Delhi H.C : Why a bad and doubtful debt claimed by the assessee cannot be treated as an ascertained liability

High Court Of Delhi

CIT vs. HCL Comnet Systems & Services

Section 115JA

Asst. Year 1997-98

Madan B. Lokur & V.B. Gupta, JJ.

IT Appeal No. 56 of 2007

18th May, 2007 

Counsel Appeared :

Ms. P.L. Bansal, for the Appellant : Saubhagaya Aggarwal, for the Respondent

JUDGMENT

By the court :

The Revenue is aggrieved by an order dt. 8th Feb., 2006 passed by the IT Department (sic-Appellate Tribunal), Delhi Bench ‘A’ in ITA No. 814/Del/2003 relevant for the asst. yr. 1997-98.

2. The assessee had made provision for bad and doubtful debts in its P&L a/c. According to the AO this was not an ascertained liability and, therefore, the amount was to be included in the book profits of the assessee in view of the Explanation to s. 115JA of the IT Act, 1961.

3. On appeal, the CIT(A) was of the view that the amount was an ascertained liability and had been shown as such in the P&L a/c of the assessee. In view of the decision of the Supreme Court in Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC), this could not be changed. Moreover, the provision amounted to a diminution in the value of assets. Consequently, the amount could not be included in the book profits of the assessee.

4. The Tribunal upheld the view of the CIT(A) and held that the amount could be included in the book profits of the assessee only if it fell within the Explanation to s. 115JA of the Act.

5. On a reading of cl. (c) of the Explanation to s. 115JA of the Act, it is clear that ascertained liabilities are not to be included in the book profits as defined in that section. We are of the view that there is no reason why a bad and doubtful debt claimed by the assessee cannot be treated as an ascertained liability.

6. Learned counsel for the Revenue submits that the debts that are bad and doubtful should have been written off. If that be so, then cl. (c) of the Explanation to s. 115JA of the Act would become completely inoperative and otiose, which is obviously not the intention of the legislature.

7. We find that no substantial question of law arises.

[Citation : 292 ITR 299]