TaxTMI 
TaxTMI 
2020 (12) TMI 1249
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..... The Ld. CIT(A) while giving relief to the assessee on this issue, took note of the Special bench (Tribunal) decision in the case of M/s. Usha Martin Industries Ltd. reported in 288 ITR (AT) 63 and held that provision for diminution in investments ofRs. 29,81,59,433/- and provision for NPA of Rs. 19,57,60,485/- could not be treated as unascertained liability as envisaged in clause (c) below Explanation to section 115JB(2) of the Income-tax Act, 1961 (hereinafter referred to as the "Act") and, therefore, he directed the AO to exclude the provision for diminution in investment and provision for NPA while computing the assessee's book profit/MAT. Thereafter, when the matter travelled to the Tribunal, during the first round, the Tribunal was pleased to reverse the order of Ld. CIT(A) by holding as under: "7. The next issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in directing the Ld. AO to exclude the provision for diminution in value of investments amounting to Rs. 29,81,59,433/- and provision for Non-Performing Assets amounting to Rs. 19,57,60,485/- while computing the book profits u/s. 115JB of the Act, in the facts and circumstances of th....
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....onounced earlier rehear the appeal on remand on the issue only considering the said decision and all other relevant judgments on this subject and proceed to determine the same within a period of six months from the date of communication of this order. The appeal (ITAT 336 of 2017) and the application (GA 3313 of 2017) are disposed of." (Emphasis given by us) 4. Further, the Ld. AR drew our attention to the fact that there was a mistake in para 1 of the Hon'ble High Court order wherein the assessment year was shown as AY 2003-04 which was corrected by the Hon'ble High Court vide order dated 15.07.2019 wherein the AY 2003-04 was rectified as AY 2002-03 (refer page no. 43 of paper book). And the question of law before the Hon'ble High Court can be noted (supra) and in the light of the above, the question of law with the permission of both parties is redrafted as under: "Whether in view of the reduction of the amounts against diminution in value of investments and non-performing loans and advances and other contingencies from the respective heads in the asset side of the Balance Sheet of the Petitioner and non showing of them as provision in the audited ac....
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....value of investments and the amount of NPA amounting to Rs. 29,81,59,433/- and Rs. 19,57,60,485/- respectively which were debited by the assessee in P&L Account. So, the question is whether this action of AO can be justified by invoking clause (c) or (i) of Explanation (1) to sub-section (2) of section 115JB of the Act which reads as under: "Explanation (1) - For the purpose of this section, "book profit" means the profit as shown in the statement of profit and loss for the relevant previous year prepared under sub-section (2), as increased by -. (a) .... (b) ..... (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) .... (e) .... (f) ..... (g) ..... (h) ..... (i) the amount or amounts set aside as provision for diminution in the value of any asset" 7. We note that the Ld. CIT(A) has correctly held that while computing book profit, provision for diminution in value of investments and provision for non-performing asset, since were not liabilities, clause "(c)" in Explanation (1) to sub-section (2) of section 115JB of the A....
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....g) and (i) to the explanations in section 115JA and 115JB of the Act respectively with retrospective effect. With such addition now the book profit for the purpose of section 115JB of the Act would be increased by the amount or amounts set aside as provisions for diminution in the value of any asset. The explanatory note for introduction of such amendment clarified that the new clause (i) was inserted "so as to provide that if any provision for diminution in the value of any asset has been debited to the profit and loss account, it shall be added to the net profit as shown in the profit and loss account for the purpose of computation of book profit." This legislative change thus was clearly necessitated on account of the judgment of the Supreme Court in case of HCL Comnet Systems & Services Ltd. (supra) holding that under clause(c) to the explanation any provision for bad or doubtful debts for diminution in the value of any asset cannot be added to the book profit of the assessee. 15. This Court in Deepak Nitrite Ltd. (supra), as noted, held that in view of such statutory change, the decision of Supreme Court in case of HCL Comnet Systems & Services Ltd. (supra), would all....
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....1989) of a new Explanation in section 36( l)(vii), it has been clarified that any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee. The said amendment indicates that before April 1, 1989, even a provision could be treated as a write off. However, after April 1, 1989, a distinct dichotomy is brought in by way of the said Explanation to section 36(1)(vii). Consequently, after April 1, 1989, a mere provision for bad debt would not be entitled to deduction under Section 36(1)(vii). To understand the above dichotomy, one must understand 'how to write off. If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. However, if an assessee debits 'provision for doubtful debt' to the profit and loss account and makes a corresponding credit to the 'current liabilities and provisions' on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entit....
