International Hospital Ltd., New Delhi V. DCIT, New Delhi

ITA 1437/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3385 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 09-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Deemed to accrue or arise in india; Bad and doubtful debts; Set aside
• Section: 14A; 115JB; 43; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: C NEW DELHI BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.1437/DEL/2017 ASSESSMENT YEAR: 2011-12 INTERNATIONAL HOSPITAL LTD., C/O- ESCORTS HEART INSTITUTE & RESEARCH CENTRE, OKHLA ROAD, NEW DELHI VS. DCIT, CIRCLE-12(2), NEW DELHI PAN :AAACI9792A (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER DATED 13/12/2016 PASSED BY THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS)-19, NEW DELHI, FOR ASSESSMENT YEAR 2011-1 2, RAISING FOLLOWING GROUNDS: 1. THAT THE IMPUGNED ORDER DATED 13.12.2016 PASSED BY THE CIT(A) IS BAD IN LAW AND WRONG ON FACTS. 2. THAT CIT(A) ERRED BOTH ON FACTS AND IN LAW IN CO NFIRMING THE NON- DEDUCTION OF A SUM OF RS.67,69,460/- ON ACCOUNT OF BAD DEBTS WRITTEN OFF AGAINST PROVISION CREATED IN EARLIER YE ARS, IN APPELLANT BY SH. R.M. MEHTA, ADV. RESPONDENT BY MS. ANIMA BARNWAL, SR. DR DATE OF HEARING 28.09.2021 DATE OF PRONOUNCEMENT 14.10.2021 2 ITA NO.1437/DEL/2017 COMPUTATION OF BOOK PROFITS U/S 115JB OF THE INCOME TAX ACT, 1961. 3. THAT CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N CONFIRMING THE NON-DEDUCTION OF A SUM OF RS.67,69,460/- ON THE GRO UND THAT THE APPELLANT IS NOT PERMITTED TO MAKE ANY ADJUSTMENT T O THE BOOK PROFIT EXCEPT WHICH HAS BEEN SPECIFICALLY PROVIDED THEREIN, WITHOUT REALIZING THAT THESE BAD DEBTS WRITTEN OFF WERE ADJ USTED DURING THE YEAR AGAINST PROVISION FOR DOUBTFUL DEBTS CREAT ED IN EARLIER YEARS AND HAVE BEEN ADJUSTED IN COMPUTATION OF BOOK PROFITS UNDER CLAUSE (I) OF EXPLANATION 1 OF SECTION 115JB. 4. THE APPELLANT RESERVES TO ITSELF, THE RIGHT TO A DD, ALTER, AMEND, SUBSTITUTE, WITHDRAW AND/OR ANY GROUND(S) OF APPEAL AT OR BEFORE THE DATE OF HEARING. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF RUNNING A MUL TISPECIALTY HOSPITAL UNDER THE BRAND NAME OF FORTIS HOSPITAL. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSI DERATION ON 29/11/2011, DECLARING NIL INCOME. THE RETURN OF INC OME FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT A ND STATUTORY NOTICES WERE ISSUED AND COMPLIED WITH. THE ASSESSIN G OFFICER IN HIS ASSESSMENT ORDER DATED 23/03/2015 ASSESSED INCO ME UNDER REGULAR PROVISIONS OF THE INCOME-TAX ACT,1961 (IN S HORT THE ACT) AS WELL AS UNDER SECTION 115JB OF THE ACT AFTER MAK ING ADDITION OF DISALLOWANCE UNDER SECTION 14A OF 13,65,85,862/- AND DISALLOWANCE OF BAD DEBT OF 67,69,460/-. IN THIS MANNER, TOTAL INCOME UNDER REGULAR PROVISIONS WAS ASSESSED AT 14,33,55,322/- AND UNDER THE PROVISIONS OF SECTION 115JB ASSESSED AT 41,58,21,022/-. 