TaxTMI 
TaxTMI 
2018 (1) TMI 855
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....s a company registered u/s.25 of the Companies Act, 1956 and holding its investment both as current investment and long term investment. The assessee had submitted its return of income declared income of Rs. 21,43,597/- under the normal provisions and Rs. 17,49,45,153/- u/s.115JB of the Act. The Assessing Officer has completed the assessment at total income (book profit) u/s.115JB at Rs. 64,44,07,518/- as against total book profit at Rs. 17,49,45,153/- returned by the appellant. Thus Assessing Officer amended the total income of Rs. 21,43,597/- returned by the assessee company through making the addition of Rs. 46,94,62,365/- which was debited by the assessee company to Profit and Loss Account as diminution in value of current investment as expenditure by determining book profit at Rs. 64,44,07,518/- u/s.115JB of the Act as per order u/s.143(3) of the Act. The AO has treated the said loss claimed by the assessee company as provision in diminution in the value of investment instead of actual loss / expenditure as claimed by the assessee company. 4. The matter carried to CIT(A) and CIT(A) allowed the claim by observing as under:- 4.32 Thus, I am of the considered view tha....
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.... in the Profit and Loss Account and the value of stock in trade is only reflected at the market value. However, if a hypothetical diminution to the value of stock in trade is provided by not reducing the value of stock in trade but showing the amount as set aside as provision in the Balance Sheet, then the same can be added back under clause (i) of Explanation 1 to section 115JB of the Act. The same treatment is also to be given to other current assets viz. Bad and doubtful loans, advances and sundry debtors written off. As far as the fixed assets (tangible/intangible depreciable assets) are concerned, depreciation has to be provided as per the rates provided under the Companies Act or Income Tax Act. Now what happens in case there is a destruction of an asset which is comprised in the block of assets (for the purpose of Income Tax Act) but is included as an individual asset in the Schedule to 'Fixed Assets'. In such a case, there would be a diminution in the value of fixed assets which has to be written off as per the provisions of Companies Act and Accounting Standards. Can such a write off for a destroyed asset be increased to the book profit as per the clause (i) of Explanation....
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....doubtful debt to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute write off an actual debt. However, if an assessee debits doubtful debt to the profit and loss account and makes a corresponding credit to the provisions for doubtful debt on the liabilities side of the balance sheet, then it would constitute a setting aside a provision for doubtful debt. In the later case, the assessee would not be entitled to deduction after April 1, 1989. 4.35 Reliance is also placed on the decision of the Hon'ble Supreme Court in the case of Vijaya Bank V. CIT 323 ITR 166, wherein the Hon'ble Supreme Court has decided on the following question: Whether it is imperative for the assessee-bank to close the individual account of each of its debtors in its books or a mere reduction in the loans and advances or debtors on the assets side of its balance sheet to the extent of the provision for bad debt would be sufficient to constitute a write off is the question which are required to answer in these civil appeals? 4.36 Before the Hon'ble Supreme Court the assessee had contended that once a provision stood created and, ultimatel....
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.... from April 1, 1989, a mere debit of the impugned amount of bad debt to the profit and loss account would not amount to actual write off. According to him, the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand a provision for bad and doubtful debt on the other. He submitted that a mere debit to the profit and loss account would constitute a provision for bad and doubtful debt, it would not constitute actual write off and that was the very reason why the Explanation stood inserted. According to him, prior to the Finance Act, 2001, many assessees used to take the benefit of deduction under section 36(1)(vii) of the 1961 Act by merely debiting the impugned bad debt to the profit and loss account and therefore, Parliament stepped in by way of Explanation to say that mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. To this extent, we agree with the contentions of Shri Bhattacharya. However, as stated by the Tribunal, in the present case, besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee-bank had correspo....
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.... be added to book profit is amount set aside as Provisions for Diminution in value of investment. Under the circumstances, what is required to be decided is whether the amount of Rs. 46,94,62,365/- debited to Profit & Loss Account is set aside as a provisions or has it been write off as a loss against the value of the asset. Before coming to the conclusion and also to make the issue involved in this appellant's case, I wise to narrate the facts of the case as under: 1. The Appellant made investment in units of mutual fund in March,2008. 2. Intention of the appellant was to hold it for short period and accordingly classified the said investment as current investment in the balance sheet of the appellant company as on 30/03/08. The conduct of the appellant approves the intention of the appellant as the units in question were sold in April,2008 with in a period of around 1 month. 3. The appellant being a Company is required to draw its account in accordance with Part II of Schedule VI of the Companies Act as provided in Section 211 of the Companies Act, 1956. 4. AS-13 which is a standard for accounting of investment is mandatory in nature classified....
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....not correct taking note of the decision of ITAT, Indore Bench in the case of ACIT, Indore Vs. Kailash Chandra Dhanuka reported in 13 TTJ 213, wherein the Hon'ble ITAT upheld the order of CIT(A) correct after taking note of Hon'ble ITAT, Mumbai's decision in the case of CIT Vs. Walfort Shares and Stock Brokers Pvt. Ltd. and the Hon'ble Bombay High Court in the same case. The relevant portion of the said order is extracted as under:- "We have considered rival submission and material available on record. The issue is squarely covered in favour of the assessee by the decision of Bombay High Court in the case of Walfort Shares and Stock Brokers Pvt. Ltd. In para 57&58, it is held: 23. The alternative argument of the revenue that the loss arising from the transaction in question is liable to be treated as an expenditure incurred for earning the tax free income and hence disallowable under section 14A is no sustainable. Section 14A deals with the expenditure incurred for earning tax free income. Admittedly, no expenditure is incurred in purchasing the dividend bearing units. It is only because the units are sold at a loss immediately after receiving the divided income, t....
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....ated in the balance sheet is at lower of the cost and fair value resultant figure of diminution in value amounting to Rs. 46,94,62,365/- is debited the income and expenditure account as diminution value of investment. The learned AR submitted that as per accounting standard 13 is prescribed by the Institute of Chartered Accountants of India for Accounting for investments mandatory for every company, the clause 14,15 and 16 is relevant. As per above accounting standard it is clear that whenever there is decline in the value of current investment, the same should be charged to profit and loss statement and value its investments at the lower of cost and fair value. Thus following the accounting standard-13, the current investments was carried in the financial statement at its fair value as on 31/03/2008 and fall in the value amounting to Rs. 46,94,62,365/- debited to income and expenditure account towards diminution in the value of investments. The learned AR also relied upon the decision of the Hon'ble Gujarat High Court in the case of Commissioner of Income Tax Vs. Vodaphone Essar Gujarat Ltd. wherein the Hon'ble High Court in tax appeal no.749 of 2012 has considering the decision o....
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..... 46,94,62,365/- to Profit & Loss Account and prepared its accounts in accordance with Schedule VII provided in Section 211 of the Companies Act 1956. The assessee had credited the difference between the sale price and fair value as on 31.03.2008 to Profit & Loss Account and not the difference between sale price and its cost. Such accounting treatment is impossible where the provision is made instead of write off. 8. We find that considering the above facts a debit of Rs. 46,94,62,365/- appearing in Profit & Loss Account is not a provisions set aside for diminution in value of investment but a actual charge to the Profit & Loss account which has been written off against the value of the current asset. Therefore, we are of the considered view that debit of Rs. 46,94,62,365/- appearing in Profit & Loss Account is not a provision of set aside for diminution in value of investment but the actual charged for the loss in the diminution in value of investment. Therefore, we are of the view that for the book profit purpose of section 115JB is not required to be increased by Rs. 46,94,62,365/- as the same is not in the nature of provision. 9. We find that recently Hon'ble Gujarat High....