2012 (8) TMI 482 - AT - Income Tax

Disallowance of deduction of diminution in value of investments written off - Held that - The assessee has not brought on record any material to show that the shares of Shriram Asset Management Co. Ltd. are held as business assets and required to make provision for diminution in value of investment in the books of account. As the assessee reversed this provision in its books of account and offered to tax in the assessment year 2007-08 disallowing the same provision during the assessment year under consideration amounts to double disallowance AO is directed to verify the details - in favour of assessee for statistical purpose.

Summary

Issues:
Disallowance of diminution in value of investments in respect of shares of Shriram Asset Management Co. Ltd.

Analysis:

Issue 1: Disallowance of diminution in value of investments
The appellant contested the disallowance of Rs.19,85,000/- for diminution in value of investments, specifically Rs.6,60,000/- related to shares of Shriram Asset Management Co. Ltd. The Assessing Officer disallowed the entire amount, citing it as capital in nature. The appellant argued that as a promoter of Shriram Mutual Fund, the shares were held as business assets, not stock in trade. The Commissioner of Income Tax (Appeals) partially allowed the claim, deleting Rs.13,25,000/- related to Government of India bonds but confirming the disallowance of Rs.6,60,000/- concerning Shriram Asset Management Co. Ltd. The Commissioner held that the shares were investments, not business assets, and the diminution was a capital loss.

Issue 2: Appeal before ITAT
The appellant appealed to the ITAT, reiterating that the shares were held as business assets. The appellant highlighted that the ITAT in a previous case did not address the specific issue of diminution in value of investments in Shriram Asset Management Co. Ltd. The appellant requested the matter to be sent back to the Assessing Officer for verification, emphasizing that the provision was reversed and taxed in the assessment year 2007-08, preventing double disallowance. The Revenue supported the lower authorities' decisions.

ITAT Judgment
The ITAT reviewed the arguments and evidence, noting the lack of proof that the shares were business assets requiring provision for diminution in value. However, considering that the provision was reversed and taxed in 2007-08, the ITAT deemed disallowing the same provision in 2005-06 as double disallowance unjustified. Consequently, the ITAT directed the Assessing Officer to verify the reversal and taxation of the provision in 2007-08. The ITAT allowed the appellant's grounds for statistical purposes, ultimately allowing the appeal.

In conclusion, the ITAT ruled in favor of the appellant, directing the Assessing Officer to verify the taxation of the provision in 2007-08 and preventing double disallowance in the assessment year 2005-06.