IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 22.12.2009 Coram : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN and THE HONOURABLE MR.JUSTICE M.M.SUNDRESH Tax Case (Appeal) No.1048 of 2009 The Commissioner of Income-tax-I, Coimbatore. Appellant V. M/s. Shiva Texyarn Limited, Coimbatore 43. Respondent Tax Case Appeal under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal Madras 'C' Bench, Chennai dated 27.02.2009 made in I.T.A.No.1177/Mds/2008 for the assessment year 2000-2001. For Appellant : Mr. T.Ravikumar, Standing Counsel for Income Tax Department JUDGMENT (Judgment of the Court was delivered by K.RAVIRAJA PANDIAN, J.) The revenue is on appeal against the order of the Income Tax Appellate Tribunal, Madras 'C Bench, dated 27.02.2009 made in I.T.A.No.1177/Mds/2008 for the assessment year 2000-2001, by formulating the following question of law : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in quashing the order passed under section 263 of the Income Tax Act, 1961, even though the assessing officer without application of mind, passed an order, would be erroneous if it is based on an incorrect assumption of facts or incorrect application of law or based on no sufficient materials on record?" 2. The facts are : The assessee company dealing in hire purchase, financing, equipment leasing and general financing, filed its return of income for the assessment year 2000-01 on 30.11.2000 admitting Nil income after set off of brought forward losses. The assessee admitted Nil income under section 115JA of the Income Tax Act, 1961. The return was processed under section 143(1) of the Act on 23.03.2001. The case was taken up for scrutiny and the assessment under section 143(3) of the Act was completed on 17.03.2003 determining the total income at Rs.54,24,140/- raising a demand of Rs.26,11,025/-. On perusal of records, the Commissioner of Income Tax noted that while computing the book profits under section 115JB of the Act, errors have been occurred. Hence, the assessment already made by the assessing officer found to be erroneous and prejudicial to the interest of the revenue and directed the assessing officer to modify the assessment order, adding back the provision for non-performing assets and investments, and also lease equalisation charges, to the profits of the assessee company. The Commissioner of Income Tax directed the assessing officer to disallow the deduction under section 80HHC of the Act as the profit as per the normal computation resulted in loss. On appeal by the assessee, the Income Tax Appellate Tribunal quashed the order passed under section 263 of the Income Tax Act, following its earlier order in ITA No.663/Mds/2006 relating to the assessment year 2001-02 in which the Tribunal followed the Supreme Court judgment in the case of Malabar Industrial Co. Ltd. v. CIT, (2000) 243 ITR 83 (SC). Aggrieved by the order of the Tribunal, the revenue has preferred this appeal by formulating the question of law stated above. 3. We heard Mr.T.Ravikumar, learned standing counsel for the Income Tax Department and perused the materials available on record. 4. On a perusal of the order of the Tribunal, it is evident that the Tribunal has followed the judgment of the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT, (2000) 243 ITR 83 (SC), wherein the apex Court held that when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the Income Tax Officer is unsustainable in law. 5. In addition to that, on merits also, the issue is squarely covered against the revenue by the decision of the Supreme Court in the case of CIT v. HCL Comnet Systems and Services Ltd., (2008) 305 ITR 409. The apex Court, while determining the question as to whether the assessing officer was justified in adding back the provision for doubtful debts to the net profit under clause (c) of the Explanation to section 115JA of the Income-tax Act, 1961, held as follows : "While resorting to the provisions of section 115JA of the Income-tax Act, 1961, on the basis that the total income of the company as computed under the Act is less than 30 per cent. of its book profits, the Assessing Officer has to accept the authenticity of the accounts maintained by the company in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956, which are certified by the auditors and passed by the company in general meeting. The Assessing Officer has only the power of examining whether the books of account are duly certified and whether such books have been properly maintained in accordance with the Companies Act. The Assessing Officer does not have the jurisdiction to go beyond the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115JA. The Explanation has provided six items, viz., items (a) to (f), which if debited to the profit and loss account can be added back to the net profit for computing the book profit. The provision for bad and doubtful debts can be added back to the net profit only if item (c) of the Explanation is attracted. Item (c) deals with amounts set aside for meeting liabilities other than ascertained liabilities. The assessees case can fall within the ambit of item (c) only if the amount (i) is set aside as a provision, (ii) the provision is made for meeting a liability, and (iii) the provision should be for other than an ascertained liability, i.e., it should be for an unascertained liability. Item (c) of the Explanation to section 115JA is not attracted to the provision for bad and doubtful debts. The provision for bad and doubtful debts is made to cover up probable diminution in the value of the assets, i.e., a debt which is an amount receivable by the assessee. Such a provision cannot be said to be a provision for a liability, because even if the debt is not recoverable no liability can be fastened on the assessee. Any provision made towards irrecoverability of a debt cannot be said to be a provision for liability." 6. In view of the jurisdiction and also on merits, we do not find any case in favour of the revenue to maintain this appeal. The appeal is dismissed by answering the question of law in favour of the assessee and against the revenue. No costs. mf