TaxTMI 
TaxTMI 
2019 (6) TMI 709
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....Income Tax Act, 1961?" 3. The assessment year is 2003-04 and the relevant accounting period is the previous year 2002-03. In this case, the assessee filed the return of income for assessment year 2003-04 on 17.11.2003 declaring nil total income. Assessment was completed under section 143(3) of the Act on 31.3.2006 determining nil total income and book profit at Rs. 16,01,06,069/-. In the assessed book profit, an addition of Rs. 13,85,00,000/- was made on account of provision for diminution in the value of investment. It appears that the matter went up to the Tribunal, which by an order dated 30.6.2011, set aside the order passed by the Commissioner (Appeals) and restored certain issues to the file of the Assessing Officer for adjudication afresh in the light of the discussion made in its order after allowing reasonable opportunity of hearing to the assessee. 4. The Assessing Officer, thereafter, framed assessment under section 143(3) read with section 254 of the Act and added the provision for diminution in value of investment of Rs. 13,85,00,000/- in the computation of book profit under section 115JB of the Act. The assessee carried the matter in appeal before the Commissioner....
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....missioner (Appeals) was wrong in stating that the assessee has not shown the details correctly. The attention of the court was invited to the relevant entries in the balance sheet which form part of the paper book, to point out that all the facts are clearly reflected therein (reference to which shall be made at an appropriate stage). As regards the contention raised by the learned counsel for the revenue that it is not clear as to whether the reduction or gain is in the nature of long term or short term capital gain, it was submitted that in the absence of any transfer there is no question of showing capital gain or loss. It was submitted that the Tribunal was wholly justified in holding that the amount of Rs. 13.85 crore shown as diminution in value of investment is not liable to be added while computing the book profit under section 115JB of the Act and that the appeal being devoid of merit deserves to be dismissed. 7. The sole question that arises for consideration in this appeal is whether the provision for diminution in the value of investment of Rs. 13.85 crore made by the assessee is required to be added while computing the book profit under section 115JB of the Act. 8.....
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....Court in cases of Southern Technologies Ltd.(supra) and Vijaya Bank(supra) thus bring out a clear distinction between a case where the assessee may make a provision for doubtful debt and a case where the assessee after creating such a provision for bad and doubtful debt by debiting in Profit and Loss account also simultaneously removes such provision from its account by reducing the corresponding amount from the loans and advances on the asset aside of the balance sheet. The later would be an instance of writeoff and not a mere provision. 21. Karnataka High Court in case of Yokogawa India Ltd. (supra) applying such principle found that case on hand was one of a debt which was an amount receivable by the assessee and not any liability payable by the assessee and observed that clause(c) of the explanation to section 115JA/115JB, would not apply. In context of applicability of clause(I) to the explanation, relying on the decision of Supreme Court in case of Vijaya Bank(supra), the Court observed that there is a dichotomy between actual write off and provision for bad and doubtful debt. A mere debit to the Profit and Loss account would constitute a bad and doubtful debt but it would....
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....emicals Corporation Ltd. (supra), fell in the later category." 11. Thus, what the court has held in the above decision, is that if the provision for diminution in value of investment is not a mere provision made by the assessee by merely debiting the profit and loss account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its account by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset side of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual write off would not be hit by clause (i) of the Explanation to sub-section (2) of section 115JB of the Act. 12. The facts of the case are required to be examined in the light of the above principles. 13. Before adverting to the merits of the rival contentions, it may be germane to refer to Accounting Standard (AS) 13, which provides for "Accounting for Investments" and deals with accounting for investments in the financial statements of enterprises and related disclosure requirements. Account....
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.... investments; (e) other disclosures as specifically required by the relevant statute governing the enterprise." 15. Paragraphs 31 and 32 fall under the heading "Carrying Amount of Investments" in the third part of Accounting Standard 13 viz. Main Principles. Paragraph 32 thereof, which is relevant for the present purpose, says that investments classified as long term investments should be carried in the financial statements at cost. However, provision for diminution shall be made to recognise a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually. 16. Paragraph 33 falls under the heading "Changes in Carrying Amounts of Investments" and reads thus: "33. Any reduction in the carrying amount and any reversals of such reductions should be charged or credited to the profit and loss statement." 17. The facts of the present case may be examined in the light of the principles enunciated by the Supreme Court as well as this court in the decisions on which reliance has been placed by the learned counsel for the respective parties as well as the above referred provisions of Accounting Standard 13.....
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....e sheet and, therefore, is in the nature of a write off. Under the circumstances, the amount of Rs. 13.85 crore though bearing the nomenclature of provision for diminution of value of investment, having been actually written off, cannot be added to the book profit under section 115JB(2)(i) of the Act. 22. Insofar as the contention that the details of the investments in respect of which there was a diminution in value are not provided is concerned, the Commissioner (Appeals) has recorded in the audited Profit & Loss account, on the expenditure side there are provisions for diminution in value of investments of Rs. 13,85,00,000/- (last year NIL); this provision is against the total provision in balance sheet of Rs. 83,96,21,779/-; no details are available in any form or category that to which type or kind of investment such diminution is related out of the total provisions. He has further recorded that the assessee's annual report and audited accounts do not reveal of such write off because, the diminution of asset in the balance sheet at Schedule IV for investment reflect "Provision in Diminution in value of investment of Rs. 83,96,21,779/- without specifying the details of type o....