/s. 80 of Companies Act and was, therefore, a reserve under Rule 1 of Second Schedule of Sur-tax Act. The High Court did not consider the question whether the said reserve was a provision to meet a known liability. 5. However, the Bombay High Court in CIT v. National Rayon Corpn. Ltd. [1986] 160 ITR 716 had clearly held at page 721 that the debenture redemption reserve must be regarded as a provision made by the company to enable it to redeem the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 108 ITR 453 (Bom.) where transfer of ad hoc amounts to doubtful debts reserve account, year after year without considering soundness of debts was held to be reserve as the said amounts were transferred to general reserve and the bad debts were debited directly to profit & loss account and not to doubtful debts reserve account. 8. In the years under consideration before us (A.Ys. 1977-78 to 1980-81), the learned counsel for the assessee urges that we should follow the earlier order of the Bench and emphasised that the following bad debts were written off directly to the profit & loss account of the relevant years : Asst. Year Bad debts Rs. 1977-78 ... 11,185 1978-79 ... 1,453 1979-80 ... 708 1980-81 ... 9,000 9. However, on the perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst this, the factual position in the case before us is that the company considered only a portion of the unsecured sundry debtors over six months old to be doubtful debts. The Bombay High Court in National Rayon Corpn. Ltd.'s case while dealing with gratuity reserve had observed that even when ad hoc sum is appropriated for meeting liability for payment of gratuity without resorting to any scientific basis, such appropriations would also be a provision. Considering the facts of the case before us for the four years under consideration, we hold that the provision for doubtful debts has a clear and direct nexus with the debts considered doubtful by the assessee-company and, therefore, the said provision cannot be considered to be a reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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