2012 (12) TMI 812 - AT - Income Tax

Written off of Losses on amalgamation Held that - The assessee conceded that paper books giving details of the assets written off were not supplied to the AO and for the first time these details were given to the CIT(A), and no plausible reason was given for not submitting these documents to the AO. The judgments relied on by the assessee do not come to the rescue of assessee. In favour of revenue Calculation of book profit u/s 115JB AO reduce the book profits by inventories written off, advances written off, discarded assets and bad debts written off Held that - As per the provisions of Sec. 115JB and has rightly observed in his order that he book profit cannot be adjusted except for the items specified in the section. Therefore, the deduction claimed by the assessee in the book profit has rightly been disallowed by the AO. In favour of revenue Inventories written off as obsolete stock - Assessee had acquired the business of the demerged company as a going concern Held that - assessee has not placed on record any document to show that the assessee had taken over the amalgamating companies as a going concern. Moreover, it is not the case of the assessee that the inventories are being written off for being obsolete alone. The assessee has stated before the AO that it could not receive the amounts from various parties and when it has become bad, the same was written off. The assessee was unable to show how and why the inventories have become obsolete. The assessee failed to tender any evidence before the AO. In favour of revenue Write off the losses Capital or revenue nature - Incurred in acquiring the assets and liabilities of the amalgamating companies Held that - In the present case, there was amalgamation of four companies into the assessee company. The assessee intends to write off the losses incurred by the assessee in acquiring the assets and liabilities of the amalgamating companies, which is capital in nature. In favour of revenue Bad debts Assessee had not written off the debts in the books of account - Held that - Assessee is claiming write off of bad debts in violation of the provisions of section 36(2)(i). The assessee has not placed on record the scheme of amalgamation either before the lower authorities or before the Tribunal. Therefore, claim of bad debts, inventories etc. of the assessee has rightly been disallowed by the AO. In favour of revenue

Summary

Issues Involved:
1. Disallowance of claim for deduction of Rs. 2,36,17,64,930/- towards write off of bad debts/trade advances/inventories/assets & CWIP.
2. Computation of book profit without deducting Rs. 2,36,17,64,930/- being the value of the exceptional items written off.
3. Carry forward the loss computed under the normal provisions of the IT Act.

Detailed Analysis:

1. Disallowance of Claim for Deduction of Rs. 2,36,17,64,930/-:
The assessee filed a revised return claiming deductions for amounts written off as irrecoverable or bad debts related to book debts, trade advances, inventories, work-in-progress, and fixed assets, aggregating to Rs. 236.18 crores. The Assessing Officer disallowed this claim. The CIT(A) partly allowed the appeal, granting partial relief for inventories, loans & advances, and debtors but rejected the write-off for fixed assets and capital work-in-progress. The Tribunal upheld the Assessing Officer's decision, stating that the assessee failed to provide sufficient evidence for the write-offs and that these items were not specified for deduction under section 115JB. The Tribunal emphasized the need for strict adherence to accounting principles and statutory provisions, particularly sections 36(1)(vii) and 36(2)(i) of the Income Tax Act.

2. Computation of Book Profit Without Deducting Rs. 2,36,17,64,930/-:
The Assessing Officer computed the book profits under section 115JB without deducting the exceptional items written off by the assessee. The CIT(A) rejected the Assessing Officer's calculations, but the Tribunal found that the Assessing Officer correctly reduced the book profits by the inventories written off, advances written off, discarded assets, and bad debts written off. The Tribunal noted that these items were not specified for adjustment under section 115JB and upheld the Assessing Officer's computation, referencing the Supreme Court's decision in Apollo Tyres Ltd. vs. CIT.

3. Carry Forward the Loss Computed Under the Normal Provisions of the IT Act:
The CIT(A) directed the Assessing Officer to carry forward the loss as quantified by him. However, the Tribunal found that the CIT(A) erred in modifying the Assessing Officer's well-reasoned and detailed order. The Tribunal emphasized that the assessee failed to provide necessary documents and evidence to support the claims for write-offs and deductions. Consequently, the Tribunal set aside the CIT(A)'s order and restored the Assessing Officer's order, disallowing the carry forward of the loss as claimed by the assessee.

Conclusion:
The Tribunal dismissed the assessee's appeal and allowed the revenue's appeal, upholding the Assessing Officer's disallowance of the claimed deductions and the computation of book profits under section 115JB. The Tribunal emphasized the importance of adhering to statutory provisions and accounting principles in claiming deductions and computing book profits.