2011 (2) TMI 1402 - AT - Income Tax

Summary

Issues Involved:
1. Allowability of business expenditure of Rs. 1,47,223/-
2. Diminution in the value of investment in 1% cumulative redeemable shares in Super Shock Absorbers Ltd.
3. Taxation of bad debt recovery of Rs. 5,02,45,000/- from Omayal Agro Industries Ltd.
4. Addition of Rs. 7,22,89,000/- for the purpose of section 115JB in respect of diminution in the value of assets.

Detailed Analysis:

1. Allowability of Business Expenditure of Rs. 1,47,223/-
The assessee-company claimed a total expenditure of Rs. 1,47,223/- in the Profit & Loss Account, despite no business activities during the period. The Assessing Officer (AO) disallowed this expenditure, treating it as income from undisclosed sources due to the absence of business activity. However, the CIT(A) deleted this addition, observing that the business was not discontinued but temporarily suspended due to recurring losses. The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Madras High Court's ruling in L. Ve. Vairavan Chettiar vs CIT, 72 ITR 114, which allows such expenditure if the business is temporarily inactive but not closed.

2. Diminution in the Value of Investment in 1% Cumulative Redeemable Shares in Super Shock Absorbers Ltd.
The assessee claimed a diminution in the value of investments amounting to Rs. 7,22,89,000/-. The AO disallowed this claim, arguing it was capital in nature. The CIT(A) deleted this addition, relying on the Tribunal's earlier decision in the assessee's case for assessment year 2000-01. The Tribunal confirmed this, noting that the assessee's activity of promoting business through investments in sick companies was recognized as a business activity. The Tribunal dismissed the Revenue's reliance on the Kerala High Court's decision in Kerala Small Industries Development Corporation Ltd vs CIT, 270 ITR 452, as the facts were distinguishable.

3. Taxation of Bad Debt Recovery of Rs. 5,02,45,000/- from Omayal Agro Industries Ltd.
The assessee recovered Rs. 5,02,45,000/- from Omayal Agro Industries Ltd, which had been written off as bad debt in the assessment year 2004-05. The AO taxed this recovery in the current year, arguing that the assessee was not entitled to file a revised return for the earlier year. However, the CIT(A) deleted this addition, and the Tribunal upheld this decision. The Tribunal noted that the revised return for the assessment year 2004-05, which withdrew the bad debt claim, was accepted by the AO. Therefore, taxing the recovery again in the current year would result in double taxation, which is not permissible.

4. Addition of Rs. 7,22,89,000/- for the Purpose of Section 115JB in Respect of Diminution in the Value of Assets
The AO added Rs. 7,22,89,000/- to the book profit under section 115JB, treating it as a contingent liability. The CIT(A) deleted this addition, and the Tribunal upheld this decision. The Tribunal observed that the assessee had actually written off the value of the shares, and it was not a provision for diminution in the value of assets. The Tribunal referenced the Hon'ble Supreme Court's decision in Apollo Tyres 122 Taxman 562, which restricts the AO's power to make adjustments to the book profit beyond those specified in the Explanation to section 115JB(2). The Tribunal concluded that the write-off did not fall under any of the specified adjustments.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s deletions of the additions made by the AO. The Tribunal's decision was based on established legal principles and precedents, ensuring that the assessee's claims were correctly treated in accordance with the law.