TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 739
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....1961 ["the Act"]. 3. As far as the first issue referred to above is concerned, the assessee has filed an application seeking to raise the following additional grounds of appeal:- "Without prejudice the addition made under normal provisions of Rs. 4,62,53,175/- on account of disallowance of loss on assignment enhances the profits of the appellant and consequently on the enhanced income the appellant is entitled for deduction under section 80-IB of the Act as per the Circular issued by the Central Board of Direct Taxes in Circular No. 37/2016, dated 02/11/2016." 4. The additional ground of appeal being purely a question which can be decided on the basis of legal provisions and on facts already available on record, the same is admitted for adjudication keeping in mind the decision of the Hon'ble Supreme Court in the case of NTPC Ltd. 229 ITR 383 (SC). 5. The facts with regard to the first issue and the additional ground of appeal rasied by the assessee are that the assessee is a company engaged in the business of construction of apartments and dealing in real estate. The assessee filed a return of income declaring total income of Rs. 5,24,148. In arriving at the aforesaid total i....
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....he purpose of business and hence not allowable. Accordingly the loss incurred of Rs. 4,62,53,175/- on assignment of advance was disallowed by the AO treating the same as capital in nature. 7. The assessee had before the AO justified its claim for deduction by relying upon Note 7 of Schedule 18 of the financial statement wherein the description of advances to the third parties were as follows:- "The company in previous years had paid share application money to various companies however no shares were issued to the company till the end of the previous year. During the year the company has sold / assigned the rights of these investment to Aishwarya Finance Limited, a related party, at a loss of Rs. 4,62,53,175/-" 8. It is on the basis of the aforesaid reply given by the assessee that the AO came to the conclusion that the loss in question was a capital loss and was not incidental to the business of assessee. 9. On appeal by the assessee, the CIT(Appeals) confirmed the order of AO. The following were the observations of the CIT(Appeals):- "3.3. I have gone through the submissions of the appellant and examined the reasons given by the A.0 in the assessment order. It is an undispu....
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....nd, reliance was placed by the assessee on CBDT Circular No.37/2016 dated 02.11.2016 wherein the CBDT has expressed the view that whenever a disallowance of expenditure while computing the income from business is made, that will have an effect on the profits of the business getting enhanced. Wherever the assessee claims deduction under Chapter VIA on profits of business and if the disallowance of expenditure would go to increase the profits of business on which deduction under Chapter VIA of the Act is claimed by the assessee, then the disallowance will have no effect because the deduction under Chapter VIA has to be allowed on such enhanced profit. The view expressed in the CBDT Circular is based on the decision rendered by several High Courts and these have been set out in the Circular which is reproduced as follows:- "2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this....
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....t, consequent to the impugned disallowance, are not clear from the record and he relied on the order of CIT(Appeals). 13. After considering the rival submissions, we are of the view that prima facie the claim made by the assessee in the additional ground of appeal deserves to be accepted. However, it requires to be verified whether the impugned disallowance would go to enhance the profits on which the assessee had claimed deduction u/s. 80IB of the Act. We therefore set aside the order of CIT(Appeals) on this issue and restore the same to the file of AO to examine this aspect and if the claim made by the assessee is found to be correct, then assessee should be allowed deduction u/s. 80IB on the enhanced profit and consequently the disallowance made by the AO will have no effect. Therefore, the question whether the disallowance is justified or not is left open. We hold and direct accordingly. 14. As far as the second issue raised by the assessee is concerned, the same is with regard to the determination of book profits u/s. 115JB of the Act. Even with reference to this ground, the assessee has filed an application for admission of additional ground as follows:- "The authorities ....
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....heet, there is in effect a write off of bad and doubtful advances and it cannot be said that there was only a provision on account of bad and doubtful advances debited in the P&L account, which has to be added to the profit as per P&L account while determining the book profits u/s. 115JB of the Act by invoking clause (i) or (c ) to Explanation-1 to Sec.115JB of the Act. The assessee had in this regard relied on the decision of the Hon'ble Supreme Court in the case of Vijaya Bank v. CIT, 323 ITR 166 (SC) for the proposition that by debiting in the P&L account of provision for bad and doubtful advances and by reducing the same amount from the loans & advances as appearing in the balance sheet, there is in effect a write off of bad and doubtful advances as bad debts. 17. The Hon'ble High Court of Karnataka on a similar objection in the case of Kirloskar Systems Ltd. (supra) took a view that addition of provision of bad and doubtful debts to the profit as per P&L account to determine the book profits u/s. 115JB of the Act is not warranted. The court held that provision for diminution in value of assets debited to profit and loss account is not required to be increased as per clause (i....