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2014 (1) TMI 1765 - ITAT KOLKATA

2014 (1) TMI 1765 - ITAT KOLKATA - TMI - MAT computation - addition made while computing its book profit under section 115JB in respect of provision for diminution in the value of investments and provision for doubtful debts - Held that:- Once assessee has reduced amount shown by it as a provision for diminution of investment from its total value of investment, it no longer remained a provision. Effectively it was a write off. This view is supported by the decision of the Hon’ble Apex Court in t .....

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439 lakhs and closing provision of ₹ 1063.70 lakhs, mentioned in the above schedule. If the provision debited by assessee is indeed deducted from the total debts and only the net balance shown in the balance-sheet then by virtue of decision of the Hon’ble Karnataka High Court in the case of Yokogawa India Ltd. (2011 (8) TMI 766 - KARNATAKA HIGH COURT ) there cannot be any addition of such amount under section 115JB of the Act. However, as mentioned by us, this aspect is not clear. Hence we .....

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terial to indicate that the aircraft was taken on hire for its business purposes. The Assessing Officer is not competent to decide the business expediency of incurring any expenditure. Be that as it may, it is observed that the Assessing Officer did not deny that log book of the aircraft was not furnished but only that the purpose for which the journeys were undertaken or the names of the persons who undertook the travel was not specified in the log book. It is in such circumstances, that he hel .....

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dal, Addl. Sr. D.R., for the Department O R D E R Per Abraham P. Geroge : 1. These are cross appeals filed by the assessee and Revenue respectively directed against the order dated 28.03.2012 of ld. I.T.A. Nos.: 741/Kol./2012 & 939/Kol/2012 Assessment year : 2007-08 Page 1 to 8 Commissioner of Income Tax (Appeals)-XXIV, Kolkata for impugned assessment year. 2. Assessee in its appeal is aggrieved on additions made while computing its book profit under section 115JB of the Income Tax Act, 1961 .....

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of ₹ 1,01,01,000/- made by assessee against diminution in the value of investments and provision of ₹ 6,24,70,000/- made against doubtful debts. Assessing Officer considering the amendment made under section 115JB of the Act by Finance (No. 2) Act, 2009 was of the opinion that provision for diminution in value of any asset was required to be added to the book profit. Assessing Officer noted that amendment was retrospectively done with effect from assessment year 2001-02. 5. Ld. CIT( .....

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₹ 251.01 lakhs made by it for diminution in the value of investments, from the total amount of investment. According to him, total investment came to ₹ 3056.53 lakhs and after deducting the provision the net value of investment was ₹ 2805.52 lakhs. This alone was shown in its balance sheet as on 31.03.2007. Similarly according to him, out of total sundry debtors of ₹ 23,366.55 lakhs debts outstanding for a period exceeding six months came to ₹ 4,446.29 lakhs. The sa .....

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/debtors on the assets side of the balance-sheet. According to him once such a deduction was effected it was equal to a write-off and was no more a simple provision. 7. Per contra ld. DR submitted that assessee had debited the amount as provision and once it was so, clause (i) of Explanation 1 to section 115JB(2) clearly applied. The said Explanation was retrospectively added by Finance (No. 2) Act of 2009 with effect from 1st April, 2001. Lower authorities therefore was, according to him, justi .....

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ion as on 31.03.2007 was ₹ 251.01 lakhs. Therefore, increase in provision, debited to the profit & loss account came to ₹ 101.01 lakhs. Claim of the assessee is that such provisions were deducted from the total value of investments and only the balance investment was reckoned for the purpose of its balance-sheet. This claim is true as seen from Schedule 5 of its balance-sheet as on 31.03.2007. Total value of investment as per Schedule 5 is ₹ 3,056.53 lakhs from which the pr .....

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the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore it was held that Item (c) of the Explanation is not attracted to the facts of the case. Item (c) in Section 115J A and 115-JB(1) are identical. In order to attract the Explanation the debt which is doubtful or bad should satisfy the requirement contemplated in Item (c) of the Explanation. It is the amount or .....

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to satisfaction as provision for diminishing in the value of assets is substituted, in case of the assessee falls under Item (c). In meeting the aforesaid case, the learned counsel for the assessee brought to our notice the judgment of the Apex Court in the case of Vijaya Bank ( supra) where the Apex Court had an occasion to consider his explanation. It accepted the argument on behalf of the Revenue to the effect that the explanation makes it very clear that there is a dichotomy between actual w .....

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liament stepped in by way of Explanation to say that a mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. The Apex Court accepted the said legal position. However it was clarified that besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans an .....

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educe the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the Impugned bad debt. Therefore, in the first place if the bad debt or doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to Section 115JA or JB is not at all attracted. In that contex .....

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ank -vs.- CIT(2010) 323 ITR 166. Therefore, the claim of assesee with regard to diminution in value of investment has to succeed. 9. Vis-a-vis the claim in respect of provision for bad and doubtful debts, relevant Schedule 7 of its Balance-sheet is reproduced hereunder:- Schedule 7 -Sundry debtors (unsecured) As at 31.03.2007 As at 31.03.2006 Debts outstanding for a period exceeding six months considered good 4,446.29 4,263.29 Doubtful 1063.70 439.00 Less : Provision 1063.70 - 439.00 - 4,446.20 .....

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m the total debts and only the net balance shown in the balance-sheet then by virtue of decision of the Hon ble Karnataka High Court in the case of Yokogawa India Ltd. (supra) there cannot be any addition of such amount under section 115JB of the Act. However, as mentioned by us, this aspect is not clear. Hence we are of the opinion that the issue regarding provision for doubtful debts requires a fresh look by the Assessing Officer. We, therefore, set aside the order of authorities below in so f .....

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for assessment year 2005-06. Relevant paras 2 & 3 and paras 8 & 9 of pages 1-2 and 3-5 are reproduced hereunder:- 2. The first ground is against the deletion of addition on account of expenditure incurred towards retainer-ship fee paid to M/s.Sreebala (P) Ltd. 3. Having heard both the sides and perused the relevant material on record, it is noticed that the authorities below have relied on their respective decisions taken in the earlier years on the same ground for the purpose of not all .....

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on in respect of retainership fee paid to M/s Sreebala (P) Ltd. This ground is not allowed . 8. The last ground is against the deletion of addition under the head Aircraft flying rights charges . The facts apropos this ground are that the assessee claimed deduction of ₹ 3.40 crores in respect of Aircraft flying rights charges . On being called upon to justify the deduction, the assessee stated that it entered into an agreement dated 17-11-2003 with M/s. Spencer Travel Services Ltd. (STSL f .....

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ated to have obtained the exclusive flying rights of an aircraft for which the above referred payment was made. It was also explained that STSL was to incur all costs and expenses associated with the operation of the aircraft. The Assessing Officer opined that the assessee failed to explain the business expediency of incurring such expenditure. In the absence of any explanation from the assessee about the log book explaining the business purpose, the AO held that a part of such expenditure must .....

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