Law:

Section:

Rule 5 of First Schedule to the Companies (Profit) Surtax Act, 1964 - Chargeable profits - Computation of - Assessment year 1991-92 - Whether in view of the Division Bench of Bombay High Court in CIT v. General Insurance Corpn. of India [2002] 254 ITR 204/[2001] 114 Taxman 113, ITAT erred in law in holding that "Reserve for Bad and Doubtful Debts" fell within the permissible adjustments prescribed by rule 5(a) of First Schedule to the Act - Held, yes CASES REFERRED TO General Insurance Corpn. of India v. CIT [1999] 240 ITR 139/ 106 Taxman 389 (SC) [Para 6] and CIT v. General Insurance Corpn. of India [2002] 254 ITR 204/[2001] 114 Taxman 113 (Bom.) [Para 6]. P.V. Irani and Atul Jasani for the Applicant. Dr. P. Daniel and A.S. Rao for the Respondent. JUDGMENT Dr. S. Radhakrishnan, J. - Heard the learned counsel for the parties. In this appeal, the following substantial question of law has been sought to be raised :- "Whether the ITAT erred in law in holding that "Reserve for Bad and Doubtful Debts" fell within the permissible adjustments prescribed by rule 5(a) of the First Schedule to the Act ?" 2. The appellant had filed a Return of Income for the year ended 31-3-1991 relevant to the assessment year 1991-92 declaring the income of Rs. 58,52,80,850 alongwith the audited report in Form 3CD and final accounts prepared in the manner prescribed under the Insurance Act, 1938 wherein a provision under the head "Reserve for Bad and Doubtful Debts" as per the regular and consistent practice, Rs. 1,01,00,000 was debited to Profit and Loss Account. On 30th August, 1993 an assessment order was passed under section 143(3) of the Income-tax Act, 1961 whereby the claim of "Reserve for Bad and Doubtful Debts" in the sum of Rs. 1,01,00,000 was disallowed on the ground that such a disallowance was not prohibited by rule 5 of the First Schedule of the Act, and credit of the amount of the debts to the "Reserve for Doubtful Debts" did not constitute a write off of the debts for the purposes of section 36 of the Act. 3. Aggrieved thereby, the appellant had preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) by his order dated…

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