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2014 (1) TMI 1765 - AT - Income TaxMAT computation - addition made while computing its book profit under section 115JB in respect of provision for diminution in the value of investments and provision for doubtful debts - Held that - Once assessee has reduced amount shown by it as a provision for diminution of investment from its total value of investment it no longer remained a provision. Effectively it was a write off. This view is supported by the decision of the Hon ble Apex Court in the case of Vijaya Bank vs.- CIT (2010 (4) TMI 46 - SUPREME COURT ). Therefore claim of assesee with regard to diminution in value of investment has to succeed. For claim in respect of provision for bad and doubtful debts it is not clear whether the total debts of 23, 366.55 lakhs is after deducting the provision of 1, 063.70 lakhs. The amount of 624.70 lakhs considered by the Assessing Officer for addition is obviously difference between opening provision of 439 lakhs and closing provision of 1063.70 lakhs mentioned in the above schedule. If the provision debited by assessee is indeed deducted from the total debts and only the net balance shown in the balance-sheet then by virtue of decision of the Hon ble Karnataka High Court in the case of Yokogawa India Ltd. (2011 (8) TMI 766 - KARNATAKA HIGH COURT ) there cannot be any addition of such amount under section 115JB of the Act. However as mentioned by us this aspect is not clear. Hence we are of the opinion that the issue regarding provision for doubtful debts requires a fresh look by the Assessing Officer. We therefore set aside the order of authorities below in so far as this aspect is concerned and remit the matter back to the file of Assessing Office for consideration afresh in accordance with law. Allowability of aircraft flying rights charges - Held that - As decided in assessee s own case for previous assessment year we find that the assessee adduced necessary material to indicate that the aircraft was taken on hire for its business purposes. The Assessing Officer is not competent to decide the business expediency of incurring any expenditure. Be that as it may it is observed that the Assessing Officer did not deny that log book of the aircraft was not furnished but only that the purpose for which the journeys were undertaken or the names of the persons who undertook the travel was not specified in the log book. It is in such circumstances that he held 25% of the expenditure for non-business purpose. It is relevant to note that we are dealing with a case of a limited company. It is a settled legal position that there can be no disallowance of any expenditure on account of personal use by the directors of the company.
Issues Involved:
1. Additions made while computing book profit under section 115JB of the Income Tax Act, 1961. 2. Deletion of additions made under the head "Aircraft flying rights charges". 3. Deletion of additions made under the head "retainership fees" paid to M/s. Sreebala (P) Ltd. Detailed Analysis: 1. Additions Made While Computing Book Profit Under Section 115JB of the Income Tax Act, 1961: The assessee was aggrieved by the additions made for the provision for diminution in the value of investments and provision for doubtful debts. The Assessing Officer (AO) added back Rs. 1,01,01,000 for the provision for diminution in the value of investments and Rs. 6,24,70,000 for the provision for doubtful debts, citing the amendment made under section 115JB by Finance (No. 2) Act, 2009 which was retrospectively effective from assessment year 2001-02. The CIT(A) confirmed these additions, stating that any amount set aside as a provision for diminution in the value of any asset was required to be added to the book profits as per Clause (i) of Explanation 1 to Section 115JB(2). The assessee contended that the provisions were deducted from the total value of investments and sundry debtors, showing only the net amounts in the balance sheet. This was supported by the Karnataka High Court's decision in CIT vs. Yokogawa India Ltd., which held that if the provision is reduced from loans and advances/debtors on the assets side of the balance sheet, it is equivalent to a write-off and not merely a provision. The Tribunal observed that the provision for diminution in the value of investments was indeed deducted from the total value of investments in the balance sheet, making it a write-off. This view was supported by the Supreme Court's decision in Vijaya Bank vs. CIT. Therefore, the claim regarding diminution in the value of investments was allowed. However, regarding the provision for doubtful debts, it was not clear whether the total debts shown were after deducting the provision. The Tribunal remitted this issue back to the AO for fresh consideration, instructing that if the provision was deducted from the total debts, no addition should be made under section 115JB. 2. Deletion of Additions Made Under the Head "Aircraft Flying Rights Charges": The Revenue's appeal contested the deletion of additions made for "Aircraft flying rights charges". The Tribunal noted that this issue was covered in favor of the assessee by its decision dated 13.11.2013 in the assessee's own case for the assessment year 2005-06. The Tribunal had previously held that the AO was not competent to decide the business expediency of the expenditure and that there could be no disallowance for personal use by the directors of a company. The Tribunal upheld the deletion of the addition, following the precedent. 3. Deletion of Additions Made Under the Head "Retainership Fees" Paid to M/s. Sreebala (P) Ltd.: The Revenue also contested the deletion of additions made for retainership fees paid to M/s. Sreebala (P) Ltd. The Tribunal noted that this issue was similarly covered in favor of the assessee by its decision dated 13.11.2013 in the assessee's own case for the assessment year 2005-06. The Tribunal had previously accepted the assessee's claim for deduction of retainership fees, following earlier orders. The Tribunal upheld the deletion of the addition, following the precedent. Conclusion: The Tribunal allowed the appeal of the assessee regarding the provision for diminution in the value of investments and remitted the issue of provision for doubtful debts back to the AO for fresh consideration. The Tribunal dismissed the Revenue's appeal regarding the "Aircraft flying rights charges" and "retainership fees" paid to M/s. Sreebala (P) Ltd., following its earlier decisions in the assessee's favor.
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