Income Tax Appellate Tribunal - Chennai
Southern Petro Chemical Industries vs Deputy Commissioner Of Income Tax on 20 October, 2004
Equivalent citations: (2005)93TTJ(CHENNAI)161
ORDER
S.V. Mehrotra, A.M.
1. This appeal by the assessee is directed against the order dt. 31st Oct., 2003, of the CIT(A) for the asst. yr. 2000-01.
The assessee-company carried on the business of fertilizers, heavy chemicals, shipping and pharma contract. The assessee has raised before us various grounds of appeal which are dealt in by the learned CIT(A).
2. The first effective ground of appeal is that the learned CIT(A) erred in confirming that the expenditure to the extent of 10 per cent of the dividend earned, amounting to Rs. 88,73,758 was attributable to earning of dividends.
3. The brief facts apropos this issue are that the assessee had claimed exemption under Section 10(33) of the IT Act, 1961, in respect of dividend income aggregating to Rs, 8,87,37,583. In regard to the query of the AO regarding the expenditure attributable to the earning of this dividend income, the assessee contended that no direct expenditure was incurred in relation to the dividend income. The AO observed that as per the provisions of Section 14A (inserted by the Finance Act, 2001, with retrospective effect from 1st April, 1962), no deduction was allowable in respect of expenditure incurred by the assessee in relation to the income which did not form part of the total income under the Act. The AO taking into consideration the fact that all these investments had been made by the assessee-company in the course of carrying on of its business activities and due to the multifarious activities of the assessee-company, it was difficult to identify the expenditure towards each item of income, attributed 10 per cent of the dividend income on estimate basis being attributable towards expenditure for earning dividend income and disallowed a sum of Rs. 88,73,758 and added the same to the assessee's total income. He relied on the decision of the Hon'ble Supreme Court in the case of CIT v. United General Trust Ltd. (1993) 200 ITR 488 (SC), wherein it was held that the proportionate management expenditure was required to be deducted from the gross dividend for the purpose of deduction under Section 80M of the Act.
4. The learned CIT(A) confirmed the action of the AO, inter alia, observing that this activity of the assessee was its business activity which required a secretarial assistance and managerial guidance. The learned counsel for the assessee, Mr. S.E. Dastur, referred to p. 4 of the paper book to submit that the assessee-company had received dividend only from 7 companies. He further submitted that only in respect of 3 items fresh investments were made aggregating to Rs. 19 crores. The learned counsel referred to the decision of the Hon'ble Calcutta High Court in the case of CIT v. United Collieries Ltd. (1993) 203 ITR 857 (Cal), wherein it is held that the actual expenditure incurred by the assessee in earning the dividend income shall be deductible from the dividend income and there is no scope for any estimate of expenditure being made and no notional expenditure can be allocated for the purpose of earning income unless the facts of a particular case warrant such allocation. The learned counsel referred to Section 80AA (omitted by the Finance Act, 1997, w.e.f. 1st April, 1998) and pointed out that as per this section deduction under Section 80M in respect of dividend income earned from a domestic company was allowable only with reference to the income by way of such dividend as was computed in accordance with the provisions of this Act and not with reference to the gross amount of such dividend. The learned counsel further referred to Section 57(i) and pointed out that the statute has also recognized only reasonable sum paid by way of commission or remuneration to a banker or any other person to be deductible from the dividend income. The learned counsel further referred to the decision of the Tribunal in ITO v. A.P. State Financial Corporation (1984) 8 ITD 473 (Hyd) and submitted that even assuming that some administrative expenditure would have been incurred, the disallowance should be restricted to the salary of a junior clerk.
5. The learned Departmental Representative relied on the decision of the Hon'ble Supreme Court in the case of CIT v. United General Trust Ltd. (supra), referred to by the AO and pointed out that the decision of the Bombay High Court in the case of CIT v. United General Trust Ltd. (1979) 119 ITR 664 (Bom) was reversed by the Hon'ble Supreme Court and thus proportionate management expenses attributable to the earning of the dividend income had to be deducted from the dividend income. In the written submissions filed by the Department, it is submitted that the matter can be remitted to the AO to verify the quantum of deduction claimed by the assessee in earlier years under Section 57(i) from the dividend income (when it was taxable), and to make a pro rata adjustment on the basis of subsequent investment made, inflation, etc.
6. We have considered the rival submissions and perused the records of the case. Admittedly, these investments in shares were made during the course of the carrying on of business and as is evident from the records, substantial investments had been made by the assessee in earlier years, and during the current year as well the assessee made an investment of Rs. 19 crores. Whether to invest or not to invest and whether to retain the investments or to liquidate the same are very strategic decisions which the management is called upon to take. These are mind-boggling decisions and top management is involved in taking these decisions. This decision making process is very complicated and requires very careful analysis. Moreover, the assessee has to keep track of various dividend incomes declared by the investee companies and also to keep track of the dividend income having been regularly received by the assessee. This activity itself calls for considerable management attention and cannot be left to a junior clerk. The Hon'ble Supreme Court in the case of United General Trust Ltd. (supra), applying the decision of Hon'ble Supreme Court in the case of Distributors (Baroda) (P) Ltd. v. Union of India (1985) 155 ITR 120 (SC), reversed the decision of the Hon'ble Bombay High Court in CIT v. United General Trust (P) Ltd. (supra), wherein the question was as under :
"Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in applying the decision of the Bombay High Court in the case of CIT v. New Great Insurance Co. Ltd. (1973) 90 ITR 348 (Bom) to the assessment year in question without considering the effect of the amendment operative from 1st April, 1968, and in thus holding that the assessee would be entitled to the deduction under Section 80M on the gross dividend before deduction of the proportionate management expenses ?"
Thus, when the decision of the Hon'ble Bombay High Court has been reversed, the proportionate management expenses are required to be deducted while computing the dividend income. In the decision of the Hon'ble Calcutta High Court, relied upon by the learned counsel for the assessee, Mr. Dastur, in the case of CIT v. United Collieries Ltd. (supra), it has been held that if the facts of a particular case so warrant, the allocation can be made towards expenses. In view of the aforementioned discussion and keeping in view the submissions of the learned Departmental Representative, we restore this matter to the AO to verify the quantum of deduction claimed by the assessee in earlier years under Section 57(i) from the dividend income (when it was taxable) and make a pro rata adjustment on the basis of subsequent investments made, inflation, etc. This ground is, accordingly, allowed for statistical purposes.