2.1 AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD . CIT(A), WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE, HOWE VER, THE ADDITION OF BAD DEBT AMOUNTING TO 67,69,460/- UNDER SECTION 115JB WAS RETAINED. AGGRIEVED WITH SAID FINDING OF THE LD. CIT(A), 3 ITA NO.1437/DEL/2017 THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISI NG THE GROUNDS AS REPRODUCED ABOVE. 3. BEFORE US, THE PARTIES APPEARED THROUGH VIDEO CONF ERENCING FACILITY. THE ASSESSEE FILED A PAPER-BOOK CONTAININ G PAGES 1 TO 96. 4. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. THE ONLY DISPUTE RAISED BY THE ASSESSEE IS WITH REGARD TO AM OUNT OF THE PROVISION FOR BAD AND DOUBTFUL DEBT TO BE TAKEN FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE AC T. THE CONTENTION OF THE ASSESSEE IS THAT IN THE YEAR UNDE R CONSIDERATION PROVISION OF DOUBTFUL DEBT AMOUNTING TO 1,47,98,850/- WAS CREATED, BUT OUT OF THAT BAD DEBT WRITTEN OFF AMOUN TING TO 67,49,460/- WAS REDUCED AND BALANCE AMOUNT OF 80,49,390/- WAS ADDED BACK BOTH FOR THE PURPOSE OF COMPUTATION OF INCOME UNDER REGULAR PROVISIONS OF THE ACT AS WELL AS UNDE R THE PROVISIONS OF 115JB OF THE ACT. THE ASSESSING OFFIC ER REJECTED THE CONTENTION OF THE CLAIM OF BAD DEBT ON THE GROUND T HAT ASSESSEE HAD NOT PLACED ANYTHING ON RECORD TO SUBSTANTIATE I TS CLAIM. THE LD. CIT(A), HOWEVER, ALLOWED THE CLAIM OF BAD DEBT WRITTEN OFF UNDER REGULAR PROVISIONS OF THE ACT FOLLOWING THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD (SUPRA ) OBSERVING AS UNDER: 11. GROUND OF APPEAL NO. 5 IS IN RESPECT OF DISAL LOWANCE OF BAD DEBTS AMOUNTING TO RS.67,69,460/-. THE APPELLANT DU RING THE YEAR HAD MADE A PROVISION OF RS.1,47,98,850/- IN RESPECT OF PROVISION FOR BAD & DOUBTFUL DEBTS. HOWEVER, IN THE COMPUTATION O F INCOME, THE APPELLANT HAD ADDED ONLY A SUM OF RS.80,49,390/-. T HE ASSESSING OFFICER DID NOT FIND THE REPLY OF THE APPELLANT AS SATISFACTORY AND ADDED BACK THIS DIFFERENTIAL AMOUNT TO THE TOTAL IN COME. THE APPELLANT IN ITS SUBMISSIONS HAS EXPLAINED THAT APP ELLANT HAS BEEN PREPARING A PROVISION FOR DOUBTFUL DEBTS AND THE SA ME IS BEING ADDED TO THE TOTAL INCOME.' DURING THE YEAR, DEBTOR S TO THE EXTENT OF 4 ITA NO.1437/DEL/2017 RS. 67,69,460/- ACTUALLY BECAME BAD AND THE SAME WE RE WRITTEN OFF IN THE BOOKS OF ACCOUNTS. HOWEVER, SINCE THE PROVIS IONS ALREADY EXISTED IN RESPECT OF THE SAME, THEY WERE NOT WRITT EN OFF IN THE PROFIT & LOSS ACCOUNT BUT ADJUSTED FROM THE PROVISION ACCO UNT AND THE DEBTORS WERE ACTUALLY WRITTEN OFF. SINCE NO DEDUCTI ON HAD BEEN ALLOWED IN RESPECT OF PROVISION IN THE EARLIER YEAR S, EXPENDITURE IN RESPECT OF ACTUAL BAD DEBTS WHICH HAVE BEEN WRITTEN OFF DURING THE YEAR HAS BEEN CLAIMED. 12. I HAVEGONE THROUGH THE VARIOUS DETAILS. THE A PPELLANT HAS ALSO PROVIDED A COPY OF PROVISION FOR BAD DEBTS ACCOUNT SINCE ASSESSMENT YEAR 2008-09 WHICH SHOWS THE VARIOUS ENTRIES IN RES PECT OF PROVISIONS MADE, THE BAD DEBTS WRITTEN OFF, AND FUR THER PROVISION MADE IN THE ENSUING YEAR. THE APPELLANT HAS SHOW TH AT PROVISION FOR DOUBTFUL DEBTS HAS BEEN DISALLOWED IN THE EARLIER Y EARS AND DEDUCTION IS BEING CLAIMED ONLY IN RESPECT OF ACTUA L BAD DEBTS. HOWEVER, THE AMOUNT DOES NOT APPEAR IN THE PROFIT & LOSS