LexCOMMISSIONER OF INCOME TAX-IV, DELHI versus M/S HCL COM NET SYSTEMS & SERVICES LTD.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
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[2008] 13 S.C.R. 837
COMMISSIONER OF INCOME TAX-IV, DELHI
A
II.
M/S HCL COM NET SYSTEMS & SERVICES LTD.
(Civil Appeal No. 5800 of 2008)
> )
SEPTEMBER 23, 2008
B
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ]
Income TAX ACT, 1961:
s. 115JA(2), Second proviso, Explanation, Clause {c) - c
· "Book profit" - Amount set aside as provisions for bad and
doubtful debt - Added by A. 0. back to "net profit" - HELD:
Provision for bad and.doubtful debt was made to cover up the
debt receivable by the assessee - Such a provision cannot
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be said to be a provision for liability- Therefore Clause (c) of
the Explanation is not attracted to facts of the case - A. 0. was D
not justified -in adding back the provision for doubtful debt un-
der Clause (q) of the Explanation.
Words and Phrases:
'Book profit', 'debt' - Connotation of in the context of E
s.115JA of Income Tax Act, 1961.
The respondent-assessee, with regard to the assess-
ment year 1997-98, debited an amount of Rs.95,15,187/-
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on account of bad debts to the 'profit and loss account'.
The A.O. added the said amount back to book profits hold-
F
ing that it was a provision for bad and doubtful debts as
per Clause (c) of the Explanation to the second proviso
to sub-section (2) of s.115JA of the Income Tax Act, 1961.
~ut, the Commissioner of Income Tax (Appeals), the In-
come Tax Appellate Tribunal as also the High Court held
in favour of the assessee.
G
In the instant appeal filed by the Revenue, the ques-
tion for consideration before the Court was as to whether
837
H
838
SUPREME COURT REPORTS
[2008] 13 S.C.R.
A the A.O. was justified in adding back the provision for
doubtful debts of Rs.95, 15, 187/- to the net profit under
Clau~;e (c) of the Explanation to the second proviso to
sub-section (2) of s.115JA of the Income Tax Act, 1961.
8
Dismissing the appeal, the Court
HELD: 1.1 Section 115JA of the Income Tax Act, 1961
which refers to 'deemed income relating to certain com-
panies', has an overriding effect upon other provisions
of the Income Tax Act and is applicable only in the case of
c a company. [para 7] [842-B]
1.2 The AO has to accept the authenticity of the ac-
counts maintained in accordance with the provisions of
Part II and Part Ill of Schedule VI to the Companies Act,
which are certified by the Auditors and passed by the
D company in the general meeting. The AO has only the
power of examining whether the books of accounts are
duly certified by the authorities under the Companies Act
and whether such books have been properly maintained
in accordance with the Companies Act. He does not have
E the jurisdiction to go beyond the net profit shown in the
profit and loss account except to the extent provided in
the Explanation, and has to make adjustment permissible
under the Explanation given in Section 115JA of the 1961
Act. [para 9] [843 F-G]
F
1.3 The Explanation has provided six items, i.e. Item
Nos.(a) to (f) which if debited to the profit and loss ac-
count can be added back to the net profit for computing
the book profit. In the instant case, the AO resorted to Item
No.(c) which refers to the provision for bad and doubtful
G debt. The assessee's case would fall within the ambit of
Item (c) only if all its ingredients are satisfied, namely, if
the amount is set aside as provision; the provision is made
for meeting a liability; and the provision should be for an
unascertained liability. [para 10] [844 C-D]
H
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COMMI. OF INCOME TAX-IV, DELHI v. M/S HCL
839
COMNET SYSTEMS & SERVICES LTD.
1.4 A debt payable by the assessee is different from A
the debt receivable by the assessee. In the instant case
"debt" under consideration is "debt receivable" by the
assessee, and not any liability payable by the assessee .
. The provision for bad and doubtful debt, therefore, is made
to cover up the probable diminution in the value of asset, B
i.e. which is an amount receivable by the assessee. 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. Therefore, Clause (c) of
the Explanation is not attracted to the facts of the case. In c
the circumstances, the A.O. was not justified in adding
back the provision for doubtful debts of Rs.92,15,187/-
under Clause (c) of the Explanation to the second pro-
viso to sub-section (2) of s.115JA of the 1961 Act. [para
1 OJ [844 F-G 845-A-B]
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