7. The second effective ground of appeal is that the learned CIT(A) erred in confirming the disallowance of Rs. 31,19,000 towards guest-house expenses without appreciating that the expenditure was incurred in the course of the business and, therefore, the same was allowable. The AO disallowed this expenditure on the ground that this could not be held to be incurred for the purposes of assessee's business. Before the learned CIT(A) it was submitted that the AO erred in disallowing the guest-house expenditure and during the course of hearing it was informed that the provisions of Section 37(4) were not applicable for the asst. yr. 2000-01. The learned CIT(A) has observed that the assessee was unable to furnish any details regarding the claim before the AO. Mr. Dastur, the learned counsel for the assessee, submitted that since Section 37(4) was omitted w.e.f. 1st April, 1998, by the Finance Act, 1997, no disallowance was called for. The learned Departmental Representative in her written submissions has stated that since the assessee had not proved that the expenses incurred for the guest-house were in connection with its business, the AO has rightly disallowed the same.
8. We have considered the submissions of both the parties. As is evident from the assessment order, the AO has merely disallowed the guest-house expenses without examining the nature of the expenses incurred by the assessee. After the omission of Section 37(4), as pointed out by the learned Departmental Representative in her written submissions also, the onus is on the assessee to prove that the guest-house was maintained for the purpose of its business, and that the expenditures incurred were all connected with its business. The AO has not disallowed these expenses on the basis of Section 37(4) of the Act. We, therefore, restore this issue back to the file of the AO to examine having regard to the details of expenses as to whether the expenses related to the assessee's business or not. This ground is, accordingly, allowed for statistical purposes.
9. The third effective ground of appeal is that the leaned CIT(A) erred in confirming the disallowance of interest on borrowed capital amounting to Rs. 13,99,52,000 in connection with the investments in shares of companies in the line of business of the assessee.
10. Brief facts apropos this issue are that the assessee had claimed a sum of Rs. 13.99 crores as revenue expenditure in respect of interest on investments made in the companies, M/s Indo-Jordan Chemicals Co. Ltd., Jordan, and M/s SPIC Fertilizers & Chemicals, FZE, Dubai. The AO has observed that these expenses were capitalized in the books of account but claimed it as a revenue charge. The AO noted from the Notes on Accounts that the assessee-company was involved in promoting projects which could be larger than itself and which involved substantial capital investments. In the Notes on Accounts it was mentioned that depending upon the logistics, such mega projects are promoted as a separate entity or as a part of the division of the company. It is mentioned in the Notes that since the company capitalizes borrowing cost on funds utilized for investments on its own fixed assets/projects, the same principle is followed in respect of funds invested in the investee companies as representing the acquisition cost of such investments. The AO pointed out that the two companies mentioned above, are two separate entities and not an extension or a division of the assessee-company. Following his reasoning for asst. yr. 1996-97 in the assessment order passed under Section 147 r/w Section 143(3), dt. 20th March, 2002, and also the reasoning in the assessment order for asst. yr. 1999-2000, he disallowed the assessee's claim.
11. Before the learned CIT(A), the assessee relied on the decision of the Hon'ble Madras High Court in the case of Indian Commerce & Industries (P) Ltd. v. CIT (1995) 213 ITR 533 (Mad). The learned CIT(A) after considering the facts before the Madras High Court pointed out that in this case the assessee was promoting various group concerns which were haying independent businesses and there was no nexus with the assessee's business as pointed out by the AO. Before the learned CIT(A), the assessee had also taken an alternative plea that the expenditure could be allowed under the head 'Other sources' which was also rejected by the learned CIT(A) on the ground that the expenditure was not for the purpose of earning income but for the purpose of promoting various group concerns which had independent businesses and the assessee had acquired controlling interest.
12. Mr. Dastur, the learned counsel for the assessee, submitted that in any case the investment had not been made from borrowed fund; that the investment was made with a view to get raw material which it required and in any event the acquisition of shares was for business purpose and not with a view to earning dividend. He submitted that without prejudice to assessee's claim that no borrowed funds were utilized for acquisition of shares in any case, if borrowed funds were utilized for business purposes, then no disallowance was called for. The learned counsel has filed before us a petition on the ground that in the course of proceedings before the AO as well as the first appellate authority, the assessee was not required to produce any document in support of its contention that the investment was made for purpose of business of the assessee. Therefore, the assessee now submits correspondence with the RBI as well as agreement for purchase of phosphoric acid entered into with investee company in support of its contention that the investment was for business purpose. It is submitted in the petition for admission of additional evidence that these documents were contemporaneously available and are only in support of the assessee's contention and, therefore, may be admitted. In this regard the learned counsel for the assessee also referred to p. 53 of the paper book II, wherein the correspondence of the assessee with the Reserve Bank is contained to demonstrate that the RBI had granted its approval to the assessee's proposal for setting up WOS in Jebel Ali Free Trade Zone, Dubai, UAE. This approval was subject to certain conditions contained in the said letter dt. 5th March, 1997. He pointed out that as per the condition contained in the said letter the entire investment of US $ 64 millions was to be funded partly through GDR proceeds upto a maximum amount of US $ 50.675 millions and the balance of US $ 13.325 millions out of assessee's own internal resources.
13. In support of his contention that the expenditure had been incurred for expansion of assessee's business, the learned counsel referred to pp. 17, 20 and 21 of the paper book n to demonstrate that the phosphoric acid was required by the assessee and for that it had entered into off-take agreement with Indo Jordan Chemicals Co. Ltd., Amman, Jordan. The learned counsel also referred to p. 42 of the paper book II that a price formula was adopted in respect of per metric tonne of P2O6. He also pointed out that the assessee got rebate of 2 per cent under the agreement. The learned counsel further referred to p. 48 of the paper book H to point out that this phosphoric acid was a very important material for assessee's business and it had typical acid specifications. The learned counsel further referred to the decisions in the following cases :
1. State of Madras v. G.J. Coelho (1964) 53 ITR 186 (SC)
2. Sivakami Mills Ltd. v. CIT (1979) 120 ITR 211 (Mad)
3. CIT v. Sivakami Mills Ltd. (1997) 227 ITR 465 (SC) to contend that even if the borrowing is made for capital purposes, still it is allowable if used for business purpose.