ACCOUNT SINCE IT IS SQUARED OFF FROM THE PROVISION ACCOUNT. THE DEDUCTION IS CLAIMED WHEN THE DEBTORS ARE ACTUALLY WRITTEN OFF. 13.DURING THE YEAR UNDER CONSIDERATION, INSTEAD OF CLAIMING A SEPARATE DEDUCTION IN THE COMPUTATION OF INCOME, TH E APPELLANT 'HAD NETTED OFF THIS AMOUNT AGAINST THE PROVISION CREATE D DURING THE YEAR AND ONLY THE NET AMOUNT HAS BEEN ADDED BACK. THERE WOULD NOT HAVE BEEN ANY CONFUSION HAD THE ENTIRE AMOUNT OF PR OVISION MADE DURING THE YEAR BEEN ADDED TO THE INCOME AND DEDUCT ION CLAIMED IN RESPECT OF ACTUAL BAD DEBTS OF RS. 69,69,460/-. IN VIEW OF ABOVE DISCUSSION, BAD DEBTS CLAIMED ARE ALLOWED UNDER SEC TION 336(1)(VII) OF THE ACT IN ACCORDANCE WITH THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF TRF LIMITED (323 ITR 397). 4.1 HOWEVER, AS REGARD TO CLAIM OF BAD DEBT WRITTEN OF F UNDER SECTION 115JB FOR COMPUTATION OF THE BOOK PROFIT WA S REJECTED BY THE LEARNED CIT(A). THE DETAILED FINDING OF THE LEA RNED CIT(A) IN PARA 18 TO PARA 22 AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE IS REPRODUCED AS UNDER: 18. AS FAR AS THE PROVISION FOR DOUBTFUL DEBTS IS CONCERNED, THE APPELLANT IN HIS COMPUTATION OF INCOME HAS ADDED BA CK A SUM OF RS. 80,49,390/-. THE PROFIT & LOSS ACCOUNT OF THE APPEL LANT, HOWEVER, SHOWS THAT APPELLANT HAD MADE A PROVISION OF RS. 1, 47,98,850/- IN THE PROFIT & LOSS ACCOUNT. THE SAME WAS, THEREFORE, REQUIRED TO BE ADDED AND NOT RS. 80,49,390/-. IN THIS REGARD, THE APPELLANT IN ITS SUBMISSIONS HAS EXPLAINED AS UNDER:- 5 ITA NO.1437/DEL/2017 FOLLOWING ACCOUNTING ENTRIES ARE PASSED RELATING TO PROVISION FOR DOUBTFUL DEBTS AND ADVANCES: (A) PROVISION FOR DOUBTFUL DEBTS & ADVANCES: DR.(PR OFIT & LOSS ITEM) (B) PROVISION FOR DOUBTFUL DEBTS & ADVANCES: CR. (B ALANCE SHEET ITEM) NOTE: (A) IS DISCLOSED/INCLUDED UNDER THE ACCOUNT HEAD 'S ELLING, GENERAL & ADMINISTRATIVE EXPENSES ' IN THE PROFIT A ND LOSS ACCOUNT. (B) IS DISCLOSED AS NETTING OFF ITEM IN THE BALANC E SHEET FROM THE RESPECTIVE DEBTORS/ADVANCES PROVISION FOR DOUBTFUL DEBTS & ADVANCES - PROFIT 41 LOSS ITEM IS OFFERED FOR TAX IN THE COMPUTATION OF INCOME. ACCOUNTING ENTRIES PASSED FOR BAD DEBTS WRITTEN OFF - FOLLOWING ENTRIES ARE PASSED RELATING TO BAD DEBTS WRITTEN OF F: ENTRY NO. 1 , (A) BAD DEBTS WRITTEN OFF (PROFIT & LOSS ITEM): DR. RS.100 (B) TO SUNDRY DEBTORS: CR. RS.100 ENTRY NO. 2 (C) PROVISION FOR DOUBTFUL DEBTS & ADVANCES: DR. (B ALANCE SHEET ITEM) : RS.100 (D) TO PROVISION FOR DOUBTFUL DEBTS AND ADVANCES: C R. (PROFIT & LOSS ITEM) : RS.100 THE ABOVE ENTRIES ARE PASSED IN ORDER TO REVERSE PR OVISION FOR DOUBTFUL DEBTS & ADVANCES MADE IN EARLIER YEARS AND TO WRITE OFF THE BAD DEBTS, OUT OF PROVISIONS MADE IN EARLIER YE ARS. THUS, IN THE YEAR OF WRITE OFF PROFIT & LOSS ACCOUN T DOES NOT DISCLOSE ANY EXPENSES. SUCH BALANCES WHICH HAVE BEEN WRITTEN OFF DURING THE YEAR (AS PER ENTRY 1 ABOVE) ARE SEPARATELY CLAIMED IN THE TAX COMPUTATION. THE SAME ARE ALLOWABLE IN VIEW OF SECT ION 36(L)(VII) AS SUCH DEBT HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCO UNT DURING THE