2016 (7) TMI 1088 - HC - Income Tax

Computation of book profit under section 115JB - write back of the provision for diminution in the value of investment - Held that - Deduction, as we read the section, can only be claimed provided the book profit has actually been increased by the aforesaid sum of ₹ 7,05,73,000/-. Since book profit was never increased, the question of any deduction on account of any credit from the supposed provision does not arise. Therefore, the view taken by the learned Tribunal, according to us, is the correct view. We are unable to accept this submission. The amendment of 2009 did not create any legal fiction. All that it says is that if any amount of book profit has in fact been increased, corresponding deduction may be availed in future. Since there has been no increase, there is no question of any deduction. - Decided against the assessee

Summary

Issues:
1. Reversal of finding by the Commissioner of Income Tax (Appeals) regarding the computation of book profit for the assessment year 2001-02.
2. Allowance of deduction for provision for diminution in the value of investment in computing book profit for the assessment year 2001-02.

Analysis:

Issue 1: Reversal of finding by the Commissioner of Income Tax (Appeals)
The High Court heard an appeal against a judgment passed by the Income Tax Appellate Tribunal, where the Tribunal allowed an appeal by the revenue for the assessment year 2006-07. The aggrieved assessee challenged the decision. The questions of law raised included whether the Tribunal erred in reversing the finding of the Commissioner of Income Tax (Appeals) regarding the computation of book profit for the assessment year 2001-02. The assessee contended that the provision for diminution in the value of investment was not allowed as a deduction, leading to an increase in book profit under Section 115JB. However, the Court held that the amendment in 2009 clarified that such provisions are not to be allowed, and since the book profit was not actually increased, there was no scope for deduction. The Court dismissed the appeal, upholding the Tribunal's decision.

Issue 2: Allowance of deduction for provision for diminution in the value of investment
The assessee claimed that a provision for diminution in the value of investment was not allowed as a deduction in computing the book profit for the assessment year 2001-02. The Assessing Officer added back the sum in question to the book profit, which was reversed by the Commissioner of Income Tax (Appeals) but restored by the Tribunal. The Court analyzed the provisions of Section 115JB and the explanations provided therein. The Court emphasized that for a deduction to be allowed, the book profit must have been increased by the specified amount, which was not the case here. The Court rejected the argument that the legal fiction introduced by the 2009 amendment should lead to a deduction, clarifying that no deduction could be claimed without an actual increase in book profit. Consequently, the Court answered the questions against the assessee and dismissed the appeal, directing each party to bear their own costs.

This detailed analysis of the High Court judgment in the case provides a comprehensive understanding of the issues raised, the arguments presented, and the Court's reasoning leading to the final decision.