Commissioner of Income Tax vs Kirloskar Systems Ltd.

This appeal is preferred by the Revenue raising the following substantial questions of law:--

a. Whether the Tribunal was correct in holding that provision for diminution in value of assets debited to P and L account is not required to be increased as per Clause (i) of Explanation-1 to Section 115JB of the Act to compute book profit u/s 115JB of the Act when the assessee has debited diminution in value of assets as a provision to the P and L account?

b. Whether the Tribunal was correct in holding that the provision for doubtful debts debited to P and L Account is not required to be increased as per Clause (c) of Explanation-1 to Section 115JB of the Act to compute book profit u/s 115JB of the Act when the assessee has debited provision towards doubtful debts to the P and L account?

c. Whether the Tribunal was correct in holding that the provision made towards gratuity and leave encashment were not contingent liabilities when the assessee had not produce any evidence to substantiate that they were ascertained liabilities and recorded a perverse finding?

d. Whether the Tribunal was correct in holding that interest u/s. 234B and 234C of the Act cannot be levied for default in payment of advance tax in the case wherein Section 115JB of the Act is invoked?

e. Whether the Tribunal was correct in holding that though the assessee assessed u/s. 115JB of the Act is liable for payment of advance tax however not liable for payment of interest u/s. 234B and 234C of the Act?

The Apex Court in the case of Vijaya Bank Vs. Commissioner of Income Tax and Another, has held that the assessee is entitled to the benefit of rejection u/s 36(1)(vii) of the income tax Act, 1961 (for short ''the Act) when there is an actual write off by the assessee in its book. This Court in the case of CIT v. Yokogawa India Ltd. [2012] 204 Taxman 305 : 17 taxmann.com 15 (Kar.) has held adjustment of provision for bad and doubtful debts is reduced from the loans and advances or the debtors from the assets side of the balance sheet, the Explanation to Section 115JA and JB is not at all attracted. Therefore, after the Explanation the assessee is now required not only to debit the P and L account but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debt. This Court in the case of Commissioner of Income Tax and Another Vs. Jupiter Bio-Science Ltd., has held the assessee is liable to pay advance tax as per the amended provisions of Section 115JB of the Act for the relevant period. However, he is not liable to pay interest on the amount due as per the amended provisions. However, he has not paid the advance tax as per the provisions existing prior to the amendment. Hence, he is liable to pay interest on the said amount deducting the difference of the tax paid. The Apex Court in the case of Bharat Earth Movers Vs. Commissioner of Income Tax, Karnataka, has held that an assessee who is maintaining the accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid. The liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. Therefore for that, reason it was held that the gratuity payable and encashment of earned leave is not a contingent liability and provision thereof is deducted. In the light of the settled principles laid down by the Apex Court, no substantial questions of law arise for consideration in this appeal Accordingly, the appeal is dismissed.