By Sri Dilip Adv. Forsri K v. Aravind, Adv.)Sri K. V. Aravind, Adv

IN THR HIGH COURT OF KARNATAKA AT BENGALURU DATEKD THIS THE DAY OF JUNE 2016 PRESENT THR HON’BLE MR.JUSTICE JAYANT PATEL AND THR HON’BLE MR.JUSTICE B.SRBBNIVASKH GOWDA ITA NO.245/2015 BETWEEN: 1.THRE COMMISSIONER OF INCOME-TAXC. R. BUILDING,QUEENS ROAD,BANGALORE.C. R. BUILDING,QUEENS ROAD,BANGALORE. 2.THER ASSISTANT COMMISSIONER OF [INCOME-TACIRCLE-12 (3),CIRCLE-12 (3), RASHTROTHANA BHAVAN, NRUPATHUNGA ROAD, BANGALORE-560001. ... APPELLANTS (BY SRI DILIP ADV. FORSRI K. V. ARAVIND, ADV.)SRI K. V. ARAVIND, ADV.) AND: M/S. TELCO CONSTRUCTIONEQUIPMENT CO. LTD.,NO.45, JUBILEE BUILDING,MUSEUM ROAD, BANGALORE-560026,| PAN: AAACT 9077B. ... RESPONDENT| THIS [TA IS FILED UNDER SEKC.260-A OF [INCOMTAX|ACT1961,|ARISINGOUT.OF|ORDERDATBD.22/01/2015 PASSED IN ITA NO.561/BANG/2005, FOR THEASSESSMENT|YRKAR2001-2002PRAYING|I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW|STATEKED ABOVE II]. ALLOW THR APPEAL AND SET ASITHE ORDER PASSED BY THE ITAT, BANGALORE IN ITA)NO.561/BANG/2005 DATED 22/01/2015 CONFIRMING|THR ORDER OF THR APPEHELLATK COMMISSIONER ANCONFIRM THR ORDBR PASSED BY THR ASSISTANT|COMMISSIONEROF|INCOMETAX,|CIRCLE-12(3),Bangalore. TO THIS APPEAL COMING ON FOR ORDERS THIS DAY,JAYANT PATEL J., DELIVERED THE FOLLOWING: JUDGMENT When the matter was listed for orders, at therequest of the learned Counsel for the appellant, wehave taken up the main matter itself. 2. We may record that the office has raised the objection that the tax effect is less than the prescribedlimit and therefore the appeal could not be said to bemaintainable. 3. However, the learned Counsel for the appellantby relying upon paragraph-5 of the Circular dated10.12.9015 contends that as it was a common order of|the Tribunal in respect of a different assessment yearand in the other matter where the value of tax effect wasexceeding Rs.20,00,000/- (Rupees twenty lakhs), [TANo.244/2015 was preferred and this Court vide orderdated 10.03.2016 disposed of the appeal. He submittedthat as such, the present matter will be covered by theaforesaid decision of this Court but as it is a common|order, the present appeal can be said as maintainableeven if the tax effect is less than the prescribed limit. 4. In view of the above, we have further found itproper to consider the main matter. Do. The appellant-Revenue has preferred thepresent appeal by raising the following substantialquestions of law: “1. Whether the Tribunal was correct i1nholding that the assessee has reduced|the provision so made from the sundry|debtors in the balance sheet and hence|the same cannot be considered as'provision but is the write off of bad debtswithout appreciating that as per the|accounting standards the provisions are|either shown separately in the balance|Sheet or may be reduced from the|concerned asset/liability as per the)practice followed by the assessee_ forwriting its books of accounts?holding that the assessee has reduced|the provision so made from the sundry|debtors in the balance sheet and hence|the same cannot be considered as'provision but is the write off of bad debtswithout appreciating that as per the|accounting standards the provisions are|either shown separately in the balance|Sheet or may be reduced from the|concerned asset/liability as per the)practice followed by the assessee_ forwriting its books of accounts? 2. Whether the Tribunal is correct in debiting|the P & L account, the assessee as.reduced the amount trom the debtors|thereby reducing the value of the assetwithout appreciating that provision ofclause (i) of explanation 1 to section 115JB—require that the net profit as shown in P &L account should be increased by thethe P & L account, the assessee as.reduced the amount trom the debtors|thereby reducing the value of the assetwithout appreciating that provision ofclause (i) of explanation 1 to section 115JB—require that the net profit as shown in P &L account should be increased by the 2. Whether the Tribunal is correct in debiting|the P & L account, the assessee as.reduced the amount trom the debtors|thereby reducing the value of the assetwithout appreciating that provision ofclause (i) of explanation 1 to section 115JB—require that the net profit as shown in P &L account should be increased by thethe P & L account, the assessee as.reduced the amount trom the debtors|thereby reducing the value of the assetwithout appreciating that provision ofclause (i) of explanation 1 to section 115JB—require that the net profit as shown in P &L account should be increased by the amount, or amount set aside as provisionfor diminution in the value of asset if anydebited to the P & L account and reductionof the provision from the debtors is only arequirement under the companies Act?” 6. We have heard Mr.Dilip, learned Counsel forMr.K.V.Aravind, learned Counsel appearing for theappellant. /. The learned Counsel for the appellant fairlyconceded that this matter is already covered by thedecision of this Court dated 10.03.2016 in MITANo.244/2015. 