TMI Blog2020 (12) TMI 1249X X X X Extracts X X X X X X X X Extracts X X X X ..... action of Ld CIT(A) on this issue. Non-performing asset - Not only a mere 'Provision for Non-Performing Assets' was created by the assessee by debiting the Profit and Loss account but simultaneously the corresponding amount from Loans and Advances shown on the Asset side of the Balance Sheet was also reduced/adjusted. In other words, the Loans and Advances were recorded in the books as net of provision. Thus, in view of the above facts, the said Provision for diminution in non-performing assets would amount to an actual write off of Provision from the Assets side and therefore would not get attracted by clause (i) of the Explanation to subsection (2) of section 115JB of the Act as held by the Hon'ble Gujarat High Court in the case of Vodafone Essar [ 2017 (8) TMI 451 - GUJARAT HIGH COURT] since the Assets side of the Balance Sheet has also been accordingly reduced in the present case of the assessee. Thus, we note that the accumulated closing provision of ₹ 2620.53 million was reduced from the current assets, loans and advances which are evident from page 36 of the paper book, which we find to be correct. Thus, the said provision was an actual write of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the retrospective amendment in this regard brought in section 115JB of the Act by way of a Writ Petition before the Hon ble Calcutta High Court in WP No. 1069 of 2010 and the same was dismissed by the Hon ble Court vide its order dated 3.5.2017. Accordingly, he fairly agreed with the decision of the Ld. AO in this regard. Hence, the Ground Nos. 5 to 7 raised by the revenue are allowed. 3. Aggrieved by the aforesaid decision of the Tribunal, the assessee preferred an appeal before the Hon ble High Court wherein the Hon ble High Court vide its order dated 19.03.2019 was pleased to remand only this issue back to Tribunal with a direction to proceed and determine the issue in the light of the decision of the Hon ble High court of Gujarat in CIT Vs. Vodafone Essar Gujarat Ltd. 397 ITR 55 and other case laws on the subject by observing as under: The Court:- Mr. Chatterjee, learned Senior Advocate for the appellant wants the Tribunal to reconsider its impugned decision made on 2nd June, 2017 for the assessment year 2003-04. The ground for his contention is a subsequent judgment of a Division Bench of the Gujarat High court (Commissioner of Income-tax-IV Vs. Vodafone Eassar Gujar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 115JB(2) of the Income Tax Act? The issue that has to be examined is whether clause (i) of Explanation 1 of section 115JB(2) of the Act is attracted in view of the fact that whether the amounts shown by the assessee which has been reduced against diminution in value of investments and non-performing loans and advances can be termed as provision when according to assessee, there was an actual write off of the said amounts not only by debiting the same in the Profit Loss Account but also by reducing the same from the asset side of the Balance Sheet to the extent of the corresponding amount. According to Ld. AR, even though the assessee has claimed that the diminution in value of investments and nonperforming assets was termed as provision the fact was that the assessee has actually written it off in the Asset Side of the Balance Sheet and so, according to Ld. AR, it is settled principle of law that the nomenclature or accounting entries cannot determine true character of a transaction, so in this case it is not a provision when there was actual write off. Therefore, according to Ld. AR the clause (i) of Explanation (1) to section 115JB(2) of the Act will not apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (2) of section 115JB of the Act could be attracted in the facts of this case. We note that sub-clause (i) of Explanation (1) to section 115JB of the Act has been inserted by the Finance Act, 2009, with retrospective effect from 01.04.2001 and it is noted pertains to the amounts set aside as provision for diminution in value of any assets. In this case, we note that the admitted fact is that assessee has shown provision for diminution in value of investment to the tune of ₹ 29,81,59,433/- and provision for NPA amounting to ₹ 19,57,60,485/- which was debited to the P L Account. And since both the amounts are in respect of investments and asset (non-performing assets) pertained to the asset item in the Balance Sheet, so, per-se clause (i) of Explanation (1) of section 115JB of the Act is attracted. However, the assessee s case is that though these two items have been shown as provision it is not a provision but it is actual write off , therefore, clause (i) of Explanation (1) to sub-section (2) of section 115JB of the Act is not applicable and for urging so, the assessee has relied on the decision of the Hon ble Gujarat High Court in the case of Vodafore Essar G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this context, the decision in case of Deepak Nitrite Ltd. (supra), lays down the correct proposition. 16. We may however, appreciate the 'implication of the ratio laid down by the Supreme Court in case of Vijaya Bank (supra), on the true interpretation of clause(i) to the explanation 1 and the decisions of Karnataka High Court in cases of Yokogawa India Ltd. (supra) and Kirloskar Systems Ltd. (supra). Vijaya Bank (supra) was a case arising under section 36(1)(vii) of the Act. The assessee before the Supreme Court was bank. The issue considered by the Supreme Court was whether it was imperative for the assessee bank to close the individual account of each of its debtors in its books or a mere reduction in the loans and advances or debtors on the asset side of its balance sheet to the extent of the provision for bad debt, would be sufficient to constitute a write-off. In this context, the Supreme Court considered the issue as to the manner in which the actual write off takes place under the accounting principle. It was noticed that prior to 1.4.1989 amendment in section 36(1)(vii), even the provision for the