BEARDSELL LTD Vs. DEPUTY COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This appeal arises out of the order of the CIT, Tarnil Nadu-1, dt. 24th Dec., 1990, passed under section 263 of the Income Tax Act, 1961, for the assessment year 1988-89. The assessee has challenged the order of the CIT by which the assessing officer was directed to recompute the book profits under section 115J for including the loss on revaluation of investments amounting to Rs. 40,19,920 and provision for doubtful debts amounting to Rs. 6,80,560 to the book profits.

(2.) The brief facts of the case were that the assessee had filed return showing an income of Rs, 9,59,340. Assessment was made on the same income. The CIT passed an order under section 263 by which the assessment was set aside as he found that the assessment was prejudicial to the interest of Revenue and patently erroneous. The assessee had debited to its PandL a/c a sum of Rs. 40,19,920 on account of loss on revaluation of investments and Rs. 6,80,560 on account of provision for doubtful debts respectively. The assessing officer while computing the taxable income as per the provisions of s. 115J failed to add back these amounts to the profit as shown in its audited PandL alc.

(3.) The assessee's authorised representative filed the copy of the audited accounts and annual report and drew our attention to p. 15 of the PandL a/c, which contains details of expenses in Schedule 13. He also pointed out to p. 11 of the printed annual accounts where the details of investment appears. He argued that ExpIn. to s. 115J is not applicable to the present case, neither to the loss on revaluation of investment amounting to Rs. 40,19,920, not to the provision for doubtful debts amounting to Rs. 6,80,560, which has been directed by the CIT to be added to the book profits. The book profits could only be increased by the amounts referred to in sub-cls. (e) to (h) of the explanation and deducted by the amount referred to in sub-cls. (i) to (iv,) of s. 115J. The loss on revaluation of investment amounting to Rs. 40,19,920 charged to PandL a/c and provision for doubtful debts amounting to Rs. 6,80,560 would not come under any of the items in the ExpIn.' to s. 115J(1). Under cl. (c) of the Explanation the amounts set aside for provisions made for meeting liabilities other than ascertained liabilities are only to be added. Debt is not a liability and therefore provision for doubtful debt can never be a provision for meeting liabilities. Debt is an asset. Similarly (sic) on revaluation of investment can also not be regarded to be a provision for meeting liabilities. In respect of the provision for doubtful debts, addition cannot be made under section 115J. He relied on the decision of the C-Bench of this Tribunal in for the assessment year 1989-90 in the case of Assistant Commissioner v. Jones Woodhead and Sons (India) Ltd. (ITA No. 685/Mad/1983). He vehemently relied on Parts II and 111 of Schedule VI, which defines the 'provision' to mean any amount written off or retained by way of providing for depreciation renewals or diminution in value of assets or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy. As per the authorised representative the legislature has only picked up from the definition in Part III, the provision made for meeting liabilities under cl. (c) to the Explanation given under section 115J. Therefore, the provision for the diminution in the value of assets is n6t covered under the Explanation to s. 115J and the direction given by the CIT is contrary to the provisions of Income Tax Act and, therefore, the order of the CIT is liable to be vacated.