14. The learned Departmental Representative in her written submissions has stated as under :
"The fact that the income from these companies in which the moneys have been invested would only be in the form of dividends and not business profits of the appellant is not to be lost sight of. The Supreme Court has held in the case of CIT v. P.K. Jhaveri (1990) 181 ITR 79 (SC) that interest on borrowed capital for investment in shares is deductible only from dividends. This has been followed by the Bombay High Court in CIT v. Maganlal Chhaganlal (P) Ltd. (1999) 236 ITR 456 (Bom) and the Madras High Court in CIT v. Chemical Holdings Ltd. (2001) 249 ITR 540 (Mad).
During the relevant assessment years, dividend income from domestic companies was not includible in the total income as per Section 10(33) of the Act. Section 14A introduced with retrospective effect from 1st April, 1962, says that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. The Supreme Court has held in the case of Saluja Farms v. CIT (2002) 254 ITR 172 (SC) that where borrowed money is not used for earning taxable income, no deduction of interest can be allowed. Therefore, in any event, the deduction of the interest on amounts borrowed to invest in shares of the new companies cannot be claimed as a deduction."
In regard to the additional ground raised by the assessee that borrowed funds were not at all used for purchase of shares, she submitted that if this additional ground is accepted, then the matter may be remanded to the AO to verify the same.
15. The learned counsel for the assessee, Mr. Dastur, in the rejoinder, submitted that the object of investment was not to earn dividends but to obtain a source of supply of raw materials. In any event the dividends received from these companies, which are not domestic companies, would not be covered by Section 115-O of the Act and, therefore, dividends could not be exempt under Section 10(33) of the Act.
16. We have considered the rival submissions and have perused the records of the case. The assessee's contention is two-fold. Firstly, it is contended that the assessee had not borrowed any money for being invested in the shares of investee companies and, therefore, there was no question of any disallowance at all. In this regard the assessee has filed various documents in support of its contention which were contemporaneously available at the time when the assessment was made but since the same were not called for, the same were not produced. Secondly, it is contended by the assessee that the investment was made for expansion of its business inasmuch as the basic raw material required by the assessee was to be produced by the investee company and an agreement had also been entered into with the investee company to take off the production of the investee company.
17. As far as the first contention is concerned, we consider it in the interests of justice that since the documents were available at the time of assessment itself but were not called for by the AO, the matter be restored back to the file of the AO to find out whether any borrowed funds at all were used by the assessee for being invested in the shares of the investee company or not. Therefore, we admit the documents at pp. 5 to 64 of the paper book n (mentioned in the written submissions in para 20), filed before us, and remit the same to the AO for examining the issue in the light of utilization of funds being invested in the investee company. In case the AO comes to the conclusion that no borrowed funds were used for the purpose of investment in the shares of the investee company, then no disallowance is called for.
18. Now, coming to the second contention of the assessee, we find considerable force in the argument of the learned counsel for the assessee and the decision of the Hon'ble Madras High Court in the case of Indian Commerce & Industries Co. (P) Ltd. v. CIT (supra) squarely covers this issue. In that case, as noted by the learned CIT(A), it was held "that the shares were purchased because of coercion by the company and also with a view to increase the assessee's business with the company. Hence, there was a nexus between the business of the assessee and the purchase of shares." In the present case also, we find that since the assessee had made the investment in a company which was to produce the basic raw material required by the assessee, it has to be held to be a case of the assessee's expansion of business and, therefore, the funds were utilized for business purpose. The assessee in its written submissions has pointed out that both the companies were subsidiaries of the assessee. It is pointed out that M/s Indo Jordan Chemical Co., Jordan, with which the assessee had entered into a joint venture, owned phosphate mines which was a basic raw material for manufacture of phosphoric acid. Similarly, SPIC Fertilizers and Chemicals, FZE, (SFCL), at Dubai was engaged in the manufacture of ammonia and urea which were raw materials for the fertilizer business of the assessee. It is pointed out that both ammonia and phosphoric acid accounted for 44.27 per cent in value of the total raw material consumption. Thus, even if borrowed funds were utilized, still the assessee would be entitled for deduction under Section 36(1)(iii) of the Act, in view of the decision of the Hon'ble Madras High Court in the case of Sivakami Mills Ltd. (supra), affirmed by the Hon'ble Supreme Court in (1997) 227 ITR 465 (SC) (supra), wherein it was held that interest on deferred payment for purchase of machinery was revenue expenditure. The decision in State of Madras v. G.J. Coelho (supra) also supports this view. In this case it was held that the payment of interest on the amount borrowed for the purchase of the plantation when the whole transaction of purchase and the working of the plantation was viewed as an integrated whole, was so closely related to the plantation that the expenditure could be said to be laid out or expended wholly and exclusively for the purpose of the plantations. Therefore, the assessee, in any view of the matter, succeeds on the strength of its second contention. However, in order to have the completion on the merits of the case, we restore this issue to the file of the AO for considering the first contention of the assessee that no borrowed funds were at all utilized for investment in shares. In the result, this ground is allowed for statistical purposes.
19. The next ground is that the learned CIT(A) erred in allowing only the fees/subscription paid to the clubs and Section 37(2) having been omitted, other expenses incurred also should have been allowed. The AO noticed that under the miscellaneous expenses, the assessee had claimed that a sum of Rs. 1,36,144 towards club expenses. He disallowed treating the same as an expenditure not related to the business as the same were in the nature of personal benefits of the employees of the company. The learned CIT(A) relying on the decision of the Hon'ble Madras High Court in the case of CIT v. Sundaram Industries Ltd. (1999) 240 ITR 335 (Mad) directed the AO to allow the entrance fee/subscription fee and disallowed the other expenditure.
20. The learned counsel for the assessee referred to the decision of the Gujarat High Court in the case of Sayaji Iron & Engg. Co. v. CIT (2002) 253 ITR 749 (Guj) to submit that in case of company no expenditure could be disallowed on the ground of personal expenses. The learned Departmental Representative has submitted that the assessee has not brought any material on record to show that the amounts expended on clubs were business expenditure.
