A few interesting issues have come up during my studies in last couple of days. These are quite fundamental and have immense impact on quantum of taxes.
First point is whether there is any difference between reserve for doubtful debt and provision for doubtful debt. Honestly, I had been treating them equally and having an opinion that despite there being a technical difference in the words ‘reserve’ and ‘provision’ keeping in mind Companies Act, still as far as bad debts are concerned, they are treated alike. That is to say, the word ‘reserve’ doesn’t have its legal connotation here. However, the matter stuck on the point as I went through the format of balance sheet as per Companies Act. It says, in the column of sundry debtors, that provision for doubtful debt should not exceed the amount of debts stated to be doubtful. However, if surplus provision has been created then that surplus should be shown on liability side as reserve for doubtful debts. I saw quite a few books but there is no convincing answer as to this point. Now, here as per Schedule VI, it is clear that a part of provision for bad debt has changed its character and is now rechristened as reserve for doubtful debt. Further, one must remember that provision is debited above the line. So, by this analogy, can we say that since reserve is but a part of provision in the case of bad debt, therefore reserve for bad debt is also debited above the line. I pause for a reply.
Second issue which came is whether an assessee who has admitted of undisclosed income during search and seizure can retract from this on the plea that the disclosure was in the sate of duress and there was no voluntary admission. The matter went up to High Court and the Court held that mere statement will not suffice unless there is specific evidence proving the point of appellant. Similarly, where the assessee had admitted as expenditure being capex both before the Assessing Officer as well as before revisionary authority that is Commissioner of Income-tax, then he can’t simply take the plea that it was under coercion that he admitted of capex and it is indeed revex. The mere statement will not suffice.
Final issue is whether a person, who became 10% shareholder in PY and had an outstanding loan from the company which was taken at the time when he was having less than 10% shares, and the company will come under S. 2(22)(e), i.e. under the purview of deemed dividend. Well, it is desirable that the AO should take up the matter to get the exact judicial pronouncement, still I have the intuitive feeling that the 10% criterion applies at the time of giving of loan or advances by the company to the shareholder and if the shareholding at that time is less than 10% then there is no issue of deemed dividend.