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....the explanation, the assessee(s) is now required not only to debit the Profit and Loss Account but simultaneously also reduce loans and advances or the debtors from the asset side of the Balance Sheet to the corresponding amount so that, at the end of the year, the amount of loans and advances/ debtors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Court in it's impugned judgement. In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under Section 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in it's Books, as indicated above." 18. It can thus be seen that in case of Southern Technologies Ltd. (supra), the Supreme Court explained that if an assessee debits an amount of doubtful debt to the Profit and Loss account and credits the asset account like sundry debtor's account, it would constitute a write-off of an actual debt. On the other hand, if an assessee debits provision for doubtful debt to the Profit and Loss account and makes a corresponding credit to the current liabilities and provisions on the liabilities side of the balanc....
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....ould amount to a write off. It was concluded as under: " .... Therefore, after the Explanation the assessee is now required not only to debit the P &L A/c but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debt. Therefore, in the first place if the bad debt or doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to s.115JA or JB is not at all attracted." 22. In case of Kirloskar Systems Ltd. (supra), the Karnataka High Court adopted the same principle. 23. By way of culmination of above judicial pronouncements and statutory provisions, the situation that arises is that prior to the introduction of clause (i) to the explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems & Services Ltd. (supra), the then existing clause (c) did not cover a case where the assessee ,made a provision for bad or doubtful debt. With insertion of c....
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....e of investment is not a mere provision made by the assessee by merely debiting the profit and loss account and makes a credit to the "current liabilities and provisions" on the liabilities side of the balance sheet, then it would constitute provision for bad and doubtful debt, but if an assessee debits an amount of doubtful debt to the profit and loss account and simultaneously obliterate 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 shows the loans and advances on the asset side of the balance sheet as net of the provision for bad debt, it would amount to an actual write off and such actual write off would not attract clause (i) of the Explanation to sub-section (2) of section 115JB of the Act. 10. When we apply this law to the facts of this case, Ld. AR Shri S. K. Tulsiyan, Advocate drew our attention to the P&L Account for the year ending on 31.03.2002 which is found placed at page 34 of the paper book wherein we note that the assessee has debited "provision for diminution in value of investments amounting to Rs. 29,81,59,433/- which is shown as ....
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....ion in Investments' and 'Loans and Advances' being no longer required written back amounting to Rs. 454.4l million. The break up of Rs. 454.41 million is as follows: Provision for Diminution in Investments - Rs. 312.07 million Provision for Non-Performing Assets - Rs. 139.34 million Rs. 451.41 million 12. We note from a perusal of page 35 of paper book that this closing balance of Rs. 2111.82 million was reduced from Schedule 6 - Investments (Trade) of the audited accounts. Thus, we note that the Provision of Rs. 298.16 million created during the year was debited in the Profit and Loss A/c for the year and Provision written back during the year amounting to Rs. 312.08 million was credited in the Profit and Loss A/c. This shows that it was not only a mere creation of 'Provision for diminution in Investments' by debiting the Profit and Loss account but simultaneously the corresponding amount from Investments shown on the Asset side of the Balance Sheet was also reduced/adjusted. In other words, the Investments in the Asset Side that was recorded in the books were the net of provision. Thus, in view of the above facts, the said Provision for di....
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....le from subsidiaries 46.94 viii) Sundry Deposit 7.31 Sum total 2564.11 Add: Provision made in the current year (FY 2001- 02)(Note 1) 195.76 Total 2759.87 Less: Write back of Provision (Note 2) (139.34) Closing provision as on 31.03.2002 2620.53 The break up of Rs. 2620.53 million is as follows: (Refer schedule - 7 of Audited Accounts, page 36) Particulars Rs. In Million Rs. In Million i) Loan to State Govt./Govt. Company, Undertaking depot. Etc. 2.98 ii) Loan secured against Shares/Vehicles (incl. subsidiaries) 1227.3 iii) Consumer durable Loan 0.03 iv) Unsecured loan to Field force & others against personal guarantee 3.84 v) Loan to Certificate holders 20.93 vi) Loan/deposit to companies (incl. subsidiaries) 1023.21 vii) Amount recoverable in Cash or kind or for value to be received (unsecured) 278.3 viii) Amount receivable from subsidiaries 56.63 ix) Sundry Deposit 7.31 TOTAL 2620.53 15. Thus, we note....