TMI Blog2019 (6) TMI 709X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed the netting principle propounded in the full bench decision of this court in Vodafone Essar Gujarat [ 2017 (8) TMI 451 - GUJARAT HIGH COURT] No infirmity can be found in the view adopted by the Tribunal so as to warrant interference. The question, therefore, is answered in the affirmative, that is, in favour of the assessee and against the revenue. It is hereby held that the Income Tax Appellate Tribunal was justified in deleting the disallowance of provision for diminution in value of investment while computing book profit u/s 115JB - R/TAX APPEAL NO. 1225 of 2018 - - - Dated:- 9-4-2019 - MS HARSHA DEVANI AND MR BHARGAV D. KARIA, JJ. For The Appellant (s) : MR M.R. BHATT, SENIOR ADVOCATE with MRS MAUNA M BHATT (174) For The Opponent (s) : MR B S SOPARKAR (6851) ORAL JUDGMENT ( PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. In this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act ), the appellant revenue has challenged the order dated 13.4.2018 passed by the Income Tax Appellate Tribunal , Ahmedabad 'B' B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax v. Vodafone Essar Gujarat Ltd. , [2017] 397 ITR 55 , it was submitted that in case of Vijaya Bank v. Commissioner of Income Tax , [2010] 323 ITR 166 (SC) , the assessee therein, besides debiting the profit and loss account and creating a provision for bad and doubtful debt, had simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the asset side of the balance sheet and consequently at the end of the year, the figures of loans and advances or the debtors on the asset side of the balance sheet was shown as net of the provision of bad debt; whereas in the present case there are two more aspects which are required to be looked into. Firstly, that there are varied types of investments and it is not clear as to in case of which investment there is diminution of profit, which has not been answered by the Tribunal; secondly, whether the reduction or gain is in the nature of long term or short term capital gain. 5.1 Reference was made to paragraph 33 of the Accounting Standards produced by the learned counsel for the assessee, to submit that the same have not been complied with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 13.85 crores which is provision for diminution in value of assets, required to be added to the book profit while computing the net profit under section 115JB of the Act. 10. In this regard it may be germane to refer to the decision of this court in the case Commissioner of Income Tax v. Vodafone Essar Gujarat Limited (supra) , wherein the court has held thus:- 18. It can thus be seen that in case of Southern Technologies Ltd.(supra), the Supreme Court explained that if an assessee debits an amount of doubtful debt to the Profit and Loss account and credits the asset account like sundry debtor s account, it would constitute a writeoff of an actual debt. On the other hand, if an assessee debits provision for doubtful debt to the Profit and Loss account and makes a corresponding credit to the current liabilities and provisions on the liabilities side of the balance sheet, then it would constitute a provision for doubtful debt and in such a case after 1.4.1989, the assessee could claim no deduction under section 36(1) (vii) of the Act. 19. This principle was further clarified in case of Vijaya Bank(supra) by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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 s. 115JA or JB is not at all attracted. 22. In case of Kirloskar Systems Ltd. (supra), the Karnataka High Court adopted the same principle. 23. By way of culmination of above judicial pronouncements and statutory provisions, the situation that arises is that prior to the introduction of clause(I) to the explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems and Services Ltd. (supra), the then existing clause (c) did not cover a case where the assessee made a provision for bad or doubtful debt. With insertion of clause (I) to the explanation with retrospective effect, any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der deal with current investments, whereas paragraphs 17 to 19 deal with long-term investments. Paragraph 17, inter alia, says that long term investments are usually carried at cost. However, when there is a decline, other than temporary, in the value of a long term investment, the carrying amount is reduced to recognise the decline. Paragraph 18 says that long-term investments are usually of individual importance to the investing enterprise. The carrying amount of long-term investments is, therefore, determined on an individual investment basis. Paragraph 19 says that where there is a decline, other than temporary, in the carrying amounts of long term investments, the resultant deduction in the carrying amount is charged to the profit and loss statement. The reduction in the carrying amount is reversed when there is a rise in the value of the investment, or if the reasons for the reduction no longer exist. 14. Paragraph 25 of the Explanation part of Accounting Standard 13 deals with Disclosure and provides thus: 25. The following disclosures in financial statements in relation to investments are appropriate: ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. A perusal of the Details of provision for diminution in value of investment for assessment year 2003-04 as reflected in the Balance Sheet (at page 57 of the paper book) shows that provision created in the year is of ₹ 69,46,73,244/- Provision written back on account of rise in value as per paragraph 33 of Accounting Standard 13 is ₹ 55,61,73,244/-. The net amount of provision debited to Profit and Loss is ₹ 69,46,73,244/- minus ₹ 55,61,73,244/- which comes to ₹ 13,85,00,000/ -. 19. A perusal of the details of Provision for Diminution in the Value of Investments as on 31st March, 2003 (page 60 of the paper book) shows that the total provision required as on 31st March, 2003 is ₹ 839,621,779/-; provision available as on 31st March, 2002 is ₹ 701,121,779/-; and the provision for the year ended 31st March, 2003 is ₹ 138,500,000/-. 20. Schedule IV of the Schedule annexed to and forming part of the accounts (page 31 of the paper book), shows that the total investment as at 31st March, 2003 is ₹ 5,742,306,638/-. Deducting the amount of provision for diminution in value of investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e IV for investment reflect Provision in Diminution in value of investment of ₹ 83,96,21,779/- without specifying the details of type of investment of long term investments and current investments in shares, debentures, mutual funds, Government securities etc. to which such value apply. Further out of this only ₹ 13,85,00,000/- was debited in audited profit and loss account as provision for diminution in value of investments. There are no details which type of shares, securities, debentures etc. are written off and why out of ₹ 83,96,21,779/- only ₹ 13,85,00,000/-is considered. The learned counsel for the appellant has reiterated the above reasoning adopted by the Commissioner (Appeals). 23. In the opinion of this court, the above findings recorded by the Commissioner (Appeals) that no details have been produced, is contrary to the record of the case, inasmuch as, in the balance sheet which forms part of the paper book, the details of diminution in the value of investment are clearly set out in the statement at page 57 of the paper book. The Tribunal, in the impugned order, has after perusing the statement referred to hereinabove which for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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