8. We may record that this Court in the aforesaid decision observed thus:| “The revenue has preferred the presentappeal by raising the following substantialquestions of law: 1.Whether the ‘Tribunal was correct inholding that the assessee has reduced.the provision so made from the sundry.debtors in the balance sheet and hence|the same cannot be considered as)provision but is the write off of bad.debts without appreciating that as per.the accounting standards the provisions|are either shown separately in the.balance sheet or may be reduced from)the concerned asset/liability as per the,practice followed by the assessee for,writing its books of accounts?holding that the assessee has reduced.the provision so made from the sundry.debtors in the balance sheet and hence|the same cannot be considered as)provision but is the write off of bad.debts without appreciating that as per.the accounting standards the provisions|are either shown separately in the.balance sheet or may be reduced from)the concerned asset/liability as per the,practice followed by the assessee for,writing its books of accounts? oDWhether the Tribunal is) correct indebiting the P & L account, the assessee_as reduced the amount from the debtorsthereby reducing the value of the asset.without appreciating that provision of.clause (i) of explanation 1 to section.115JB require that the net profit as.shown in P & L account should be)increased by the amount, or amount set.debiting the P & L account, the assessee_as reduced the amount from the debtorsthereby reducing the value of the asset.without appreciating that provision of.clause (i) of explanation 1 to section.115JB require that the net profit as.shown in P & L account should be)increased by the amount, or amount set. aside as provision for diminution in the.value of asset if any debited to the P&L.account and reduction of the provision|from the debtors is only a requirement,under the Companies Act?| 2.|We have heard Mr. K.V.Aravind, learned|counsel appearing for appellants-revenue andMr.A.Shankar, learned counsel appearing forrespondent-assessee. 3.|We may record that the Tribunal, whileconsidering the appeal, at paragraphs 25 and26 has observed thus: “29. We have perused the orders and heard rivalcontentions. Claim of assessee is that though it!had termed the sum as provision for bad debts,having deducted such amount from its grossdebtors, it was equivalent to a bad debt write off. |In other words, it was no more a provision. Thus,it would not fall within the ambit of clause (g) of aside as provision for diminution in the.value of asset if any debited to the P&L.account and reduction of the provision|from the debtors is only a requirement,under the Companies Act?| 2.|We have heard Mr. K.V.Aravind, learned|counsel appearing for appellants-revenue andMr.A.Shankar, learned counsel appearing forrespondent-assessee. 3.|We may record that the Tribunal, whileconsidering the appeal, at paragraphs 25 and26 has observed thus: “29. We have perused the orders and heard rivalcontentions. Claim of assessee is that though it!had termed the sum as provision for bad debts,having deducted such amount from its grossdebtors, it was equivalent to a bad debt write off. |In other words, it was no more a provision. Thus,it would not fall within the ambit of clause (g) of Explanation to Section 115JA(2) of the Act. We are|inclined to accept this contention since Balance|Sheet as on 31.3.2000 of assessee, at its Schedule|VI, copy of which has been placed before us,|Shows that aggregate amount of sundry debtors|was Rs. 107,34,96,981 from which assessee haddeducted the provision of Rs.2,04,24,768. Whatwas reflected by assessee in its balance sheetunder the head ‘debtors’ was only the net amount.In such circumstances, we are of the opinion thatjudgment of Hon’ble Apex Court in Vyaya Bank(Supra) as well as that of Hon’ble jurisdictionalHigh Court in Yokogawa India Ltd., (supra), wouldcome to its aid. In the case of Yokogawa IndiaLtd., (supra), the issue involved was very similar,though the computation was with reference to)section 115JB of the Act. At para 8 of itsjudgment, it was held as under by TheirLordships:- S$|In