21. Having heard both the parties, we find that in the case before the Hon'ble Gujarat High Court, relied upon by the learned counsel for the assessee, it has been observed at p. 751 that "as the directors of the assessee were entitled to use the vehicles of the assessee-company for their personal use as per the terms and conditions on which they were appointed" (Emphasis italicised in print, supplied by us), therefore, that decision is distinguishable on facts. In our opinion, the expenses other than entrance fee/subscription fee were in the nature of personal expenses of the director and, therefore, they were rightly disallowed in view of provisions contained under Section 38(2), as no material has been brought on record to take any contrary view. This ground is dismissed.
22. The next ground of appeal is that the learned CIT(A) erred in thrusting depreciation not claimed by the assessee. The AO noticed "from the Notes on Accounts that the assessee had not claimed depreciation relying on the decision in the case of CIT v. Mahindra Mills Ltd. (2000) 243 ITR 56 (SC), wherein it has been held that depreciation claim is optional and the same cannot be thrust on the assessee. The AO took into consideration the fact that the decision of the Hon'ble Supreme Court was based upon the provision of law as it stood prior to the amendment of the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986. However, the position is different after the omission of Section 34 and since after the amendment no condition remains of furnishing the information to be eligible to claim depreciation, the assessee was required to claim depreciation.
23. Mr. Dastur, the learned counsel for the assessee, submitted that even after the omission of Section 34, choice still remains with the assessee whether to provide for depreciation or not. The learned counsel referred to the decision of the Hon'ble Madras High Court in the case of CIT v. Sree Senhavalli Textiles (P) Ltd. (2003) 259 ITR 77 (Mad) and pointed out that the Hon'ble Madras High Court considered the insertion of the Expln. 5 in Section 32(1) w.e.f. 1st April, 2002, and held that said Explanation is not applicable for years prior to the date of coming into force of the Explanation. The learned counsel pointed out that Section 34 was omitted from asst. yr. 1988-89 and since the Hon'ble High Court was concerned with a year when Section 34 was not in operation, the ratio laid down squarely applies to the facts of the case. The learned counsel also referred to the decision in the case of CIT v. Kerala Electrical Lamp Works Ltd. (2003) 261 ITR 721 (Ker), wherein also similar view was taken. He further referred to various Tribunal decisions wherein this issue has specifically been considered which are as under :
1. ITA No. 4542/Mum/1999 in the case of M/s Plastiblends India Ltd.
2. ITA Nos. 516 & 517/Pn/1996 in the case of CTR Manufacturing Ltd., Pune.
24. Having heard both the parties, we find that this issue is covered by the decision of the Hon'ble jurisdictional High Court, supra, because Expln. 5 to Section 32(1) which thrust, the depreciation on assessee has been held to be prospective. Accordingly, this ground stands allowed.
25. The nest ground of appeal is that the learned CIT(A) erred in disallowing depreciation on let out buildings and technical know-how. At the time of hearing, Mr. Dastur, the learned counsel for the assessee, did not press the issue regarding depreciation on technical know-how. Accordingly, this part of the ground is dismissed as not pressed.
26. The first limb of the ground is regarding depreciation of let out buildings. The learned counsel in the written submissions submitted that a portion of the building has been let to the Bank of India with whom the assessee has business transactions. Its employees also maintain savings bank accounts with this branch of the bank in which their salaries are credited. Thus, letting out is not merely for the purpose of exploiting the building as an owner but to facilitate its business and as a matter of convenience to the employees.
27. The learned Departmental Representative submitted that when a building or an apartment, etc. is let out, the income therefrom can only be assessed as income from house property and not as income from business. She relied on the decision of the Hon'ble Madras High Court in the case of CIT v. Chennai Properties & Investments Ltd. (2004) 266 ITR 685 (Mad), wherein it has been held that when there is a specific head of income as 'income from house property', letting out of property can never be considered as business. In reply, the learned counsel for the assessee has submitted that the decision of the Hon'ble Madras High Court does not deal with a case where property has been let out with a view to achieve a business object.
28. We have considered the submissions of both the parties. We find that this issue is squarely covered by the decision of the Hon'ble Madras High Court in the case of Chennai Properties & Investments Ltd. (supra), wherein it has been held that where the assessee, as owner of the building, was only exploiting the property as owner by leasing out the same and realizing income by way of rent, the rental income was assessable under the head 'Income from house property'. In the present case, the assessee's main thrust of argument is on the ground that by letting to the bank, the assessee as well its employees enjoyed more convenience. However, this does not make the letting being for the purpose of the business and it is primarily the exploitation of ownership rights and, therefore, the rental income therefrom was to be assessed under the head 'Income from house property'. Accordingly, there is no question of allowing any depreciation. This ground is accordingly dismissed.
29. Ground Nos. 7.1 to 7.4 read as under :
"7.1 Computation of book profits : The CIT(A) erred in confirming the computation of book profits under Section 115JA by the AO ignoring the submissions of the appellant.
7.2 The CIT(A) ought to have held that the amounts withdrawn from the revaluation reserves should have been excluded in computing the book profits under Section 115JA, under Expln. (i) to that section.
7.3 The CIT(A) ought to have applied the ratio of the decision of the Supreme Court in the case of Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 (SC) and ought to have held that the accounts as prepared in accordance with Sch. VI to the Companies Act as adjusted by the Explanation thereto."
