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2018 (7) TMI 2060 - AT - Income TaxRevision u/s 263 by CIT - setting aside the assessment order framed u/s 143(3) - investments in EOPL and their diminution in value - MAT computation - AO disallowing the claim of capital loss and at the same time, not considering the same for computation of book profit u/s 115JB - HELD THAT:- Book profit is computed and report in Form No. 29B is placed at pages 48 to 50. It can be seen from the aforementioned details given in the audited financial statement of account that the assessee company had clearly disclosed the investments in EOPL and their diminution in value due to court approved Capital Reduction Scheme. It can be further seen that the assessee has written off loss on transfer/write off of investment under the head ‘Other expenses’ and details of non-current investments mentioned elsewhere that the provisions for diminution in value of investments is only 4.69 lakhs. A perusal of the order of the PCIT shows that he has proceeded on wrong proposition that the assessee has not only claimed loss in diminution in value of shares in Profit and Loss account, but has suo moto added back while computing the taxable profit at normal rate of tax. We find that this very basis is bad on facts of the case in hand. The assessee did add back loss while computing the profit at normal rate of tax but the same has been claimed as capital loss under the head ‘income from capital gains and this very claim of loss has been disallowed by the AO while framing the assessment order u/s 143(3) of the Act. The second fallacy in the order of the PCIT is that he has presumed that the diminution in the value of shares has been claimed as a provision in the balance sheet and, therefore, the same has to be added back for the purpose of calculating book profit u/s 115JB of the Act. On the contrary, the fact is that the assessee never claimed this as provision in the balance sheet and has, in fact, written off by reducing its assets and, therefore, claiming that provision has to be added back is bad in law. AO, while computing the income u/s 115JB of the Act has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The AO, thereafter, has limited power of making increases and reductions as provided for in Explanation 1 to section 115JB of the Act. Thus, it can be safely concluded that the AO does not have jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in Explanation 1 to section 115JB of the Act. Since the assessee has actually reduced its assets, it cannot be said that he has shown provision on the liability side of the balance sheet. Therefore, Explanation 1 to section 115JB of the Act is not at all applicable. Moreover, this very issue was examined by the AO during the course of scrutiny assessment proceedings and has specifically disallowed the claim of loss. Therefore, it cannot be said that the AO never examined the issue. AO while framing the assessment u/s 143(3) of the Act has taken a possible view by disallowing the claim of capital loss and at the same time, not considering the same for computation of book profit u/s 115JB of the Act, the PCIT cannot impose his view upon the AO on wrong appreciation of facts. We failed to persuade ourselves to accept the order of the PCIT framed u/s 263 of the Act, which, in our opinion, has to be set aside - Decided in favour of assessee.
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