YEAR. ACCOUNTING ENTRIES PASSED FOR PROVISION FOR DOUBTFU L DEBTS AND ADVANCES 6 ITA NO.1437/DEL/2017 FOLLOWING ACCOUNTING ENTRIES ARE PASSED RELATING TO PROVISION FOR DOUBTFUL DEBTS AND ADVANCES: ENTRY NO. 1 (E) PROVISION FOR DOUBTFUL DEBTS & ADVANCES: DR 1,47,98.850/- (REFER SCHEDULE 20 OF THE BALANCE SHEET ) (F) TO PROVISION FOR DOUBTFUL DEBTS & ADVANCES: CR. 1,47,98,850/- (LNCLUDED IN RS.2,40,64,755/- APPEARING IN SCHEDULE 9 OF THE BALANCE SHEET) NOTE: (A) IS DISCLOSED/INCLUDED UNDER THE ACCOUNT HEAD S ELLING, GENERAL & ADMINISTRATIVE EXPENSES ' IN THE PROFIT AND LOSS ACCOUNT. (B) IS DISCLOSED AS NETTING OFF ITEM IN THE BALANCE SHEET FROM THE RESPECTIVE DEBTORS/ADVANCES PROVISION FOR DOUBTFUL DEBTS & ADVANCES - PRO FIT & LOSS ITEM IS OFFERED FOR TAX IN THE COMPUTATION OF INCOME. ACCOUNTING ENTRIES PASSED FOR BAD DEBTS WRITTEN OFF FOLLOWING ENTRIES ARE PASSED RELATING TO BAD DEBTS WRITTEN OFF: ENTRY NO. - 2 (C) BAD DEBTS WRITTEN OFF (PROFIT & LOSS ITEM): DR. 67,49,460/- (D) TO SUNDRY DEBTORS: CR.67,49,460/- (REFER TO THE MOVEMENT OF PROVISION FOR DOUBTFUL DEBTS ATTACHED) THE ABOVE ENTRIES ARE PASSED TO WRITE OFF BAD DEBTS , OUT OF PROVISIONS MADE IN EARLIER WARS. THUS, IN THE YEAR OF WRITE OFF PROFIT & LOSS ACCOUN T DOES NOT DISCLOSE ANY EXPENSES ON ACCOUNT OF BAD DEBTS. ACCORDINGLY, SINCE SUCH BAD DEBTS WRITTEN OFF DURING THE YEAR HAVE BEEN ADJUSTE D AGAINST PROVISION FOR DOUBTFUL DEBTS CREATED DURING THE EAR LIER YEARS, NO SEPARATE EXPENSE IS APPEARING DURING THE YEAR. SUCH BALANCES WHICH HAVE BEEN WRITTEN OFF DURING THE YEAR (AS PER ENTRY 2 ABOVE) ARE SEPARATELY CLAIMED IN THE TAX COMPUTATION. THE SAME ARC ALLOWABLE IN VIEW OF SECTION 36(I)(VII) AS SUCH DEB T HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT DURING THE YEAR. 19. THEY HAVE ACCEPTED THE FACT THAT WRITE OFF OF B AD DEBTS FROM WHICH THE PROVISION FIGURE HAS BEEN NETTED, DOES NO T APPEAR IN THE PROFIT & LOSS ACCOUNT. THEY WERE CONFRONTED WITH TH E FACT THAT UNDER SECTION 115JB, THE PROFIT HAS TO BE TAKEN ONLY AS P ER THE BOOKS OF ACCOUNTS AND NO OTHER ADJUSTMENT EXCEPT THOSE MENTI ONED UNDER EXPLANATION I CAN BE CARRIED OUT. THE APPELLANT VID E THEIR LETTER DATED 30.11.2016 AS MENTIONED AS UNDER:- 7 ITA NO.1437/DEL/2017 THIS HAS REFERENCE TO THE ON-GOING APPELLATE PROCEE DINGS. DURING THE COURSE OJ LAST HEARING, YOUR GOOD SELF HAVE ASKED T O FURTHER EXPLAIN THE CLAIM OF PROVISION OF DOUBTFUL DEBTS WRITTEN BA CK IN THE BOOK PROFIT COMPUTED U/S 115JB OF THE I. T. ACT. IN THIS CONNECTION, YOUR KIND REFERENCE IS INVITED TO SUB-SECTION (2) OF EXPLANATION (I) TO SECTION 115JB BEING REPRODUCED A S UNDER: 'EXPLANATION [1] - FOR THE PURPOSES OF THIS SECTION , 'BOOK PROFIT MEANS (HE NET PROFIT US SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUBSECTION (2 ) AS INCREASED BY - (A) ........................................ (B) ................... ........................ (C) ................. ...................... (D) ........................................ (E). ... (F) ........................................ (G) ........................................ (H) ........................................ (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION JB R DIMINUTION IN THE VALUE OF ANY ASSET (K) IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (I) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT OR IF ANY AMOUNT REFERRED TO IN CL AUSE (J) IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT, AND AS RED UCED BY (I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVIS ION (EXCLUDING A RESERVE CREATED BEFORE THE 1 ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF A DEBIT TO THE PROFIT & LOSS ACCOUNT), IF AN Y SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT IN VIEW OF THE ABOVE, PROVISION FOR DOUBTFUL DEBTS CREATED IN EARLIER YEARS, WRITTEN BACK AND CREDITED TO PROFIT & LOSS A CCOUNT DURING THE YEAR UNDER REFERENCE AMOUNTING TO RS. 67,49,460/- I S TO BE REDUCED FROM THE BOOK PROFIT DETERMINED UNDER THE PROVISION S OF SECTION 115.JB OF THE I. T. ACT. YOUR HONOUR WILL APPRECIATE THAT DURING THE. YEAR U NDER REFERENCE, THE APPELLANT ASSESSEE HAS CREATED FURTHER PROVISIO N FOR DOUBTFUL DEBTS AND ADVANCES AMOUNTING TO RS. 1,47,98,850/-, WHICH HAS DULY BEEN ADDED TO FOR ARRIVING AT THE BOOK PROFIT IN VIEW OF PROVISION MADE IN SECTION 115JB OF THE INCOME TAX ACT. PROVIS ION FOR DOUBTFUL DEBTS AND ADVANCES AMOUNTING TO RS.67,49,460/- HAVE ALSO BEEN WRITTEN BACK AND CREDITED TO PROFIT AND LOSS ACCOUN T DURING THE PREVIOUS YEAR AND TAX HAS BEEN PAID UNDER MAT. 8 ITA NO.1437/DEL/2017 PERTINENT TO MENTION THAT SUCH WRITE BACK/WITHDRAWA L OF THE AMOUNT FROM ARTY PROVISION IS TO BE REDUCED FROM BOOK PROF IT AS PER CLAUSE (I) TO EXPLANATION 1 TO SUB-SECTION (2) OF SECTION 115J B OF THE INCOME TAX ACT. THE APPELLANT ASSESSEE HAS HOWEVER, NETTED OF THE A BOVE AMOUNTS OF RS.1,47,98,850/- AND RS.67,49,460/- AND HAS ADDE D THE RESULTANT AMOUNT OF RS. 80,49,390/- IN THE COMPUTAT ION OF BOOK PROFIT. A FRESH COMPUTATION TAX PAYABLE UNDER PROVISIONS OF MAT IN VIEW OF THE ABOVE SUBMISSIONS IS ENCLOSED FOR YOUR KIND REF ERENCE. IT MAY PLEASE BE NOTED THAT THERE IS NO DIFFERENCE IN THE AMOUNT OF BOOK PROFIT RETURNED AND THE DISCLOSURE BEING PRODUCED N OW. 20. I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPE LLANT IN THIS REGARD. THE HONBLE SUPREME COURT IN THE CASE OF AP OLLO TYRES LTD (255 ITR 273). HAD MENTIONED AS UNDER:- THE OBJECT OF INTRODUCING SECTION 1I5J CAN BE DEDUC ED FROM THE BUDGET SPEECH OF FINANCE MINISTER MADE IN PARLIAMEN T WHILE INTRODUCING THE SAID SECTION. THE SPEECH SHOWS THAT THE INCOME-TAX AUTHORITIES WE RE UNABLE TO BRING CERTAIN COMPANIES WITHIN THE NET OF INCOME-TA X BECAUSE THESE COMPANIES WERE ADJUSTING THEIR ACCOUNTS IN SUCH A M ANNER AS TO ATTRACT NO TAX OR VERY LITTLE TAX. IT IS WITH A VIE W TO BRING SUCH OF THESE COMPANIES WITHIN THE TAX NET THAT SECTION 1I5J WAS INTRODUCED IN THE INCOME-TAX ACT WITH A DEEMING PROVISION WHICH MAKES THE COMPANY LIABLE TO PAY TAX ON AT LEAST 30 PER CENT OF ITS BO OK PROFITS AS SHOWN IN ITS OWN ACCOUNTS. FOR THE SAID PURPOSE, SECTION 115J MAKES