30. The AO found that the total income, as computed under the normal provisions, was less than 30 per cent of its book profit being loss. He accordingly computed the total income of the assessee under Section 115JA of the IT Act. The main issue involved in the present appeal is regarding deduction claimed by the assessee, while computing book profits, in respect of the drawal from revaluation reserve in accordance with Expln. (i) to Section 115JA(2). Brief facts apropos this issue are that the assessee had revalued its fixed assets as on 31st March, 1996, 1st April, 1998, 31st March, 1999 and 31st March, 2000, and the resultant surplus had been added to the cost of the assets. As per the written submissions of the assessee, the depreciation charged to the P&L a/c was Rs. 9,434.32 lakhs which included a sum of Rs. 3,817.81 lakhs being extra depreciation arising on revaluation of fixed assets. The assessee had deducted an equivalent sum of Rs. 3,817.81 lakhs from the depreciation charged which amount had been withdrawn from the revaluation reserve. While computing the book profits for the purpose of Section 115JA, the assessee-company deducted a sum of Rs. 29,01,06,907 representing the drawal from revaluation reserve created upto 31st March, 1996, from the book profits of Rs. 28,37,25,910 and, thus, arrived at a loss of Rs. 9,51,18,580. The AO relying on the decision of the Tribunal, Mumbai Bench 'B', in DCW Ltd. v. Dy. CIT (2001) 72 TTJ (Mumbai) 151 : (2001) 77 ITD 462 (Mumbai) disallowed the assessee's claim for the following reasons (as mentioned in the written submissions) :
"(i) Depreciation had to be provided on the basis of histroric cost and not on the revalued amount [for which reliance was placed on Section 205 of the Companies Act, 1956, and the decision of Mumbai Bench of the Tribunal in the case of DCW Ltd. v. Dy. CIT (2001) 72 TTJ (Mumbai) 151 : (2001) 77 ITD 462 (Mumbai)];
(ii) The amount withdrawn from revaluation reserve had not been credited to the P&L a/c but P&L a/c reflected depreciation at the net amount (for which again reliance was placed on DCW Ltd.'s case referred to supra);
(iii) Revaluation reserve had not been routed through P&L a/c of the earlier year and no profits had been offered as income in that year. Hence, withdrawal from such reserve cannot be considered as credit to the P&L a/c".
The learned CIT(A) confirmed the order of the AO.
31. The learned counsel for the assessee, Mr. Dastur, referred to the first proviso to the Clause (i) of Explanation to Section 115JA and pointed out that only those reserves are not required to be reduced from the book profit which had been created in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997, but ending before the 1st day of April, 2001, if not routed through P&L a/c. The learned counsel for the assessee pointed out that these reserves were created by increasing the value of fixed assets and corresponding amount was credited to the revaluation reserve account. Thus, admittedly, the amounts were not routed through the P&L a/c. The learned counsel pointed out that the assessee had not reduced the entire sum of Rs. 38.17 crores but only Rs. 29.01 crores which represented the reserve created upto 31st March, 1996. The learned counsel referred to page No. 215 of the paper book wherein the calculation of tax payable as per MAT is furnished. The learned counsel further submitted that in view of the unambiguous language of the proviso below item (i) of Explanation to Section 115JA of the Act, the AO should have deducted the amounts drawn from the revaluation reserve and credited to the P&L a/c. The learned counsel submitted that depreciation had to be provided in accounts on revalued figure and to the extent there was extra depreciation provided in the accounts amounting to Rs. 3,817.81 lakhs, the same amount was withdrawn from the revaluation reserve account and credited to the P&L a/c. In this regard the learned counsel for the assessee referred to the Notes on Accounts to annual report for financial year 1999-2000 at p. 44, which read as under :
"4(d) : The depreciation charge for the year shown in the P&L a/c is after deducting an amount of Rs. 3,817.81 lacs (Previous year Rs. 4,344.40 lacs) representing the extra depreciation arising on revaluation of fixed assets withdrawn from revaluation reserve."
The learned counsel for the assessee in support of his contention that depreciation had to be provided on revalued figure, referred to the Accounting Standard-6 issued by the Institute of Chartered Accountants of India dealing with Depreciation Accounting. The learned counsel referred to Section 211(3A) of the Companies Act and pointed out that accounts had to be prepared as per the accounting standards. He further referred to the Annual Report for financial year 1999-2000 and pointed out that at p. 26 the auditors have certified that the assessee has complied with the requirements of Section 211(3C). The learned counsel submitted that in view of the decision of the Hon'ble Supreme Court in the case of Apollo Tyres (supra), the AO cannot now tinker with the P&L a/c duly audited by a chartered accountant in terms of provisions of the Companies Act. The learned counsel for the assessee pointed out that the reliance placed by the AO on the decision of the Mumbai Bench of the Tribunal in (2001) 72 TTJ (Mumbai) 151 : (2001) 77 ITD 462 (Mumbai) (supra) is not correct as the same has not laid down the correct law. He pointed out that the said decision proceeds on the premise that depreciation is to be charged as per the requirements of Section 205 whereas the correct position of law is that Section 205 only regulates how dividend can be declared. He further submitted that Section 205 only lays down minimum depreciation to be provided before dividend can be declared. The learned counsel pointed out that Sections 209 to 211 of the Companies Act actually deal with how the accounts are to be drawn. He referred to Section 211(2) of the Companies Act and pointed out that as per that section, P&L a/c of the company has to comply with the requirements of Part II of Sch. VI so far as they are applicable thereto. The learned counsel referred to para 11 of the Accounting Standard-6 and pointed out that the quantum of depreciation to be provided in an accounting period involves the exercise of judgment by management in the light of technical, commercial accounting and legal requirements, and, accordingly, needs periodical review. Therefore, he submitted that if Section 205 is sacrosanct, where is the question of review ? Therefore, he submitted that the decision of the Bombay Bench of the Tribunal in (2001) 72 TTJ (Mumbai) 151 : (2001) 77 ITD 462 (Mumbai) (supra) proceeded on wrong assumption. The learned counsel further pointed out that this issue has also been clarified by the Company Law Board in its circular. He pointed out that for payment of dividend, separate computation will be required. He further referred to para 4A of Sell. VI, Part II, and pointed out that the P&L a/c has to contain or give by way of a note a statement showing the computation of net profits in accordance with Section 349 of the Act with relevant details of the calculation of the commissions payable by way of percentage of such profits to the directors. Thereafter, the learned counsel referred to Section 205(2A) of the Companies Act to submit that after the Companies (Amendment) Act, 1974, no dividend can be declared or paid by the company for any financial year out of the profits of the company for that year unless depreciation has been provided in accordance with the provisions of Sub-section (2). The learned counsel pointed out that Section 115JA(2) has nothing to do with Section 205. He pointed out that Parts II and III to Sch. VI have been brought in with reference to Section 211(2) and Section 211(3A). By referring to these provisions, the learned counsel, Mr. Dastur, in sum and substance, submitted that reliance on the decision of the Mumbai Bench of the Tribunal by the AO is not correct. He pointed out that the decision of the Tribunal in the case of Punjab Fibres Ltd. v. Dy. CIT (2000) 69 TTJ (Del) 761 : (2000) 72 ITD 68 (Del) which is on the same issue, is in favour of the assessee. He submitted that the concept of real income is not relevant with reference to Section 115JA of the Act as this section itself starts with non obstante clause. The concept of real income is relevant only with reference to the Sections 28 to 44. He submitted that Section 115JA is a code in itself and specifically provides for the computation of book profits. He referred to the decision in the case of State Bank of India v. CIT (1986) 157 ITR 67 (SC) and pointed out that the said decision is not relevant since it is not concerned with Section 115JA. He further referred to the decision in the case of Metal Box Company of India Ltd. v. Their Workmen (1969) 73 ITR 53 (SC) to submit that crediting the revaluation reserve with the write up on revaluation is an accepted practice. The learned counsel further submitted that Clause 1 to Explanation to Section 115JA is attracted because revaluation reserve is a reserve as contemplated under the said section. He pointed out that Section 115JA refers to any reserve in contradistinction to reserves specifically excluded under Section 115JB which have not been created by way of debit to the P&L a/c. In the case of State Bank of India v. CIT (supra), it was, inter a ha, held by the Hon'ble Supreme Court that "It is well-settled that the way in which entries are made by the assessee in its books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee might, by making entries which were not in conformity with proper principles of accountancy, have concealed profit or showed loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other." The learned counsel for the assessee referred to the circular explaining the provisions, reported in (2002) 258 ITR 13 (St). Para 53.5 of the said circular reads as under :
"53.5. Further, the Finance Act, 2002, provides that the amounts withdrawn from reserves, in the nature of revaluation reserve, if credited to the P&L a/c, shall not be reduced from the book profit. It also provides that any amount withdrawn from a reserve or a provision created on or after 1st day of April, 1997, and which is credited to the P&L a/c shall not be reduced from the book profits, unless the book profits in the year of creation of such reserves or provisions were increased by the amount transferred to such reserves or provisions at that time."
