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TMI Blog2011 (2) TMI 1402X X X X Extracts X X X X X X X X Extracts X X X X ..... s: (A) Regular computation i) The assessing officer held that as there was no business activity in the year, no expenditure is allowable. This led to the disallowance of an amount of ₹ 1,47,223/-. ii) The assessee had claimed a diminution in the value of investments to the extent of ₹ 7,22,89,000/- in respect of its investments in 1% cumulative Redeemable Convertible Preference Shares in Super Stock Absorbers Ltd. This was disallowed on the ground that it is capital in nature. iii) The appellant had credited the profit and loss account with a sum of ₹ 5,02,45,000/- being bad debts recovery in respect of amounts due from M/s Omayal Agro Industries Ltd, a BIFR Company, which had been written off in the accounting year 2003-04. In the return of income filed for the assessment year 2004-05 , it had claimed it as bad debt. However, before the assessment for that year was completed by the assessing officer, Omayal Agro Industries Limited allotted preference shares on 30.06.05 to the appellant of the value of Rs..5,02,45,000/- to cover its debts to the appellant. Thus, there was recovery of the amount earlier written off as bad debts. iv) As the appellant's assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of value of shares in SSAL of the assessee and does not reflect the loss of value of stock in trade or any current asset of the assessee and the amount has been booked as investment in the books of a/cs. 3.3 Having regard to the decision of the Hon'ble High Court of Kerala in the case of Kerala Small Industries Development Corporation Limited.vs Commissioner Of Income-Tax (270 ITR 452) and the orders of this Hon'ble Tribunal in the case of Mis Kwality Fun Foods & Restaurant P Ltd in ITA No 283/Mds/2003, the learned CIT(A) ought to have upheld the orders of the A.O. 4.1 The learned CIT(A) has erred in deleting the addition of bad debt recovery of ₹ 5,02,45,000/- in M/s Umayal Agro India Ltd. 4.2 The learned CIT(A) failed to appreciate that any recovery in respect of amount written off as bad debts has to be taxed only in the year of recovery. Shares were allotted in lieu of loans on 30/06/2005 and revised return for AY 2004-05 was filed on 23/03/2006. 5.1 The learned CIT(A) has erred in deleting the addition of ₹ 7,22,89,000/-for the purpose of section 115JB in respect of diminution in the value of assets. 5.2 The learned CIT(A) ought to have appreciated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account. The company may not obtain or be able to execute a single business contract for months and yet it may be deemed to carry on its business, if during the period of lull and inactivity it is kept above and if it retains its registered office and holds meetings. It is not necessary that a business to be in existence should have work all the time. There may be long intervals of inactivity and a concern may still be a going concern, though it may for sometime be quiet and dormant. The mere fact that a business has for some time been in that sense doimant would not mean that it has ceased to exist, the assessee continues to maintain an establishment and incur expenses in the expectation that work would come and the business would be successful. How long he shall remain in the hope and in what manner he must carryon his work to gain success is primarily his own concern. The mere fact that for some time he is not able to secure a contract or do the work which he set out to do should not disqualify him from pleading that the expenditure that he had incurred was expended for the purpose of his business. Therefore the loss is allowable.- Erichsen vs. Last (1881) 3 QBD 414, IRC vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee does not reflect loss of value of stock-in-trade or any current asset but this represents loss of value of shares which has been booked as investment. In this regard, the ld.DR has tried to substantiate his contention with the help of Hon'ble Kerala High Court's decision rendered in the case of Kerala Small Industries Development Corporation Ltd vs CIT, 270 ITR 452 and the order of the Tribunal in the case of M/s Kwality Fun Foods & Restaurant P. Ltd in I.T.A.No.283/Mds/2003. On the other hand, by justifying the claim made by the assessee, the ld.AR has heavily relied on the Tribunal order (supra). 8. After cogitating the rival submissions, we have noticed that Super Shock Absorbers Ltd, a BIFR company, could not be revived and it was thought proper to write off the funds provided to this company in the shape of convertible preferential shares, though this company ultimately failed. It is also noticed that the assessee has shown this amount in the Profit & Loss Account as 'diminution in the value of investment'. We have gone through the Tribunal order and have found that similar activity was treated as business activity of the assessee company done on account of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rowed funds for making investments/advances to get returns thereof. The portfolio has thus to be taken as one common source of revenue in order to ascertain the profit and loss in the business. 