THE INCOME REFLECTED IN THE COMPANIES ' HOOKS OF ACCOUN T AS DEEMED INCOME FOR THE PURPOSE OF ASSESSING THE FAX. IF ONE EXAMINES THE SAID PROVISION IN THE ABOVE BACKGROUND, ONE NOTICES THAT THE USE OF THE WORDS IN FOR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING AUTHORITY TO RELY UPON THE AUTHENTIC STATEMENT OF A CCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OJ THE COMPANY, AN ASSESSING OFFICER UNDER THE INCOME-TAX ACT HAS TO A CCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT WHICH OBLIGATES THE COMPANY TO MAINTA IN ITS ACCOUNT IN A MANNER PROVIDED BY THE COMPANIES ACT AND THE S AME TO BE SCRUTINIZED AND CERTIFIED BY STATUTORY AUDITORS AND WILL HAVE TO BE APPROVED BY THE COMPANY IN ITS GENERAL MEETING AND THEREAFTER TO BE FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A S TATUTORY OBLIGATION ALSO TO EXAMINE AND SATISFY THAT THE ACC OUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUI REMENTS OF THE COMPANIES ACT. IN SPITE OF ALL THESE PROCEDURES CON TEMPLATED UNDER THE PROVISIONS OF THE COMPANIES ACT, IT IS DIFFICUL T TO ACCEPT THE 9 ITA NO.1437/DEL/2017 ARGUMENT OF THE REVENUE THAT IT IS STILL OPEN TO TH E ASSESSING OFFICER TO RE-SCRUTINIZED THE ACCOUNTS AND SATISFY HIMSELF THAT THESE ACCOUNTS HAVE BEEN MAINTAINED IN ACCORDANCE WITH TH E PROVISIONS OF THE COMPANIES ACT. RELIANCE PLACED BY THE REVENUE O N SUB-SECT ION (I A) OF SECTION 115J IN SUPPORT OF THE ABOVE CONTENTI ON WAS MISPLACED. SUB-SECTION (I A) OF SECTION 115.1 DOES NOT EMPOWER THE ASSESSING OFFICER TO EMBARK UPON A FRESH INQUIRY IN REGARD TO THE ENTRIES MADE IN THE HOOKS OF ACCOUNT OF THE COMPANY. THE SAID SU B-SECTION, AS A MAILER OF FACT, MANDATES THE COMPANY TO MAINTAIN IT S ACCOUNT IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES A CT WHICH MANDATE IS BODILY LIFTED FROM THE COMPANIES ACT INT O THE INCOME-TAX ACT FOR THE LIMITED PURPOSE OF MAKING THE SAID ACCO UNTS SO MAINTAINED AS A BASIS FOR COMPUTING THE COMPANYS I NCOME FOR LEVY OF INCOME-TAX. BEYOND THAT, THE SAID SUB-SECTION DO ES NOT EMPOWER THE AUTHORITY UNDER THE INCOME-TAX ACT TO PROBE INT O THE ACCOUNTS ACCEPTED BY THE AUTHORITIES UNDER THE COMPANIES ACT . IF THE STATUTE MANDATES THAT INCOME PREPARED IN ACCORDANCE WITH TH E COMPANIES ACT SHALL BE DEEMED INCOME FOR THE PURPOSE OF SECTI ON 115J, THEN IL SHOULD BE THAT INCOME WHICH IS ACCEPTABLE TO THE AU THORITIES UNDER THE COMPANIES ACT. '['HERE CANNOT BE TWO INCOMES ON E FOR THE PURPOSE OF COMPANIES ACT AND ANOTHER FOR THE PURPOS E OF INCOME-TAX ACT. IF THE LEGISLATURE INTENDED THE ASSESSING OFFI CER TO REASSESS THE COMPANY'S INCOME, THEN IT WOULD HAVE STATED IN SECT ION 115 J THAT 'INCOME OF THE COMPANY AS ACCEPTED BY THE ASSESSING OFFICER. IN THE ABSENCE OF THE SAME AND ON THE LANGUAGE OF SECTION 115.1, THE VIEW TAKEN BY THE TRIBUNAL WAS CORRECT AND THE HIGH COUR T HAD ERRED IN REVERSING THE SAID VIEW OF TRIBUNAL. THEREFORE, THE ASSESSING OFFICER WHILE COMPUTING TH E INCOME UNDER SECTION J15J HAS ONLY THE POWER OF EXAMINING WHETHE R THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE ASSESSING OFFICER THEREAFTER HAS LIMITED P OWER OF MAKING ADDITIONS AND REDUCTIONS AS PROVIDED FOR IN THE EXP LANATION TO THE SAID SECTION. TO PIN IT DIFFERENTLY, THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT S HOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN T HE EXPLANATION TO SECTION 115J. 21. ALTHOUGH THE DECISION WAS RENDERED UNDER SECTIO N I I5J OF THE INCOME TAX ACT, 1961, HOWEVER, THE PROVISIONS OF SE CTION 115J AND 115JB ARE SIMILAR, THEREFORE, THE RATIO OF THE CASE WILL EQUALLY APPLY TO SECTION 115JB AS WELL. EVEN SUBSEQUENTLY IN THE CASE OF MALYALAM MANORAMA, THE SUPREME COURT HAS RE-AFFIRME D THE VIEW TAKEN IN THE CASE OF APOLLO TYRES LTD. IT IS, NOW, THEREFORE, BEYOND DOUBT THAT NEITHER THE APPELLANT NOR THE ASSESSING OFFICER IS PERMITTED TO MAKE ANY ADJUSTMENT TO THE BOOK PROFIT S EXCEPT WHICH HAS BEEN SPECIFICALLY PROVIDED THEREIN. THEREFORE, THE APPELLANT WAS REQUIRED TO ADD BACK ONLY THE PROVISION WHICH HAD B EEN PROVIDED IN 10 ITA NO.1437/DEL/2017 THE BOOKS OF ACCOUNTS. SINCE THE CLAIM OF BAD DEBTS ACTUALLY INCURRED DURING THE YEAR DID NOT APPEAR IN THE PROFIT & LOSS ACCOUNT, THE SAME COULD NOT BE ADDED BACK SINCE THE SAME IS NOT COVERED UNDER EXPLANATION I. THE APPELLANT VIDE ITS LETTER DATED 30 LH NOVEMBER, 2016, HAS STATED THAT AMOUNT CLAIMED AS BAD DEBT DU RING THE YEAR WILL BE COVERED UNDER CLAUSE (I) TO EXPLANATION I. THE CLAUSE (I) OF THIS. EXPLANAT ION READ S AS UNDER:- ' EXPLANATION [1] - FOR THE PURPOSES OF THIS SECTIO N. 'BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUBSECTION (2 ) AS INCREASED BY - (A) ............................................ (B) ............................................... . (C) ............................................... . (D) ............................................ (E) ............................................ (F) ............................................ (G) ............................................ (H) .............................. ............. (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FO R DIMINUTION IN THE VALUE OF ANY ASSET (K) ........................................... IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (I) IS DEBITED TO DIE PROFIT AND LOSS ACCOUNT OR IF ANY AMOUNT REFERRED TO IN CL AUSE (J) IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT, AND AS RED UCED BY (I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVIS ION (EXCLUDING A RESERVE CREATED BEFORE THE I ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT, AND LOSS ACCOUNT. ' 22. THIS CLAUSE CLEARLY MENTIONS THAT BOOK PROFIT S HALL BE REDUCED ONLY WHERE THE / AMOUNT WITHDRAWN FROM RESERVES IS CREDITED TO THE PROFIT & LOSS ACCOUNT. THE APPELLANT HAS NOT CREDIT ED THE AMOUNT IN RELATION TO BAD DEBTS IN THE PROFIT & LOSS ACCOUNT. THE CREDIT HAS BEEN PROVIDED ONLY TO THE ACCOUNTS OF DEBTORS WHICH HAVE BEEN WRITTEN OFF. THE CASE OF THE APPELLANT AS FAR AS TH E PROVISION OF MAT IS CONCERNED, THEREFORE, FAILS. IF THE APPELLANT WA S REQUIRED TO CLAIM THE DEDUCTION, IT SHOULD HAVE DEBITED THE PROFIT & LOSS ACCOUNT WITH AMOUNT OF BAD DEBTS. IN THE PRESENT CASE, NEITHER T HE APPELLANT, NOR THE ASSESSING OFFICER IS PERMITTED TO MAKE ANY CHAN GES TO THE BOOK PROFIT SHOWN IN THE BOOKS OF ACCOUNT AND CLAIM OF T HE APPELLANT IN RESPECT OF BAD DEBTS DOES NOT FALL WITHIN THE FOUR CORNERS OF SECTION 115JB. IN VIEW OF THE SAME, THE ADDITION OF RS.67,6 9,460/- UNDER SECTION 115JB IS SUSTAINED. 