2014 (5) TMI 1138 - AT - Income Tax

MAT - deduction of provision for diminution in the value of investment while computing the book profit under Section 115JB - Held that - In a case where the assessee is reducing the diminution in the value from the current asset s value of the company, then also credit entries are passed in the account of the current assets to reduce the value and there also the corresponding debit is made to the Profit & Loss account thereby reducing the profit or increase the loss of the company. Whether it is shown as a separate provision or it is reduced from the current asset s value, the corresponding and consequential effect is to reduce the profit of the assessee or increase the loss of the assessee by debiting to Profit & Loss account. As far as the credit entry is concerned, it can either be shown as a separate provision on the liability side of the balance sheet or reduce from the current asset s value shown in the asset side of the balance sheet. This is only an accounting format. It does not change the character of the amount sought to be deducted by the assessee. It does not affect the accounting/financial result. It always affects the income or loss aspect of the assessee. Therefore, only for the reason that the assessee has not created a separate provision, but only reduced the diminution in the value of investment from the current asset s value, does not make any difference and the adjustment made by the assessee is equally covered by the retrospective amendment brought in by the Finance Act, 2009. Commissioner of Income Tax (Appeals) is justified in confirming the order of the Assessing Officer for adding back the diminution in the value of investment to the book profit of the assessee for the purpose of Section 115JB. Levy of interest under Sections 234B and 234C - Held that - Hon ble Madras High Court in the case of CIT v. Revathi Equipment Ltd. (2007 (6) TMI 154 - MADRAS HIGH COURT) has held that when an assessee could not have foreseen liability caused on account of a subsequent legislative amendment, the assessee cannot be liable for interest on the differential amount of tax in the reason that the assessee could not have paid the differential amount of tax for the relevant previous year. Here also, the income escaping assessment was passed because of the retrospective amendment brought in by Finance Act, 2009. The additional liability has been generated only in the assessment. It was not possible for the assessee to foresee the retrospective amendment. So, it was not possible for the assessee to pay advance tax for the relevant previous year against the differential demand of tax that would arise in future. Therefore, we delete the liability of interest made under Section 234B and 234C of the Income-tax Act, 1961.

Summary

Issues Involved:
1. Reopening of assessments under Section 147
2. Deduction of provision for diminution in value of investment under Section 115JB
3. Disallowance of interest expenditure and operating expenditure under Section 14A
4. Levy of interest under Sections 234B and 234C

Issue 1: Reopening of assessments under Section 147:
The Tribunal considered three appeals where the common ground raised was against the reopening of assessments under Section 147. While the Tribunal found the reassessment bad in law for the assessment year 2003-04, it upheld the reopening for the impugned appeal. The Tribunal dismissed the ground related to reopening but failed to consider other grounds raised on merits, leading to a Miscellaneous Petition for rectification. The Tribunal recalled the order to hear and dispose of the appeal on merits, bringing it up for a second hearing.

Issue 2: Deduction of provision for diminution in value of investment under Section 115JB:
The first issue raised was regarding the deduction of provision for diminution in the value of investment for computing book profit under Section 115JB. The Assessing Officer added back the provision based on a retrospective amendment in the Finance Act, 2009. The Tribunal analyzed the amendment's retrospective effect and the assessee's argument that diminution was not a separate provision but reduced from the current asset's value. The Tribunal concluded that the adjustment made by the assessee was covered by the retrospective amendment, justifying the addition back of diminution in the value of investment to the book profit.

Issue 3: Disallowance of interest expenditure and operating expenditure under Section 14A:
The second issue raised but not pressed by the assessee was the disallowance of interest and operating expenditure under Section 14A. This ground was dismissed as not pressed.

Issue 4: Levy of interest under Sections 234B and 234C:
The third issue was the levy of interest under Sections 234B and 234C, based on the tax determined in the income escaping assessment. The Tribunal, following a judgment of the Madras High Court, ruled in favor of the assessee. It held that the retrospective amendment causing additional liability could not have been foreseen by the assessee, thus deleting the interest liability under Sections 234B and 234C.

In conclusion, the Tribunal partly allowed the appeal, confirming the addition back of diminution in the value of investment to book profit but deleting the interest liability under Sections 234B and 234C. The order was pronounced on May 22, 2014, in Chennai.