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2019 (10) TMI 1553 - AT - Income TaxDisallowance of prior period expenses - assessee regularly followed mercantile system of accounting - HELD THAT:- Coming to the facts of the present appeal, we note that the Revenue was unable to bring to our attention any material or fact to disprove the assessee’s explanations furnished before the lower authorities in support of its claim that the liability to pay the expenses charged under the head ‘prior period’ crystallized during the FY 2011-12. We also find from the details of the expenses that the assessee had claimed deduction in respect of items which were revenue in nature and fully allowable in arriving at its business income. Revenue also did not controvert the Ld. AR’s submissions that no deduction in respect of these expenses was allowed in the prior years and tax rate in the earlier years and in the current year were same and therefore irrespective of the year of deduction allowed, the revenue effect was tax neutral. In this regard, the reliance placed by the Ld. AR on the decision of Adani Enterprises Ltd [2016 (7) TMI 1250 - GUJARAT HIGH COURT] is found to be relevant. For the reasons set out in the foregoing we do not see any reason to interfere with the order of the Ld. CIT(A) and accordingly we dismiss this ground of the Revenue. Provision for diminution in the value of investments - HELD THAT:- As consequent to granting of loans due to extraordinary and compelling circumstances, the loan was converted into preference shares but such fact by itself did not change or alter the basic character of the transaction. As apparent that the preference shares in M/s Transafe Services Ltd were not acquired by the assessee for the purpose of earning dividend and capital appreciation. Such preference shares were acquired at the dictate of the CDR cell of the RBI and which was binding on the assessee being the promoter of the subsidiary. We further find that only after it was found that almost entire net worth of the subsidiary was eroded, the loss incurred by the assessee was recognized in the books. We therefore find merit in the Ld. AR’s submission that even though the nomenclature used was provision for diminution in value of investment, the same was in the nature of provision for ascertained business loss and therefore allowable. We find that since the provision was for ascertained loss, in Note No. 10 of the audited accounts, the value of investment in M/s Transafe Services Ltd was disclosed at Rs.147.63 lacs i.e. after netting off the loss provided in the P&L Account of the relevant year. Applying the principle laid down by the Hon’ble Apex Court in the case of Vijaya Bank Ltd [2010 (4) TMI 46 - SUPREME COURT] we do not find any infirmity in the Ld. CIT(A)’s order. In the extraordinary circumstances such loans was converted into preference shares which consequently eroded in the value because of the sustained losses of the subsidiary. Merely because the loss was debited under the nomenclature ‘provision’ did not alter the basic character of the transaction and the loss incurred due to non-recoverability of the amounts advanced in the ordinary course of business could not be disallowed by the AO. Even with regard to the Revenue’s objection to the relief allowed by the Ld. CIT(A) while computation of book profit u/s 115JB, we find that the objection of the Ld. CIT, DR are soundly countered by the Hon’ble Gujarat High Court in their judgment in the case of Pr.CIT Vs Torrent Pvt Ltd [2019 (6) TMI 709 - GUJARAT HIGH COURT] - Ground No. 2 of the Revenue is therefore dismissed.
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