bad debt could be treated as write off. After 1.41989 however, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Additional Solicitor General appearing for the Department, the view expressed by the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala [supra] was prior to the insertion of the Explanation vide Finance Act, 2001, with effect from 1st April, 1989, hence, that law is no more a good law. According to the learned counsel, in view of the insertion of the said Explanation in Section 36(1)(vii) with effect from 1st April, 1989, a mere debit of the impugned amount of bad debt to the Profit and Loss Account would not amount to actual write off. According to him, the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and a provision for bad and doubtful debt on the other. He submitted that a mere debit to the Profit and Loss Account would constitute a provision for bad and doubtful debt, it would not constitute actual write off and that was the very reason why the Explanation stood inserted. According to him, prior to Finance Act, 2001, many assessees used to take the benefit of deduction under Section 36(1)(vii) of 1961 Act by merely debiting the impugned bad debt to the Profit and Loss Account and, therefore, the Parliame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarified in case of Vijaya Bank (supra) by observing that in case on hand, the assessee 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 an advances/debtors on the asset side of the balance sheet and consequently, at the end of the year, the figure of loans and advances or the debtors on the asset side of the balance sheet was shown as net of the provision for bad debt. Thereafter, the Supreme Court rejecting the Revenue's contention that for the bank to take benefit of section 36(1)(vii), must close the account of the debtors, decided the question in favour of the assessee. 20. Above decision of Supreme Court in case of Southern Technologies Ltd. (supra) and Vijaya Bank (supra) thus bring out a clear distinction between a case where the assessee may make a provision for doubtful debt and a case where the assessee after creating such a provision for bad and doubtful debt by debiting in Profit and Loss account also simultaneously removes such provision from its account by reducing the corresponding amount fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115JB of the Act. However, if this was not a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset aside of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual write off would not be hit by clause (i) of the explanation to section 115JB. The judgment in case of Deepak Nitrite Ltd. (supra) fell in the former category whereas from the brief discussion available in the judgment it appears that case of Indian Petrochemicals Corpn. Ltd. (supra), fell in the later category. 24. Viewed from this angle and subject to the observations and clarifications made above, in our view, there is no conflict between the two judgments and both operate in different fields. Reference is answered accordingly. 8. We note that in the above judgment, the Hon'ble High Court has considered the following judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision debited in the P L Account but is an actual write off, since the said provisions were simultaneously removed from the corresponding asset side of the Balance Sheet and for that he drew our attention to page 35 of the paper book wherein we note that a sum of ₹ 2,111.92 million was reduced from investments which has been computed as under: Provision for diminution of Investments Rs. In Million Page No. Opening Balance (page 35) Add: Provision for current year (FY 2001-02) Less: Write back of provision 2125.74 298.16 2423.90 312.07 2111.82 35 35 35, 2, 26 SCHEDULE 6 INVESTMENTS (TRADE) As at 31.03.2002 i) Investment Fixed Deposits ii) Investment in Mutual Funds iii) Investment in Postal savings iv) Investment in shares-Subsidiaries and Associate Companies v) Investment in shares-Other companies vi) Investment in debentures vii) Investments in PSU Bonds viii) Investments in Government Secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision. Thus, in view of the above facts, the said Provision for diminution in Investments would amount to an actual write off of Provision from the Assets side and therefore would not attract clause (i) of the Explanation to subsection (2) of section 115JB of the Act as held by the Hon'ble Gujarat High Court in the case of Vodafone Essar (supra) since Assets side of the Balance Sheet has also been accordingly reduced in the present case of the assessee, so, we agree that provision for diminution in investment was not a mere provision but it was actual write off and so, clause (i) of Explanation (1) of sub-section (2) of section 115JB of the Act is not attracted to the facts of this case and so we uphold the action of Ld CIT(A) on this issue. 13. Next coming to the event of non-performing asset is concerned, our attention was drawn to page 34 of paper book the assessee had created 'Provision for non-performing assets' amounting to ₹ 19,57,60,485/- and debited the same in the Profit and Loss Account for the year ending 31-03- 2002. Our attention was invited to 'Schedule 7 - Current Assets, Loans and Advances', of the Audited Accounts which is found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. In Million i) Loan to State Govt./Govt. Company, Undertaking depot. Etc. 2.98 ii) Loan secured against Shares/Vehicles (incl. subsidiaries) 1227.3 iii) Consumer durable Loan 0.03 iv) Unsecured loan to Field force others against personal guarantee 3.84 v) Loan to Certificate holders 20.93 vi) Loan/deposit to companies (incl. subsidiaries) 1023.21 vii) Amount recoverable in Cash or kind or for value to be received (unsecured) 278.3 viii) Amount receivable from subsidiaries 56.63 ix) Sundry Deposit 7.31 TOTAL 2620.53 15. Thus, we note from page 34 of paper book that the provision for NPA of ₹ 19,57,60,485/- was debi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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