IMPORTANT POINT
Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act.

Judgment

S.H. Kapadia, J. —

1. Leave granted.

2. The short question which arises for determination in this civil appeal filed by the Department is : whether AO was justified in adding back the provision for doubtful debts of Rs.92,15,187/- to the net profit under clause (c) of the Explanation to Section 115JA of the Income-tax Act, 1961.

3. In this civil appeal we are concerned with the Assessment Year 1997-98.

4. Assessee-company was engaged in trading in data communication equipment and satellite communication services. During the course of assessment proceedings, the AO found that the assessee had debited an amount of Rs.92,15,187/- on account of bad debts to the ‘profit and loss account’. However, on the ground that it was a provision for bad and doubtful debts, the AO added the aforestated amount to the book profits as per Explanation (c) to Section 115JA of the Income-tax Act, 1961 (“1961 Act”, for short).

5. On appeal, the CIT(A) allowed the assessee’s appeal. That decision of CIT(A) stood affirmed by the Tribunal and also by the High Court vide its impugned Judgment dated 18.5.07 in ITA No.56 of 2007.

6. At the outset, we quote hereinbelow Section 115JA read with clause (c) of the Explanation which defines the expression “book profit” as under:

“Chapter XII-B

Special provisions relating to certain companies

Deemed income relating to certain companies

115JA. (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 (hereafter in this section referred to as the relevant previous year) is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit.

(2) Every assessee, being a company, shall, for the purposes of this section prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956) :

Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956):

Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year.

Explanation.-For the purposes of this section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by-

(a) & (b) xxx xxx xxx

(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or

(d), (e) & (f) xxx xxx xxx;

if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by, -

(i) to (viii) xxx xxx xxx

(3) and (4) xxx xxx xxx”

7. From the above, it is evident that Section 115JA of the 1961 Act which refers to “deemed income relating to certain companies” has an overriding effect upon other provisions of the Income-tax Act. It is applicable only in the case of a company. As per Section 115JA, the AO has to first compute the total income of the assessee as per the provisions of the Income-tax Act. Thereafter, he has to c