The learned counsel for the assessee relied on the decision in the case of UCO Bank v. CIT (1999) 237 ITR 889 (SC) to submit that the circulars are binding. In this case it was, inter alia, held that circulars providing for uniform application of law in consonance with concept of income are not to be treated as inconsistent with provisions of statute and are binding on authorities. The learned counsel for the assessee has also filed written submissions which are placed on record.
32. The learned Departmental Representative submitted that there is no dispute regarding withdrawal of reserve from revaluation reserve account and the same being credited to the P&L a/c. However, the real dispute is that where reserve is created without being earlier debited to P&L a/c, can it be reduced or not ? The learned Departmental Representative referred to the proviso to Section 115J and pointed out that as per the said proviso reserves created or provisions made on or after 1st day of April, 1988, cannot be reduced from the book profit unless the book profit had been increased by that reserve. She submitted that Section 115J is still in the statute book and the whole scheme is an integrated scheme contained in Chapter XII-B regarding the computation of book profits in case the same are less than 30 per cent of the book profit. Thus, the learned Departmental Representative submitted that it is a mandatory requirement that the book profit cannot be reduced by the reserve, which is withdrawn from such a reserve which was not created by debit to the P&L a/c. She further submitted that minimum alternate tax (MAT) was introduced as number of zero tax companies and companies paying marginal tax had grown. It was found that companies had earned substantial book profit and had paid handsome dividends and they had paid no tax to the exchequer. She also submitted that the assessee had debited the depreciation on the revalued figures as per the Accounting Standard-6. If, the assessee had deducted the full depreciation, it would have shown a loss and had not been able to pay dividends and, therefore, the assessee credited the amount to the extent of additional depreciation from the revaluation reserve to present a more healthy balance sheet enabling the assessee to payout a good dividend. It is precisely to tax these kinds of companies that the MAT provisions had been introduced. She pointed out that by deducting the amount of withdrawal from the book profit, the assessee wants to create a negative figure under MAT, which is completely contrary to the intention of the provision. In regard to the decision of Apollo Tyres case (supra), the learned Departmental Representative submitted that the AO has not tried to go behind the net profit in the P&L a/c and he has only applied the Explanation correctly by refusing to exclude the withdrawals from the revaluation reserve. The learned Departmental Representative has also filed written submissions which are placed on record.
33. The learned counsel, Mr. Dastur, in the rejoinder, submitted that the reliance placed by the learned Departmental Representative on the proviso to Section 115J is misplaced as Section 115J was in operation from the 1st day of April, 1988 to 31st March, 1991, and, therefore, the reserve created from 1st April, 1991 to 31st March, 1997, does not come within the purview of the scheme of this chapter.
34. We have considered the rival submissions and have carefully gone through the records of the case. The object of introduction of MAT scheme was brought in the IT Act by insertion to Chapter XII-B by the Finance Act, 1987, w.e.f. 1st April, 1988. The AO has reproduced from the Budget Speech of the then Hon'ble Finance Minister as under:
"It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so-called 'zero tax' highly profitable companies deserves attention. In 1983, a new Section 80WA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a 'minimum corporate tax' on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on atleast 30 per cent of its book profit."
The intention, as is evident from the above speech, is to make every company pay a minimum corporate tax on the profits declared by it in its own accounts. Section 115JA is a code by itself which creates the charge as well as prescribes the procedure of computation of the taxable income. If we closely examine the scheme of the Act regarding the computation of profit as contained in Sub-section (2) of Section 115JA, we find that the assessee has to first prepare its P&L a/c for the relevant previous year in accordance with the provisions of Parts II & III of Sch. VI. Thereafter comes the Explanation into picture which considers specific items by which the net profit as shown in the P&L a/c has to be increased, if debited in the P&L a/c, which are contained in Clauses (a) to (f) of the Explanation and from (i) to (ix) are those items which have to be reduced from the net profit as shown in the P&L a/c. The scheme is so framed as to bring out the real profit of the concern. The thrust is on finding out the real working results of the company.
35. Before we consider item (i) of Explanation to Section 115JA, it would be useful to refer to various other items also to find out the intention of legislature. The Explanation to Section 115JA reads as under :
"Explanation. : For the purpose of this section, "book profit" means the net profit as shown in the P&L a/c for the relevant previous year prepared under Section (2), as increased by-
(a) the amount of income-tax paid or payable, and the provision therefor, or"
The income-tax paid or payable and the provision made therefor depresses the profit shown in the P&L a/c and, accordingly, the net profit shown in the P&L a/c is required to be increased by the amount relating to income-tax.
