2018 (1) TMI 855 - AT - Income Tax

Addition u/s.115JB under the head provision set aside for diminution in the value of investment holding that the same are not in the nature of provision only. - MAT - Held that - As per amended provisions of Section 115JB requires provision for diminution in value of investment to be added back to determine Minimum Alternate Tax. Fair value of units of mutual funds was lower than its cost by 46, 94, 62, 365/- and the same being current investment the appellant following mandatory Accounting standard 13 charged 46, 94, 62, 365/- to Profit 46, 94, 62, 365/- appearing in Profit 46, 94, 62, 365/- appearing in Profit 46, 94, 62, 365/- as the same is not in the nature of provision. - Decided against revenue

Issues Involved:
1. Whether the CIT(A) was justified in deleting the addition of ?46,94,62,365 made by the AO under Section 115JB of the I.T. Act, considering it as a provision for diminution in the value of investment.

Issue-wise Detailed Analysis:

1. Justification of Deletion of Addition under Section 115JB:
The primary issue revolves around whether the amount of ?46,94,62,365 debited by the assessee in the Profit and Loss Account as diminution in the value of current investments should be added back to the book profit under Section 115JB of the Income Tax Act as a provision for diminution in the value of investment.

Facts of the Case:
The assessee, a company registered under Section 25 of the Companies Act, 1956, held investments as both current and long-term investments. For the assessment year 2008-09, the assessee declared an income of ?21,43,597 under normal provisions and ?17,49,45,153 under Section 115JB. The Assessing Officer (AO) assessed the total income at ?64,44,07,518 by adding ?46,94,62,365, treating it as a provision for diminution in the value of investments.

CIT(A) Observations:
The CIT(A) allowed the assessee's claim, stating that the amount debited was not a provision but an actual write-off. The CIT(A) clarified that only amounts set aside as provisions should be added back to the book profit under clause (i) of Explanation 1 to Section 115JB. The CIT(A) differentiated between retaining an amount as a provision and writing off an amount as an actual loss.

Legal Precedents:
The CIT(A) relied on various legal precedents, including:
- Southern Technologies Ltd. vs. Joint CIT (320 ITR 577): The Supreme Court clarified that after April 1, 1989, a mere provision for bad debt would not be entitled to deduction under Section 36(1)(vii).
- Vijaya Bank vs. CIT (323 ITR 166): The Supreme Court held that actual write-off involves debiting the profit and loss account and simultaneously reducing the corresponding amount from loans and advances on the asset side of the balance sheet.

CIT(A) Findings:
The CIT(A) concluded that the amount of ?46,94,62,365 was not a provision but an actual charge to the Profit and Loss Account, written off against the current investments. The current investments were reflected in the books net of the provision, indicating an actual write-off rather than a provision set aside. Therefore, the book profit under Section 115JB should not be increased by this amount.

ITAT Decision:
The ITAT upheld the CIT(A)'s decision, agreeing that the amount was an actual charge and not a provision. The ITAT referred to the Gujarat High Court's decision in Vodafone Essar Gujarat Ltd., which distinguished between a mere provision and an actual write-off. The ITAT found that the assessee's treatment of the investment was consistent with accounting standards and the Companies Act, and the amount should not be added back to the book profit under Section 115JB.

Conclusion:
The ITAT dismissed the departmental appeal, confirming that the amount of ?46,94,62,365 was an actual write-off and not a provision for diminution in the value of investments. Therefore, it should not be added back to the book profit under Section 115JB. The assessee's appeal was allowed, and the addition made by the AO was deleted.

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