11 ITA NO.1437/DEL/2017 4.2 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE REF ERRED TO PAPER-BOOK AND SUBMITTED THAT ASSESSEE IS FOLLOWING REGULAR PRACTICE OF ADDING THE PROVISION FOR DOUBTFUL DEBTS CREATED DURING THE YEAR TO THE OPENING BALANCE AND AFTER REDUCING BAD DEBTS WRITTEN OFF CLOSING BALANCE IS TAKEN TO NEXT FINANC IAL YEAR. THE LEARNED COUNSEL REFERRED TO PAGES 8, 26, 43 AND 60 FOR SHOWING COMPUTATION OF NET AMOUNT OF PROVISION OF DOUBTFUL DEBT. UNDER THE PROVISIONS OF THE ACT BOOK PROFIT IS COMPUTED A FTER MAKING ADJUSTMENT MENTIONED IN THE SECTION 115JB OF THE AC T. IN VIEW OF THE SETTLED POSITION IN THE CASE OF APOLLO TYRES LT D. (SUPRA) AND MALYALAM MANORAMA (SUPRA), THE ASSESSEE OR THE ASSE SSING OFFICER IS NOT PERMITTED TO MAKE ANY ADJUSTMENT TO THE BOOK PROFIT EXCEPT WHICH HAS BEEN SPECIFICALLY PROVIDED THEREIN AND, THEREFORE, THE ASSESSEE WAS REQUIRED TO ADD BACK PR OVISION WHICH HAS BEEN PROVIDED IN THE BOOKS OF ACCOUNTS. 4.3 THE LD. CIT(A) HAS HELD THAT CLAIM OF BAD DEBT ACT UALLY INCURRED DURING THE YEAR DID NOT APPEAR IN THE PROF IT AND LOSS ACCOUNT AND, THEREFORE, SAME COULD NOT BE ADDED BAC K SINCE THE SAME IS NOT COVERED UNDER EXPLANATION 1 BELOW SECTI ON 115JB OF THE ACT. THUS, AS PER THE LEARNED CIT(A), THE ASSES SEE HAS NOT CREDITED THE AMOUNT IN RELATION TO THE BAD DEBT IN THE PROFIT AND LOSS ACCOUNT MADE ON THE BASIS OF THE BOOKS OF ACCO UNT, WHEREAS CLAIM OF THE ASSESSEE IS THAT EFFECT OF THE BAD DEB T WRITTEN OFF HAS BEEN TAKEN INTO CONSIDERATION IN BOOKS OF ACCOUNTS. IN OUR OPINION, THIS IS A MATTER OF THE VERIFICATION WITH THE BOOKS OF ACCOUNT OF THE ASSESSEE. FROM THE DETAILS FILED BEF ORE US PRIMA FACIE IT APPEARS THAT THE AMOUNT OF BAD DEBT WRITTE N OFF HAS BEEN REDUCED WHILE COMPUTING THE INCOME AS PER PROVISION OF ACT AND, 12 ITA NO.1437/DEL/2017 THEREFORE, WE FEEL IT APPROPRIATE TO RESTORE THIS I SSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING AFTER VE RIFICATION OF THE BOOKS OF ACCOUNT AND FINANCIAL STATEMENT PREPARED T HEREON FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HAS TO VERIFY THE AMOUNT OF PROVISION FOR DOUBTFUL DEBT IN THE BO OKS OF ACCOUNTS AND BOOK PROFIT HAS TO COMPUTED AS PER EXP LANATION 1 BELOW THE SECTION 115 JB OF THE ACT. IT IS NEEDLESS TO MENTION THAT THE ASSESSEE SHALL BE AFFORDED ADEQUATE OPPORTUNITY OF BEING HEARD. THE GROUNDS OF THE APPEAL OF THE ASSESSEE A RE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH OCTOBER, 2021 SD/- SD/- (KULDIP SINGH) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 14 TH OCTOBER, 2021. RK/- (DTDC) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI