C.I.T vs. DABUR PHARMA LTD

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ITA - 1122 / 2008HC Delhi29 September 20081 pages
For Petitioner: P.L.BANSAL
AI SummaryDismissed

What did the High Court hold?

The High Court held that the provision made for doubtful debts is to be treated as a provision for diminution in the value of assets, not a provision for liability. Consequently, Explanation (c) to Section 115JB(2) of the Income Tax Act, 1961, is not applicable. The Court relied on its own decision in CIT v. Eicher Ltd (287 ITR 170) and the Supreme Court's confirmation of the view in CIT v. HCL Comnet Systems and Services Ltd (292 ITR 299). The ratio decidendi is that provisions for doubtful debts are not provisions for liabilities for the purpose of Section 115JB(2). The appeal filed by the Revenue was dismissed, upholding the ITAT's order.

What were the facts?

The assessee is challenging an order dated 30.11.2007 passed by the Income Tax Appellate Tribunal (ITAT) in ITA No. 3975/Del/2006 for the assessment year 2004-05. The core dispute concerns the treatment of a provision made for doubtful debts. The Assessing Officer (AO) treated this provision as a provision for liability, applying Explanation (c) to Section 115JB(2) of the Income Tax Act, 1961, and made an addition. However, both the Commissioner of Income-tax (Appeals) and the ITAT held that the provision was for diminution in the value of assets, not a liability, and thus Explanation (c) to Section 115JB(2) was not applicable. The present appeal is before the High Court.

What were the issues?

1. Whether the provision made for doubtful debts by the assessee is to be treated as a provision for liability, thereby attracting Explanation (c) to Section 115JB(2) of the Income Tax Act, 1961? (Question of law) The Assessee contended that the provision for doubtful debts is a provision for diminution in the value of assets and not a provision for liability. Therefore, Explanation (c) to Section 115JB(2) of the Income Tax Act, 1961, should not be applied. The Revenue (represented by the Assessing Officer) contended that the provision for doubtful debts is a provision for liability and thus Explanation (c) to Section 115JB(2) of the Income Tax Act, 1961, is applicable, warranting an addition to the income.

Which sections of the Income-tax Act were involved?

Section 115JB(2)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF DELHI AT NEW DELHI . 29.09.2008 . Present: Ms Prem Lata Bansal, Advocate for the Appellant. Mr M. P. Rastogi, Advocate for the Respondent. . + ITA No. 1122/2008 . 1. This appeal is directed against the order dated 30.11.2007 passed by the Income Tax Appellate Tribunal in ITA No. 3975/Del/2006 pertaining to the assessment year 2004-05. 2. The only issue sought to be raised in the present appeal relates to the treatment given to the provision made for doubtful debts. According to the Assessing Officer this would be a provision for liability and, therefore, Explanation (c) to Section 115JB (2) of the Income Tax Act, 1961 was applicable. Consequently, the Assessing Officer made the addition in respect of provision made by the assessee for doubtful debts. However, the Commissioner of Income- tax (Appeals) and the Tribunal both regarded the said provision as not a provision for liability but a provision for diminution in the value of the assets. Consequently, they held that Explanation (c) to Section 115JB (2) of the said Act did not come into play. 3. We find that the same view has been taken by this Court in CIT v. Eicher Ltd : 287 ITR 170. And, the view taken in CIT v. HCL Comnet Systems and Services Ltd : 292 ITR 299 has been confirmed by the Supreme Court in Commissioner of Income Tax-IV, New Delhi v. M/s HCL Comnet Systems and Services Ltd : Civil Appeal No. 5800/2008 by a judgment and order dated 23.09.2008. 4. In view of the forgoing, it is apparent that the issue stands settled against the department and in favour of the assessee. The appeal is dismissed. . BADAR DURREZ AHMED, J . . . . RAJIV SHAKDHER, J . . . . . . September 29, 2008 mk . . 06.

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