(b) the amounts carried to any reserves by whatever name called; or This item also in effect reduces the net profit as shown in the P&L a/c though primarily it is a part of the profit for the relevant financial year. Accordingly, legislature has made specific requirement for increasing the profit as shown in the P&L a/c.
(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or The fundamental principle of IT Act is that only those liabilities are allowed to be charged off in the P&L a/c which are ascertained liabilities. Accordingly, the legislature has incorporated this provision to take care of those items which though debited in the P&L a/c, but liability therefor has not crystallized in the relevant financial year. This is clear from the second limb of the provision which clearly excludes the ascertained liabilities.
(d) the amount by way of provision for losses of subsidiary companies; or The losses of subsidiary companies if debited to P&L a/c have the effect of depressing the profit of the company and thereby affecting the correct working results of the company. Therefore, the losses as shown in the P&L a/c are required to be increased by those losses of subsidiary companies which had been debited to the P&L a/c.
(e) the amount or amounts of dividends paid or proposed; or As is evident from the Budget Speech of the Hon'ble Finance Minister, noted earlier, the main object of introduction of Section 115JA was to tax those companies which had paid dividend and accordingly, a provision has been made to increase the book profit by the amount or amounts of dividends paid or proposed.
(f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies;
This clause has been inserted to take care of those incomes which do not form part of total income. If any expenditure relatable to such income has been debited to P&L a/c, then the same is required to be increased so as to avoid any distortion in the taxable income of the assessee.
36. Now, we will consider certain items contained in Clauses (i) to (ix) of Explanation which are required to be reduced from the P&L a/c :
(i) the amount withdrawn from any reserves or provisions if any such amount is credited to the P&L a/c.
The main object of this clause is to reduce the net profit as shown in the P&L a/c by that amount which has been credited in the P&L a/c the amounts withdrawn from reserve as this item does not reflect the true working result of the assessee-company. This clause contemplates those reserves which actually affect the net profit as shown in the P&L a/c.
Similarly, item (ii), viz.,
(ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the P&L a/c; or This particular item is relatable to Clause (i) discussed earlier and, accordingly, for the same reasoning, any such amount is credited which does not form part of total income under Chapter HI then the same is to be reduced.
Item (iii) reads as under:
(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account This clause has been incorporated to correctly adjust the depreciation relating to current year. The other provisions from Clauses (iv) to (ix) mainly deal with those items for which deduction is available under other sections and, therefore, the legislature has made provision for reducing such items. However, since these items are not relevant for deciding the present case, we do not wish to elaborate them.
From the foregoing discussions, it is clear that main object of various clauses is to find out the true working results of the company.
37. The assessee has claimed that it has reduced the amount withdrawn from revaluation reserve created prior to 31st March, 1997, on account of the proviso to Clause (i) of the Explanation. The Expln. (i) along with the proviso reads as under:
"(i) the amount withdrawn from any reserves or provisions if any such amount is credited to the P&L a/c :
Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997, but ending before the 1st day April, 2001, shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions out of which the said amount was withdrawn under this Explanation,"
This proviso has to be interpreted taking into consideration Clause (b) of the Explanation because as per this proviso that reserve (which is credited to P&L a/c) is not required to be reduced by which in earlier year book profit had been increased as per Clause (b). Therefore, if the assessee after 1st April, 1997, but before 1st day of April, 2001, has carried to any reserve any amount by way of debit to the P&L a/c and the book profit of that particular year was increased by that amount, then only the assessee will be entitled to reduce the same (if it is credited during current financial year) from the net profit as shown in the P&L a/c. As this condition was not complied with, the assessee has not reduced the reserve created after 1st April, 1997. The learned Departmental Representative has submitted that in view of the proviso contained under Section 115J also, the reserves which have not been created through debit to P&L a/c cannot be reduced. In our opinion, this contention cannot be accepted because firstly, Section 115JA is a code by itself and secondly, the operation of Section 115J was only for the limited period from 1st April, 1988 to 31st March, 1991. The language of proviso of Expln. (i) to Section 115JA is clear and unambiguous. The arguments of learned counsel for the Department lead to the conclusion that it is a case of casus omissus but it is settled law that Courts cannot fill the gaps in legislation.
Now, we will examine whether the amount withdrawn from the reserve (and transferred to the P&L a/c) had been credited or not. In this regard the AO has relied upon the decision of the Tribunal, Mumbai Bench, in the case of DCW Ltd. cited supra, wherein it was specifically held in para 17 as under:
"In such circumstances, the adjustment claimed by the assessee by reason of withdrawal from the revaluation reserve account is not permissible, as one of the conditions for reduction of such amount from the profits is that 'such amount is credited to the P&L a/c'. In this case, the said amount is neither credited to the P&L a/c nor can it be deemed to have been credited to the said account."
The learned counsel for the assessee has vehemently submitted that this decision was rendered by the Mumbai Bench of the Tribunal under wrong premise that depreciation had to be charged in accordance with the provisions of Sections 205 and 350. The learned counsel's main contention is that the relevant provisions regarding maintenance of accounts are contained under Section 211 and not under Sections 205 and 350. We do not wish to dwell upon in detail on these issues because, in any view of the matter, after the decision of the Hon'ble Supreme Court in Apollo Tyres's case (supra), the AO has no option but to accept the net profit as shown in the P&L a/c and he cannot tinker with the same. Therefore, as far as the reasoning of the Tribunal's decisions on the basis of Sections 205 and 350 is concerned, that stands overruled in the light of the Hon'ble Supreme Court's decision in Apollo Tyres's case (supra). However, the ratio of the said decision, viz. "In this case, the said amount is neither credited to the P&L a/c nor can it be deemed to have been credited to the said account" still holds good because that is with reference to Clause (i) of Explanation. As per the assessee itself the amount credited to the P&L a/c out of withdrawal from reserve represents that amount by which the assessee had charged additional depreciation as per the Accounting Standard-6 issued by the Institute of Chartered Accountants of India (in short ICAI). This adjustment was made as per the guidelines prescribed by the ICAI for treatment of reserves created on revaluation of fixed assets, the relevant paras from which are reproduced hereunder:
"1. In the preparation of the financial statements of a company, various fixed assets are stated on the basis of their historical cost. Sometimes, in order to bring into the balance sheet their replacement cost, a company revalues its fixed assets on the basis of a valuation made by competent valuers. When the value of fixed assets is written up in the books of account of a company on revaluation, a corresponding credit is given to the revaluation reserve. Such reserve represents the difference between the estimated present market values and the book values of fixed assets. When such reserve is created, a question arises about its nature and the manner in which it can be utilised. This guidance note deals with accounting treatment of the reserve created on revaluation of fixed assets (herein referred to as "revaluation reserve").
