Case Note & Summary
The Commissioner of Income Tax appealed against an order of the Income Tax Appellate Tribunal (ITAT) dated 17/01/2007 relating to assessment year 1997-1998. The respondent-assessee, M/s. Salgaonkar Mining Industries Pvt. Ltd., had filed its return of income on 30/11/1997. The appeal was admitted on 06/08/2007 on two substantial questions of law. The first question was whether the ITAT erred in deleting the addition of Rs.20,05,744/- being provision for doubtful debt on the ground that the provision for doubtful debt is doubtful for recovery and therefore cannot be equated with liability, which is contrary to provisions of Section 115JA. The second question was whether the ITAT erred in deleting the interest under Sections 234B and 234C of the Act by relying on the decision of the Karnataka High Court in Kwality Biscuit Ltd. v. CIT (243 ITR 519) and the Supreme Court in dismissing the Department's appeal against that decision in 284 ITR 434 (SC). The court, after hearing the parties, dismissed the appeal, holding that the provision for doubtful debt is an unascertained liability and cannot be added back to book profit under Section 115JA. Further, following the precedent in Kwality Biscuit Ltd., no interest under Sections 234B and 234C is leviable when the assessee has paid tax on the returned income. The court found no error in the ITAT's order and answered both questions in favor of the assessee.
Headnote
A) Income Tax - Book Profit - Section 115JA - Provision for Doubtful Debt - The issue was whether a provision for doubtful debt, being an unascertained liability, can be added back to book profit under Section 115JA of the Income Tax Act, 1961. The court held that such provision is not a ascertained liability and cannot be treated as unascertained liability for the purpose of Section 115JA, and thus the addition was rightly deleted by the ITAT (Paras 1-3). B) Income Tax - Interest - Sections 234B and 234C - Levy of Interest - The issue was whether interest under Sections 234B and 234C of the Income Tax Act, 1961 is leviable when the assessee has paid tax on the returned income. The court held that following the decision in Kwality Biscuit Ltd. v. CIT (243 ITR 519) affirmed by the Supreme Court in 284 ITR 434 (SC), no interest is leviable under these sections when the assessee has paid tax on the returned income (Paras 1-3).
Issue of Consideration
Whether the ITAT erred in deleting the addition of Rs.20,05,744/- being provision for doubtful debt under Section 115JA of the Income Tax Act, 1961, and whether the ITAT erred in deleting interest under Sections 234B and 234C of the Act.
Final Decision
The appeal is dismissed. The substantial questions of law are answered in favor of the assessee and against the revenue.
Law Points
- Provision for doubtful debt is an unascertained liability
- not deductible under Section 115JA
- Interest under Sections 234B and 234C not leviable when tax paid on returned income
