2013 (9) TMI 678 - AT - Income Tax

MAT - Computation of book profit u/s 115JB of the Income Tax Act provision for diminution in the value of asset - Provision for bad debts for computation of book profit Held that - Reliance has been placed upon the identical case ITO v. TCFC Finance Ltd. 2011 (3) TMI 26 - ITAT MUMBAI , which squarely covers the issue in hand - Explanation 1 to section 115JB(2) in no uncertain terms states that any amount set aside as provision for diminution in the value of asset debited to the profit and loss account is to be added to the amount of net profit for the purpose of computing the book profit - Section 115JB has to be considered as code in itself. This section is a special provision for payment of tax by certain companies and opens with non obstante clause thereby excluding any other provisions of this Act in the matter of determination of payment of tax by certain companies - Amount set aside as provision for diminution in the value of any asset, appears on the debit side of the profit and loss account, which implies that the amount of net profit as per the profit and loss account is after the amount of such provisions, then such amount will be added back to the net profit for computing book profit as per Explanation 1 to section 115JB(2) - There is no other requirement in the language of the section for the addition or non-addition of the amount of provision for diminution in the value of any asset to the amount of net profit as shown in the profit and loss account, depending on the way in which such provision has been shown in the balance-sheet - As the relevant condition have been fully satisfied in the instant case in terms of the assessee debiting the provision for diminution in the value of investment to its profit and loss account, the same was required to be added for determining book profit Decided against the Assessee. The Legislature has employed the expression provision for diminution in the value of any asset in clause (i) to Explanation 1 to section 115JB(2). The expression diminution in the value of any asset has not been defined in this section. In common parlance the word diminution indicates the state of reduction. The meaning of the word diminution in the value of any asset has to be construed as reduction from its original value which may still be a positive value or nil. If the reduced value happens to be cipher, the diminution will be the original value of the asset itself. There is not even a remotest hint in the language of clause (i) of Explanation 1 to section 115JB that some value of the asset must remain after diminution, as a pre-condition for adding it to the net profit. Explanation 1 contemplates the adding back of the provision for diminution in the value of any asset to the amount of net profit. Once provision is made for diminution in the value of any asset, the same has to be added for computing book profit, regardless of the fact whether or not there is any balance value of asset - As Explanation 1 to section 115JB(2) deals with the computation of book profit and specifically provides that the net profit as shown in the profit and loss account for the relevant previous year has to be increased, inter alia, by the amount of provision for diminution in the value of any asset, the amount of provision for diminution in the value of any asset debited to the profit and loss account before the determination of net profit has necessarily to be added. - Decided against the assessee.

Summary

Issues Involved:
1. Addition of provision for doubtful debts under section 115JB of the Income-tax Act, 1961.
2. Charging of interest under section 234B of the Income-tax Act, 1961.

Detailed Analysis:

1. Addition of Provision for Doubtful Debts under Section 115JB:

The primary issue in these appeals was the addition of provision for doubtful debts while computing 'book profits' under section 115JB of the Income-tax Act, 1961. The assessee-company, engaged in the business of power generation and executing turnkey power plants, had made provisions for bad and doubtful debts in its profit and loss account. The Assessing Officer contended that this provision was for an unascertained liability, as litigation was ongoing regarding the power tariff. This view was supported by an amendment in the Finance (No. 2) Act, 2009, which inserted clause (i) in Explanation 1 to section 115JB, effective from April 1, 2001, stating that any provision for diminution in the value of any asset should be added back to the book profits.

The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's decision, stating that the retrospective amendment left no dispute regarding the calculation of book profit under section 115JB concerning provisions for doubtful debts. The assessee argued that the provision was made according to general accounting principles and was accepted by statutory auditors without any qualifications. However, the Commissioner of Income-tax (Appeals) dismissed this argument, emphasizing the retrospective amendment's clear mandate.

2. Charging of Interest under Section 234B:

The second issue was the charging of interest under section 234B of the Income-tax Act. The Commissioner of Income-tax (Appeals) upheld the interest charge, directing the assessee to file a waiver petition before the jurisdictional Commissioner of Income-tax. The assessee contended that the interest should not be levied due to the retrospective amendment, but this argument was rejected based on precedents that upheld the mandatory nature of interest under section 234B.

Judgment:

The Tribunal, after considering the submissions and relevant case laws, upheld the decisions of the lower authorities. It emphasized that the retrospective amendment to section 115JB mandated the addition of provisions for doubtful debts to book profits. The Tribunal also confirmed that the Assessing Officer had no power to adjust the net profit except as provided in Explanation 1 to section 115JB, following the Supreme Court's decision in Apollo Tyres Ltd. v. CIT.

Regarding the interest under section 234B, the Tribunal reiterated its mandatory nature, supported by various High Court decisions, including those of the Karnataka High Court in CIT v. Sankala Polymers P. Ltd. and the Punjab and Haryana High Court in CIT v. Steel Steips Leasing Ltd. and Amtek Auto Ltd. v. CIT.

Conclusion:

The Tribunal dismissed all the appeals of the assessee, confirming the additions made under section 115JB and the charging of interest under section 234B. The order was pronounced in open court on November 9, 2012.