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43.1. Now the question is whether the provision for bad and doubtful debt is the provision for diminution in the value of asset or for known liability of which the amount cannot be determined with substantial accuracy. The provision for bad and doubtful debt is made when the assessee is of the opinion that its entire debt may not be realized and part of the debt may become irrecoverable. However, when the amount of such irrecoverable debt cannot be ascertained with substantial accuracy, the provision is made for bad and doubtful debt. Debts are of two types. One - debt payable by the assessee i.e. where the assessee has to pay amount to others. This would be liability in the hands of the assessee. Second debt receivable by the assessee i.e. where the assessee has to receive the amount from others. This would be asset in the hands of the assessee. Admittedly, the "debt" under consideration is "debt receivable" by the assessee. The provision for bad and doubtful debt would always be made with reference to debt receivable, where there is doubt about full realization of debt. The provision is made to cover up the probable diminution in the value of asset i.e. debt which is amount receivable by the assessee. The following example would make the position more clear. In the accounts of an assessee there are outstanding debts in the names of several parties totalling to Rs. 1 crore. The assessee is of the opinion that the entire debt of Rs. 1 crore may not be realized. It opines that only 90 per cent of the debt would be realized and, therefore, it made a provision for Rs. 10 lacs for bad and doubtful debts. By making this provision, the assessee is valuing its asset, viz., debt, at Rs. 90 lacs as against the book figure of Rs. 1 crore. Thus, the provision for bad and doubtful debt is the provision for diminution in the value of asset i.e. debt. The provision for bad and doubtful debt cannot be said to be a provision for liability, because even if a debt is not recovered, no liability would be fastened upon the assessee. In the above example if as against the outstanding debt of Rs. 1 crore only Rs. 90 lacs has been realized, then due to non-realisation of the debt of Rs. 10 lacs there is no question of any liability upon the assessee. The debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision towards irrecoverability of the debt cannot be said to be provision for liability. Once it is held that the provision for bad and doubtful debt is not a provision for any liability, the question whether the liability is ascertained liability or unascertained liability does not arise.

43.2. Reverting back to the decision of Hon'ble Madras High Court in the case of Beardsell Ltd. (supra), we find that in the above case the Hon'ble Madras High Court considered whether the provision for bad and doubtful debt is an ascertained liability or is not an ascertained liability. It was never contended before their Lordships that the provision for bad and doubtful debt is not a liability at all but the provision is only for diminution in the value of asset. Therefore, their Lordships had no occasion to deal with this vital aspect i.e. whether the provision for bad and doubtful debt is a provision of the diminution of the value of the asset or a provision of known liability. Similarly, Tribunal, Kolkata Bench in the case of ICI India Ltd. (supra) also proceeded with the presumption that the provision made for bad and doubtful debt was a provision for liability and, therefore, relying upon the decision of Hon'ble Madras High Court in the case of Beardsell Ltd. (supra) confirmed the addition in this regard. The learned Counsel for the assessee has relied upon the decision of Hon'ble Bombay High Court in the case of CIT v. Echjay Forgings (P) Ltd. (supra). However, we find that in the above case also the question whether the provision for bad and doubtful debt is diminution in the value of the asset or a provision for liability was neither argued nor considered. The Hon'ble High Court deleted the addition because they agreed with the assessee's contention that the provision was for ascertained liability. Therefore, the above case would also not be applicable while considering whether the provision for bad and doubtful debt is at all a provision for liability.

43.3. The learned Counsel for the assessee has relied upon the decision in the case of Steel Authority of India Ltd. (supra) wherein the AO has made the addition for provision for bad and doubtful debts by way of prima facie adjustment under Section 143(1)(a). On appeal to the Tribunal, the learned JM upheld the addition on the ground that the provision for bad and doubtful debt was unascertained liability. However, the learned AM was of the view that the provision was not for liability but it was for bad and doubtful debts which were, in fact, assets and not liabilities. Therefore, the learned AM was of the view that the adjustment could not be made for provision for bad and doubtful debts under Clause (c) of Explanation to Section 115J of the IT Act. When the matter came up for consideration before the Third Member, it was pointed out by the assessee's counsel that, in fact, there was no increase in the provision in the year under consideration. The Third Member called for the report from the AO who affirmed that during the year under consideration there was no increase in the provision for bad and doubtful debts. Accordingly, the issue was decided in favour of the assessee. Thus the learned Third Member had no occasion to consider whether the provision for bad and doubtful debt was a provision for liability or the provisionfor diminution in the value of assets. Therefore, this decision would also not be of much help to the assessee.

45. Now reverting back to the facts in the case of Usha Martin Industries Ltd., we find that in the accounts, the assessee had made the provision for bad and doubtful debts of Rs. 2.20 crores as on 31st March, 1997. The provision as on 31st March, 1996 was Rs. 64 lacs. Thus the additional provision of Rs. 1.56 crores is made for the year under consideration. The balance sheet of the assessee is duly audited and certified by the chartered accountants and it has nowhere reported that the provision for bad and doubtful debt is excessive in the opinion of either directors or auditors. We also find that the total outstanding debt as on 31st March, 1997 was more than Rs. 86 crores against which the provision for bad and doubtful debt was Rs. 2.20 crores, which is even less than 3 per cent of the total debt. The AO in the assessment order has nowhere stated that the provision made by the assessee for bad and doubtful debt is excessive or unreasonable considering the purpose for which the provision is made. At the time of hearing before us also, the Revenue except making a claim that the provision for bad and doubtful debt should be considered as 'reserve' under Clause (b) of Explanation to Section 115JA, has not proved how the provision made for bad and doubtful debt is excessive or unreasonable. In view of the above, we are unable to accept the Revenue's claim that the provision for, bad and doubtful debt in the case of the assessee, viz., Usha Martin Industries Ltd. would fall within Clause (b) of the Explanation to Section 115JA of the IT Act. Accordingly, we uphold the order of the CIT (A) deleting the addition of Rs. 1.56 crores made by the AO in respect of provision for bad and doubtful debt.