THE COMMISSIONER OF INCOME TAX, TVM. vs. M/S.KERALA FINANCIAL CORPORATION

JUDGMENT H.L.Dattu,C.J. The Revenue is before us, being aggrieved by the orders passed by the Income Tax Appellate Tribunal, Cochin Bench, in I.T.A.No.227(Coch)/1999, dated 20.06.2003. (2). The brief facts are - The assessee is Kerala Financial Corporation, established under the State Financial Corporation Act. It is engaged in the business of financing industries in the State. The assessment year is 1996-97. (3) The assessee, in the returns filed, had claimed for deductions under Section 36(1)(viii) of the Income Tax Act (“Act” for short), in respect of 'special reserve' created by the assessee. The claim so made by the assessee was disallowed by the assessing authority. In his order, the assessing authority has noticed that the assessee has created as a reserve of Rs.450,05,629/- during the previous year, relevant to the assessment year, and this reserve was transferred to the provision for bad and doubtful debts account before the close of the accounting year and, thus, the assessee has not satisfied the statutory requirement of creating a reserve. The submission of the assessee before the assessing authority was, that, there is no requirement as such to maintain the reserve created. The assessing authority has not accepted this thinking of the assessee. (4) Aggrieved by the orders passed by the assessing authority, the assessee was before the first appellate authority. (5) Before the first appellate authority, it was the stand of the assessee, that, the conditions regarding maintenance of reserve was incorporated only with effect from 1.4.1998 and, therefore, there was no reason for the assessing authority to reject the claim of the assessee. The submissions so made by the assessee was accepted by the first appellate authority and, therefore, in his order has stated that there was no reason for the assessing authority to deny the claim of the assessee. (6) Aggrieved by the said order passed by the first appellate authority, the Revenue was before the Tribunal in I.T.A.No.227 of 1999. The Tribunal, following the decision of this Court in I.T.A.No.191 of 2000, for the assessment year 1994-95, has rejected the Revenue's appeal. (7) For the previous assessment year, the Tribunal had passed an order, in favour of the Revenue. That order had been called in question by the assessee before this Court in I.T.A.No.191 of 2000. This Court had accepted the assessee's claim and, accordingly, had allowed the assessee's appeal. (8) The findings and conclusions reached by this Court in the case of Kerala Financial Corporation v. The Commissioner of Income - 3 - Tax [I.T.A.No.191 of 2000, decided on 14th February, 2003] are as under:

“18. Therefore, we find considerable force in the submission made by the learned counsel for the appellant that though the amounts were transferred to “bad and doubtful debts” there was not any existing liability or that there was any known liability. The question is not whether the assessee can anticipate or reasonably anticipate on the date when the balance sheet prepared about a “bad and doubtful debts” and therefore, the amounts continued to be as a “reserve” and not a “provision”.

H.L.Dattu Chief Justice

A.K.Basheer Judge vku/-