Commissioner of Income Tax vs Indraprastha Medical Corpn. Ltd.

In these appeals u/s 260A of the IT Act, 1961 (the Act), the Revenue is aggrieved by the order dt. 19th May, 2006 passed by the Income Tax Appellate Tribunal (Tribunal) in ITA Nos. 3121 /Del/2004 and 3426/Del/2003 relevant for the asst. yrs. 2000-01 and 2001-02 respectively.

The assessed had made a provision for bad and doubtful debt to the extent of Rs. 87,26,210. According to the AO, this provision was not for an ascertained liability. He Therefore added the amount to the assessed''s book profits u/s 115JA of the Act.

The assessed''s appeal was allowed by the Commissioner of Income Tax (Appeals) ''CIT(A)'' by holding that the said provision was for an ascertained liability and Therefore, could not be added to the book profits of the assessed.

Against the decision of the CIT(A), the Revenue preferred an appeal before the Tribunal and that appeal was dismissed by the impugned order. The Tribunal relied upon various decisions given by different Benches of the Tribunal as well as of the Bombay. High Court in The Commissioner of Income Tax, Mumbai City - VI Vs. M/s. Echjay Forgings Pvt. Ltd., . Reliance was also placed on the decision of the Supreme Court in Apollo Tyres Ltd. Vs. Commissioner of Income Tax, Kochi,

It may be noticed that this Court has in Commissioner of Income Tax Vs. Eicher Ltd., and in CIT v. HCL Comnet Systems and Services IT Appeal No. 56 of 2007 decided on 18th May, 2007 taken the consistent view that a provision for bad and doubtful debts is, in the context of Section 115JA of the Act, a provision for an ascertained liability.

Notwithstanding this, learned Counsel for the Revenue sought to contend that since in the subsequent asst. yr. 2000-01 the assessed had written off bad debts only to an extent of Rs. 74,49,582, the provision for the bad and doubtful debts to the extent of Rs. 87,26,210 in the year in question could not be said to be an ascertained liability. Learned Counsel for the Revenue also contended that there was no scientific management policy pointed out by the assessed regarding collection of debts nor was there a scientific basis for classification of debts. In the circumstances the provision for bad debts could only be based on estimates and was, Therefore, not an ascertained liability.

We are unable to accept the contention of learned Counsel for the Revenue. As has been held by this Court in the aforementioned decisions, Clause (c) of the Explanation to Section 115JA of the Act makes it clear that ascertained liabilities are not to be included in the profits as defined in that section. If the argument of learned Counsel for the Revenue is accepted, namely, that the writing off of bad debts in a subsequent year should be considered, then there will be no finality to the assessment orders that are passed. In our view, this matter is covered by the aforementioned decisions of this Court and we find no ground to differ from them. No substantial question of law arises in these appeals.

The second issue raised is with regard to the Tribunal allowing depreciation to the assessed on the enhanced value of plant and machinery due to fluctuation in the foreign exchange rate. As far as this issue is concerned, it is covered against the Revenue by the decision of this Court in Commissioner of Income Tax Vs. Woodward Governor India Pvt. Ltd., : Commissioner of Income Tax Vs. Woodward Governor India (P.) Ltd., .

No substantial question of law arises. Dismissed.