the present case, the debt is an amount|receivable by the assessee and not any liability|payable by the assessee and, therefore, anyprovision made towards irrecoverability of thedebt cannot be said to be a provision for liability. Therefore it was held that Item (c) of theExplanation is not attracted to the facts of the|case. Item (c) in s.. I1ISJA and 115JB(1) are!identical. In order to attract the Explanation thedebt which is doubtful or bad should satisfy therequirement contemplated in Item (c) of theExplanation. It is the amount or amounts set asideas provisions made for meeting the liability otherthan the ascertained liabilities. In the instant case|also the bad and doubtful debt for which aprovision is made which is in the nature ofdiminution in the value of any asset would not fall)within item (c) ofExpln. (1). It ts in that context the|CIT(A) as well as the Tribunal has granted relief to|the assessee, Realising the fatality of the said)argument, it is contended now that Item (i) cannotamount to satisfaction as provision for diminishingin the value of assets is substituted, in case of the)assessee falls under Item (c). In meeting theaforesaid case, the learned counsel for theassessee brought to our notice the judgment of theapex Court in the case of Vyaya Bank vs. CIT(supra) where the apex Court had an occasion toconsiderhisexplanation.Itacceptedthe.argument on behalf of the Revenue to the effect! that the explanation makes it very clear that thereis a dichotomy between actual write off on the onehand and provision for bad and doubtful debt onthe other, A mere debit to the profit and lossaccount would constitute a bad and doubtful debt,but it would not constitute actual write off andthat was the very reason why the explanationStood Inserted. Prior to the Finance Act, 2001|many assesses used to take the benefit ofdeduction under s. 36(1)(vu) of the 1961 Act by)merely debiting the impugned bad debt to theprofit and loss account and, therefore, theParliament stepped in by way of Explanation tosay that a mere reduction ofprofits by debiting theamount to the profit and loss account per se wouldnot constitute actual write off. The apex Courtaccepted the said legal position. However it wasclarified that besides debiting the P&L a/c andcreating a provision for bad and doubtful debt, theaSSCSSCEcorrespondingly/ simultaneouslyobliterated the said provision from its accounts byreducing the corresponding amount from loansand advances/debtors on the assets side of the|balance sheet and, consequentially, at the end ofthe year, the figure in the loans and advances or the debtors on the assets side of the balance sheetwas shown as net of the provision for theimpugned bad debt. Then the said amountrepresenting bad debt or doubtful debt cannot beadded in order to compute book profit. Therefore,after the Explanation the assessee is now required|not only to debit the P&L as/c but simultaneouslyalso reduce the loans and advances or the debtors|from the assets side of the balance sheet to theextent of the corresponding amount so that, at theend of the year, the amount of loans andadvances/ debtors1S Shownas net of theprovisions for the impugned bad debt. Therefore,in the first place if the bad debt or doubtful debt is|reduced from the loans and advances or the)debtors from the assets side of the balance sheetthe Explanation to s. IJISJA or JB is not at allattracted. In that context even tf amendmentwhich is made retrospective the benefit given by|the Tribunal and the CIT(A) to the assessee is in)no way affected. In that view of the matter, we do)not see any merit in this appeal.” 26. It has been clearly held by Their Lordshipsthat retrospective benefit to the amendment will not affect an assessee, once debtors were nettedoff with the provisioning. We are, therefore, of the|view that Revenue cannot succeed on this ground. |This issue is decided infavour of assessee.” The aforesaid paragraphs shows that theissue is already covered by the above referreddecision of this Court in the case of.CIT v.Yokogawa India Ltd., [|((2012) 204 taxma305]. However, learned counsel appearingfor the appellants did contend that theaforesaid decision of this court in the case ofYokogawa India Ltd.,supra has been carriedbefore the Apex Court. 4Be that as it may, when the issue is.already covered by the decision of this court,we do not find any substantial question oflawwouldarise forOUTconsideration.However, in the event the Apex Court takes adifferentv1ew,theTEVENUC takeproceedings in accordance with law. 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