CATHOLIC SYRIAN BANK LTD,TRICHUR vs. THE ACIT,CIRCLE-1(1), TRICHUR

On careful consideration of the rival submissions, we find that on identical set of facts, the Hon’ble Supreme Court in the case of HCL Comnet Systems and Services Ltd., cited supra has held that Item © of the Explanation to section 115J or 115JA is not attracted to the facts of the present case. The provision for bad and doubtful debt is made to cover up the probable diminution in the value of asset, i.e., debt which is an amount receivable by the assessee. Therefore, 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. Any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, respectfully following the above decision of the Hon’ble Supreme Court, cited supra, we decide the issue in favour of the assessee.”

The learned Counsel for the appellant contends that the Hon'ble Supreme Court in the case of CIT v. HCL COMNET SYSTEMS & SERVICES LTD. (2008) 174 Taxman 118/305 1TR 409, held that any provision made towards irrecoverability of the debt, cannot be said to be a provision for liability. Therefore, item (c) of the Explanation to Section 115JA, is not attracted to the case therein. It was held that the Assessing Officer was not justified in adding back the provision for doubtful debts. Subsequent to the order of the Hon’ble Supreme Court, an amendment was brought about to the Explanation of Section 115JA wherein clause (g) was added, which reads as follows:

The same fell for consideration before this Court in the case of CIT v. YOKOAWA INDIA LTD. [2012] 17 taxman.com 15/204 taxman 305 (Kar,). Therein, the judgment of the Apex Court in the case of Vijaya Bank v. CIT (2010) 190 Taxman 257/323 ITR 166 was considered, wherein the Apex Court considered the Explanation with regard to Item (c) of the Explanation of Section 115JA of the Act. It was held that a mere debit to the profit and loss account would constitute a bad and doubtful debt, but it would not constitute write off and that was very reason why the explanation stood inserted. That prior to the Finance Act, 2001, the assessee would take the benefit of a deduction under Section 36(1)(vii) of the Act by merely debiting the impugned bad debt to the profit and loss account and, therefore, the explanation was added on to state that a mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute an actual write off. However, it was clarified that, besides debiting the profit and loss account and creating a provision for bad and doubtful debt the assessee correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet. Consequent to the explanation, the assessees are now required, not only to debit the profit and loss account but, simultaneously also reduce the loans and advances from the assets side. Therefore, it was held that if the bad debt or doubtful debt is reduced from the loans and advances of the debtors from the assets side of the balance sheet, the Explanation to Section 115 JA or JB is not at all attracted.

In the subsequent judgment of this Court in the case of CIT v. Syndicate Bank Syndicate House [2015] 54 taxmann.com 292/229 Taxman 584 .(Kar), while following the earlier order in the assessee's own case, the matter was remanded to the first Appellate Authority, with a direction to the authority to look into the records and to record a finding as to whether the bad and doubtful debts are reduced from the loans and advances of the debtors from the assets side of the balance sheet.

Under these circumstances, the learned Counsel for the revenue contends that since the said issue requires to be ascertained from the concerned authority, the said judgment may be followed, as the said judgment pertains to the assessee's own case itself.

The learned Senior Counsel appearing for the respondent's Counsel does not dispute the said proposition.

Under these circumstances, in view of the fact that the said issue has to be ascertained by the authority, we do not find it necessary that the said substantial question of law raised requires lo he answered. Therefore, the matter stands remitted to the Commissioner of Income Tax (Appeals), with a direction to look into the records and to record a finding as to whether the bad and doubtful debts are reduced from the loan and advances of the debtors from the assets side of the balance sheet and thereafter, to re-compute the income under Section 115JA of the Act. The contention of the assessee if raised with regard to the applicability of Section 115JA of the Act, is kept open for adjudication before the Commissioner of Income Tax (Appeals).