18. From the financial details as brought out by the Assessing Officer as well as the CIT (A) and as submitted by the assessee, it is seen that there is no difference in the facts. The net financial assistance provided by the assisting companies during the year is 5.67 crores and the balance investment is out of the old funds. This fact has been narrated by the CIT (A) in para 7.11.6 of his order where the total investments as on 31.3.1997 is 23.40 crores and as on 31.3.98 is ₹ 31.83 crores and as on 31.3.2000 it is 35.78 crores. We do not agree with the finding of the CIT (A). There is no old financial assistance or investments in any project either by assisting companies or by the assessee company. With its old investments or advances provided during the year, the total investment is to be taken for calculating MGC. The object of the assessee company included business promotion and providing financial assistance to sick companies partakes in the successful implementation of the revi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra), we cannot interfere in this finding of the ld. CIT(A). Accordingly, the grounds raised in respect of this issue are dismissed. 11. The next issue taken vide Ground Nos. 4.1 and 4.2 relates to deletion of addition made on account of bad debt recovery amounting to ₹ 5,02,45,000/- invested in M/s Omayal Agro Industries Ltd. In the assessee's Profit & Loss Account for the year ended 31.3.2006, a credit of ₹ 5,02,45,000/- was shown as recovery of dues from Omayal agro Industries Ltd . This amount had been written off as bad in the books for the year ended 31.3.2004 and has been claimed as bad debt in the original returns filed for assessment year 2004-05. The original return was filed on 28.12.2004. The assessee recovered this amount on 30.6.2005 during the assessment year under consideration i.e 2006- 07, which was still going on. The assessee revised its return filed for that year by filing a revised return on 23.3.2006 in which the claim of bad debt was withdrawn and the revised return was accepted by the Assessing Officer. Recovery of this debt although credited in the Profit & Loss Account in assessment year 2006-07 but the same cannot be taxed as it was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal relates to deletion of addition of ₹ 7,22,89,000/- for the purpose of section 115JB of the Act in respect of diminution in the value of assets. The case of the Revenue is that this is not assessee's stock-in-trade. As we have already discussed, any loss, if at all arises, can arise only on the actual sale of shares until that, the nature of this loss can be only contingent. The ld.DR has drawn our attention towards Explanation (c) appended to section 115JB(2) of the Act in support of Revenue's action. On the other hand, the ld.AR has relied on the Tribunal order in assessee's own case cited supra. As stated earlier, the assessee-company was holding 1% cumulative redeemable convertible preferential shares of ₹ 10/- each of Super Shock Absorbers Ltd whose total value comes to ₹ 7,22,89,000/-. This company finally failed and that is why the assessee chose to write off this investment. In the Balance Sheet ended 31.3.2006, the value of this amount has been shown at 'NIL' so in our considered opinion, this is not even a liability much less a contingent liability of assessee-company. The assessee has not even made a provision for diminution in the value of asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not in accordance with Parts II and III of Schedule VI to the Companies Act, 1956. Hence, Assessing Officer while considering case of assessee-company under section 115J, recomputed said profit and loss account so as to exclude provisions made for arrears of depreciation - Accounts of assessee-company were certified by auditors as having been maintained in accordance with provisions of the Companies Act. Tribunal held that Assessing Officer had no authority to reopen accounts of a company which were certified by auditors of company as having been maintained in accordance with provisions of the Companies Act and which account had been accepted in general meeting of company as well as by Registrar of Companies - Whether while computing income under section 115J, Assessing Officer has only power of examining whether books of account are certified by authorities under Companies Act as having been properly maintained in accordance with Companies Act and thereafter, he has limited power of making additions and reductions as provided for in Explanation to said section - Held yes - Whether, therefore, Assessing Officer does not have jurisdiction to go behind net profit shown in Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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