Punjab & Haryana H.C : the provision for bad & doubtful debts should not be added back for the purpose of computation under Section 115JB

High Court Of Punjab & Haryana

CIT-I, Chandigarh vs. Hutchison Max Telecom (P.) Ltd.

Assessment Year : 2005-06

Section : 115JB

Ajay Kumar Mittal, J. And Adarsh Kumar Goel, Actg. CJ.

IT Appeal No. 586 Of 2008

July 21, 2011


Ajay Kumar Mittal, J. – This order will dispose of Income Tax Appeal Nos. 586 and 761 of 2008 as the learned counsel for the parties agreed that identical question of law arises in both the appeals. The facts have been taken from Income Tax Appeal No. 586 of 2008.

2. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the revenue against the order dated 29.2.2008, passed by the Income Tax Appellate Tribunal Chandigarh Bench ‘B’, Chandigarh (in short “the Tribunal”) in ITA No. 623/CHANDI/2007, relating to the assessment year 2004-05.

3. The appeal was admitted by this Court for determination of the following substantial question of law:

“Whether on the facts and the circumstances of the case and in law, the Hon’ble ITAT was right in holding that the provision for bad & doubtful debts should not be added back for the purpose of computation under Section 115JB?”

4. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the assessee is a company engaged in the business of cellular services. The assessee filed return of income for the assessment year in question on 29.10.2004 declaring its income as NIL. The return was selected for scrutiny. The assessee company had shown its profit in the sum of Rs. 2,33,73,44,847/- and after making various adjustment, the net profit was shown at Rs. 1,89,61,50,677/-. Against this income, the assessee claimed brought-forward business loss and unabsorbed depreciation for the earlier years, amounting to Rs. 1,92,31,50,677/- and shown the net assessable income at NIL. During the proceedings under Section 143(3) of the Act, it was observed that the assessee had claimed provision for doubtful debts at Rs. 11,79,85,000/- in the P&L account and had paid tax under Section 115JB of the Act and while doing so, the assessee made a note and accordingly the assessing officer made the adjustment in net profit by increasing the net profit. The assessment was completed at an income of Rs.1,85,87,67,000/- and a demand of Rs. 95,91,174/- including the interest amounts of Rs. 38,59,236/- and Rs. 5,21,077/-calculated under Sections 234C and 234D of the Act, respectively, was created by the assessing officer, vide order dated 11.12.2006.

5. The assessee approached the Commissioner of Income Tax (Appeals) [for short “the CIT(A)”], by filing appeal. The CIT(A) by its order dated 21.3.2007 deleted the addition of Rs. 11,79,85,000/- made by the assessing officer for calculating the book profit under Section 115JB. It was held that the adjustment on account of provision for doubtful debts did not fall under clause (c ) of the Explanation to Section 115JB of the Act.

6. Aggrieved by the above order, the revenue preferred appeal before the Tribunal. The Tribunal upheld the decision of the CIT(A) and accordingly dismissed the appeal by order dated 29.2.2008.

7. We have heard learned counsel for the parties and have perused the record.

8. Learned counsel for the revenue argued that clause (i) of Explanation 1 had been inserted in Section 115JB(2) of the Act by Finance (No.2) Act, 2009 which is effective retrospectively from 1.4.2001. According to clause (i), any amount or amounts set aside as provision for diminution in the value of any asset shall not reduce the book profits of an assessee. It was submitted that provision for bad and doubtful debts would be covered thereunder. Support was gathered from the decision of this Court in CIT v. Steriplate (P.) Ltd. [IT Appeal No.931 of 2008, dated 30.5.2011]. Learned counsel for the revenue also placed reliance on a judgment of the Madras High Court in Dy. CIT v. Beardsell Ltd. [2000] 244 ITR 256 /[2001] 116 Taxman 49. Learned counsel for the assessee, however, cited the judgment of the Supreme Court in CIT v. HCL Comnet Systems & Services Ltd. [2008] 305 ITR 409/ 174 Taxman 118 but he could not controvert the submission of the learned counsel for the revenue that insertion of clause (i) in Explanation to Section 115 JB(2) retrospectively with effect from 1.4.2001 was applicable but it was submitted that the matter requires to be considered by the Assessing Officer regarding the applicability of other clauses mentioned in the Explanation.

9. After hearing counsel for the parties, we are of the opinion that identical issue came up for consideration before this Court in Steriplate (P.) Ltd.’s case (supra) where this Court had observed that introduction of clause (i) of Explanation 1 to Section 115 JB(2) of the Act was made effective from 1.4.2001 and would, therefore, apply to assessment year 2001-02 and subsequent assessment years.

10. In view of the above, the issue needs to be decided afresh by the assessing officer. The judgment of the Apex Court referred to by the learned counsel for the assessee in the wake of the aforesaid amendment made retrospectively does not advance the case of the assessee in any manner.

11. Accordingly, the appeals are allowed and the matter is remitted to the assessing officer to decide the same afresh in accordance with law.

[Citation : 338 ITR 614]

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