JUDGMENT
S. Sankarasubban, J.
ITA No. 26 of 1999 is with regard to the assessment year 1989-90. This appeal is at the instance of the revenue. Questions of law raised are as follows :
“1. Whether, on the facts and in the circumstances of the case, is the Tribunal right in holding that with reference to the book profit as shown in the profit & loss account of the company the additions made by the assessing officer by way of disallowance of the provision for foreseeable loss on contract, the provision for bad and doubtful debts and the provision for obsolescence of stores, are not in accordance with the provisions of section 115J ?
2. Whether, on the facts and in the circumstances of the case, can not the addition in this case be upheld as a prima facie adjustment in accordance with section 143(1)(a) ?
3. Whether, on the facts and in the circumstances of the case the Tribunal is right in law in holding that the proviso to section 143(1)(a) permits only the disallowance of any loss carried forward, deduction, allowance of relief claimed in the return which on the basis of the information is prima facie inadmissible”? The adjustment made in this case is also not within the scope of prima facie disallowance under section 143(1)(a) as clarified by the Central Board in the Circular No. 689, dated 24-8-1994 [vide (1994) 209 ITR (St) 75]?
2. ITA No. 212 of 2002 is with regard to the same assessee filed against the order of the Tribunal in ITA 853/Coch/1995 for the year 1990-91. Assessee is a company registered under the Indian Companies Act. As already stated, ITA No. 212 is preferred by the assessee. The assessment is made as per section 115J of the Indian Income Tax Act (hereinafter referred to as the Act’). Section 115J of the Act was introduced by Finance Act, 1987. The section provides that where the total income of a company as computed under this Act in respect of any accounting year is less than thirty per cent of its book profit, the total income of the company chargeable to tax shall be deemed to be an amount equal to thirty per cent of such book profit. The section does not deprive a company of its option to have its corporate accounting year end on a date other than 31st March, only for the limited purposes of this section, sub section (1A) obliges every company to prepare its profit & loss account for the financial year. The section further states that after fixing the profit of thirty per cent of the book value, certain amounts are to be added or substracted as seen from section 115J(1A) of the Act and its clauses. In ITA No. 212 of 2002, which is by the assessee, the officer made two additions; (1) interest on income tax of Rs. 7,72,421, and (2) provision for foreseeable loss on contract Rs. 60,90,000.
3. As already stated, the amounts are added as per the provisions of the Act mentioned in section 115J of the Act. Section 115J(1A)(a) of the Act mentions only the amount of income tax paid or payable. That does not include interest. According to us, the provisions in the Act has to be strictly observed. Insofar as interest on income-tax is not mentioned in the section, according to us, this cannot be added under section 115J of the Act.
4. The next is with regard to the provision for foreseeable loss on contract. Section 115J(1A)(c) of the Act says that the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities can be added. According to learned counsel for the assessee, so far as the second aspect is concerned, the Tribunal went wrong in not appreciating the fact that the profit and loss statement drawn up under Sch. VI of the Act. It was further submitted that so far as the provision for foreseeable loss on contract, the Tribunal went wrong in construing that it was only a provision which was contingent in nature and the loss or liability arising therefrom was not ascertained and in these circumstances clause (c) of the Explanation to section 115J of the Act would apply and the same will have to be added back to work out the real quantum of book profit for the purpose of section 115J of the Act. Learned counsel submits that under section 115J(1A)(c) of the Act, the amount or amounts set aside to provisions made for meeting liabilities other than ascertained liabilities had to be taken for book profit for the purpose of the section. According to the assessee, the Tribunal added back the provision made by the assessee for foreseeable losses on the ground that it is not an ascertained loss. Loss and liability are totally different concepts and are not the same. Learned counsel for the assessee submitted that the term “provision” is defined under Part III of Sch. VI to the Companies Act. It includes amounts retained by way of providing for depreciation renewals or diminution in value of assets or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy. The term “liability” also includes disputed and contingent liabilities. On the various amounts which can come under the definition of provision only amounts set aside to provisions made for meeting liabilities other than ascertained liabilities can be added back.
5. We heard learned counsel for the revenue also.
6. After hearing both sides, we are of the view that the matter requires reconsideration at the hands of the Tribunal. Hence, we hold that the addition of interest on income-tax cannot be added. Further, the matter is remanded regarding the applicability of section 115J(1A)(a) and (c) of the Act, to the Tribunal.
7. So far as ITA No. 26 of 1999 is concerned, as already stated, three questions of law are referred. These references are at the instance of the revenue. The Tribunal allowed the appeal filed by the assessee and held that the additions made by the assessing officer by way of disallowance of the provision for foreseeable loss on contract, the provision for bad and doubtful debts and the provisions for obsolescence of stores, are not in accordance with the provisions of section 115J. The Tribunal observed that the question to be considered is whether the three items added back by the assessing officer were permissible disallowances under clauses (a) to (ha) of the Explanation to section 115J of the Act. Clause (c) provides that the amount set aside to provisions made for meeting liabilities other than ascertained liabilities could be added back to increase the book profit. But the provisions created by the assessee were not for meeting any liabilities, whether ascertained or otherwise. The provisions created were for the anticipated losses in contract in obsolete stores and the loss by way of doubtful debts. The Tribunal was also of the view that clause (c) does not permit disallowance of those provisions.
8. After hearing counsel on both sides, we feel that so far as the appeal preferred by the revenue is concerned, it required reconsideration in the light of the fact that we are remanding the appeal filed by the assessee. Hence, we remand the appeal ITA 26 of 1999 to the Tribunal for fresh consideration in accordance with law.
Income Tax Reference and Income Tax Appeal are disposed of as above.
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