9. A question may arise, as to whether the additional depreciation provision required in consequence to revaluation can be adjusted against "revaluation reserve". As stated earlier, depreciation is required to be provided with reference to the total value of the fixed assets as appearing in the account after revaluation. However, for certain statutory purposes, e.g., dividends, managerial remuneration, etc., only depreciation relatable to the historical cost of the fixed assets is to be provided out of the current profits of the company. In the circumstance, the additional depreciation relatable to revaluation may be adjusted against '"revaluation reserve" by transfer to P&L a/c. In other words, as per the requirements of Part II of Sch. VI to the Companies Act, the company will have to provide the depreciation on the total book value of the fixed assets (including the increased amount as a result of revaluation) in the P&L a/c of the relevant period and thereafter the company can transfer an amount equivalent to the additional depreciation from the revaluation reserve. Such transfer from revaluation reserve should be shown in the P&L a/c separately and an appropriate note by way of disclosure would be desirable. Such a disclosure would appear to be in consonance with the requirement of Part I of Sch. VI to the Companies Act, prescribing disclosure of write up in the value of fixed asset for the first five years after revaluation.
10. If a company has transferred the difference between the revalued figure and the book value of fixed assets to the "revaluation reserve" and has charged the additional depreciation related thereto to its P&L a/c, it is possible to transfer an amount equivalent to accumulated additional depreciation from the revaluation reserve to the P&L a/c or to the general reserve as the circumstances may permit, provided suitable disclosure is made in the accounts as recommended in this guidance note.
11. The revaluation reserve is not available for payment of dividends. This view is also supported by the Companies (Declaration of Dividend out of Reserves) Rules, 1975. Similarly, accumulated losses or arrears of depreciation should not be set off against revaluation reserve. However, the revaluation reserve can be utilised for adjustment of the additional depreciation on the increased amount due to revaluation from year to year or on the retirement of the relevant fixed assets (as discussed in paras 9 and 10 above, respectively)."
Thus, the adjustment made in the P&L a/c was as per Accounting Standard-6 read with guidance note issued by ICAI. This adjustment was in conformity with the prescription of Section 211 of the Companies Act, 1956. This was done in order to bring the accounts on historical cost basis. This was primarily in the nature of contra adjustment in P&L a/c and not a case of effective credit in the P&L a/c [as contemplated in Clause (i) of Explanation]. The Courts cannot go by the literal meaning of the word but have to consider the substance of the adjustment. Literally, it may be a credit to the P&L a/c but not in substance. The credit in the P&L a/c implies that the P&L a/c per se has been effectively credited by the said amount. Thus, in effect, affected the net profit as shown in the P&L a/c. However, as per accounting principles, the contra adjustment does not at all affect any particular account to which it has been carried out. Unless an adjustment has the effect of increasing the net profit as shown in the P&L a/c, that entry cannot be said to be a credit to the P&L a/c and, therefore, though the amount has been literally credited to the P&L a/c but in substance there is no credit to the P&L a/c. This adjustment had the effect of reflecting true working results of the company and, therefore, if reserve is deducted while computing the book profit then it would not be in consonance with the intention of the legislature as noted earlier. It is well-settled principle of interpretation that the Courts have to interpret the provisions of an Act in such a manner so as to advance the object of legislation rather than to defeat the same. In this regard we refer to the decision of Hon'ble Supreme Court in the case of CIT v. Gwalior Rayon Silk Mfg. Co. Ltd. (1992) 196 ITR 149 (SC), wherein it has been held as under :
"It is settled law that the expressions used in a taxing statute would ordinarily be understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative intention. It is equally settled law that if the language is plain and unambiguous, one can only look fairly at the language used and interpret it to give effect to the legislative intention. Nevertheless, tax laws have to be interpreted reasonably and in consonance with justice adopting purposive approach. The contextual meaning has to be ascertained and given effect to. A provision for deduction, exemption or relief should be construed reasonably and in favour of assessee."
Keeping in view the above law laid down by Hon'ble Supreme Court, this whole issue can be looked from one another angle also and it is with reference to those assessees who did not revalue their assets and, therefore, had no benefit of having revaluation reserve in their balance sheets. In such cases the assessee will not be required for crediting any amount to the P&L a/c because it will not be required to charge any additional depreciation on account of revaluation of assets. This will cause invidious discrimination against such assessees if the interpretation as suggested by the learned counsel for the assessee is accepted. In view of the aforementioned discussion, we confirm the order of the learned CIT(A).
38. Ground Nos. 7.5 to 7.7 read as under :
"7.5 The CIT(A) erred in confirming that provision for bad debts has to be added back in computing book profits under Section 115JA.
7.6. The CIT(A) ought to have appreciated that the provisions for bad debts is not a provision for unascertained liability and hence the same cannot be added back under any of the Explanations to Section 115JA.
7.7. The CIT(A) ought to have applied the ratio of the Bombay High Court in the case of CIT v. Eschjay Forgings (P) Ltd. (2001) 251 ITR 15 (Bom) and allowed the claim of the appellant."
The assessee-company had added back a sum of Rs. 49,259 representing provision for doubtful debts with the narration "provisionally being added". The assessee claimed deduction in respect of this item in accordance with Clause (b) of Explanation to Sub-section (2) of Section 115JA.
39. Having heard both the parties, we find that this issue is covered against the assessee by the decision of the Hon'ble Madras High Court in the case of Dy. CIT v. Beardsell Ltd. (2000) 244 ITR 256 (Mad), wherein it has been, inter alia, held that a mere provision for bad debt is only of an unascertained liability and, therefore, the same is required to be added back to the book profit under the Explanation to Section 115J.
40. In the result, the appeal is to be treated as partly allowed for statistical purposes.