Universal Industrial Fund Ltd., Kolkata V. DCIT, C ircle- 6, Kolkata, Kolkata

ITA 1838/KOL/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4820 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 27-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 27-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SALLONG YADEN ACIT SRDR
• Assessee Lawyers: D S DAMLE
• Keywords: Depreciation; Earning of tax free income; Retrospective amendment; Bad and doubtful debts; Notional interest; Unabsorbed depreciation
• Section: 143(3); 234B; 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 1838 / KOL / 2010 ASSESSMENT YEAR :2007-08 UNIVERSAL INDUSTRIAL FUND LTD. ( IN THE MATTER OF HILLTOP HOLDINGS INDIA LTD. SINCE AMALGAMATED ) 31, NETAJI SUBHAS ROAD, KLKKATA-700 001 [ PAN NO.AAACU 4032 H ] V/S . DCIT, CIRCLE-6, P7, CHOWRINGHEE SQUARE, KOLKATA-700 069 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI D.S.DAMLE, FCA /BY RESPONDENT SHRI SALLONG YADEN ACIT,SR-DR /DATE OF HEARING 27-04-2016 /DATE OF PRONOUNCEMENT 27-05-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F COMMISSIONER OF INCOME TAX (APPEALS)-VI, KOLKATA DATED 22.06.2010. ASSESSMENT WAS FRAMED BY ACIT, CIRCLE-5, KOLKATA U/S 143(3) R.W.S 115WE(3 ) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HI S ORDER DATED 14.12.2009 FOR ASSESSMENT YEAR 2007-08. ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 2 SHRI D.S.DAMLE, LD. AUTHORIZED REPRESENTATIVE APPEA RING ON BEHALF OF ASSESSEE AND SHRI SALLONG YADEN, LD. DEPARTMENTAL R EPRESENTATIVE APPEARING ON BEHALF OF REVENUE. 2. ASSESSEE HAS FILED REVISED FORM-36 TOGETHER WITH CONSOLIDATED GROUNDS, WHICH REPRODUCED BELOW:- 1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING U/S. 14A A PART OF INTEREST AND EXPENSES ALLEGEDLY AS RELATABLE TO EARNING OF E XEMPT DIVIDEND INCOME BY APPLYING RULE 8D ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN MAKING ADDITION OF INTEREST INCOME AS PER CASS ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN MAKING ADDITION OF EXPENSES INCLUDING INTEREST DISALLOWED U/S 14A READ WITH RULE 8D IN CO MPUTING BOOK PROFIT U/S. 115JB OF THE ACT ON THE FATS AND IN THE CIRCUM STANCES OF THE CASE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE AUTHORITIES BELOW ERRED IN NOT REDUCING THE LOWER OF LOSS BROUG HT FORWARD OR UNABSORBED DEPRECIATION AS PER BOOKS OF ACCOUNT IN COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. 3. FIRST ISSUE RAISED IN THIS APPEAL OF ASSESSEE IS AS REGARDS THAT LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER BY SUSTAINING THE DISALLOWANCE U/S 14A OF THE ACT R.W.S. RULE 8D OF T HE IT RULES, 1962. 3.1 FACTS IN BRIEF ARE THAT ASSESSEE IS A LIMITED C OMPANY ENGAGED IN BUSINESS OF TRADING IN SHARE AND SECURITIES, GRANTI NG OF LOAN AND ADVANCES. DURING THE YEAR ASSESSEE HAS EARNED DIVIDEND INCOME OF 306,95,622/- AND LONG TERM CAPITAL GAINS (LTCG FOR SHORT) AND SECURI TY TRANSACTION TAX (STT FOR SHORT) FOR 535,53,918/-. THE AO HAS APPLIED THE PROVISION OF R ULE 8D OF THE IT RULES, 1962 AND DISALLOWED A SUM OF 1,29,11,487/- WHICH IS COMPRISING TO DEMAT CHARGES OF 1.15 LAKH OF INTEREST EXPENSES OF 1,18,14,655/- AND OTHER EXPENSES OF 9,55,832/-. THE DISALLOWANCE MADE ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 3 UNDER RULE 8D OF THE IT RULES, 1962 WAS ADDED TO TH E TOTAL INCOME OF ASSESSEE. 4. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHERE ASSESSEE SUBMITTED THAT ITS OWN CASE FOR AY 2002-03 IN ITA NO. 318/KOL/2006 & 283/KOL/2006 DATED 10.08.2007 IN C BENCH HAS UPHELD THE ORDER OF LD. CIT(A) DIRECTING THE AO TO DISALLOW TH E INTEREST OF BORROWED CAPITAL IN THE PROPORTIONATE OF DIVIDEND INCOME TO GROSS BU SINESS RECEIPTS. HOWEVER, LD. CIT(A) HAS CONFIRMED THE ACTION OF AO BY OBSERV ING AS UNDER : THE ASSESSING OFFICER APPLYING THE PROVISIONS OF R ULE 8D U/S 14A MADE THE DISALLOWANCE. THE AO FOLLOWING THE DECISIO N OF THE SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT MADE THE DISALLOWANCE UNDER RULE 8D. THE ACTION OF THE AO IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED . BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 5. BEFORE US LD. AR SUBMITTED TWO SETS OF DOCUMENTS WHICH ARE RUNNING PAGES 1 TO 86 AND 1 TO 38 RESPECTIVELY. HE STATED T HAT TRIBUNAL HAS BEEN CONSISTENTLY DISALLOWING THE EXPENSE @ 1% OF THE DI VIDEND INCOME AND PRAYED TO FOLLOW THE SAME DECISION. LD. AR FURTHER SUBMITT ED THAT IN CASE APPLYING THE RULE 8D OF THE IT RULES, 62 IN RELATION TO THE INTE REST EXPENSE THEN NET INTEREST (INTEREST RECEIPT AS INCOME MINUS INTEREST PAID AS EXPENSE) SHOULD BE CONSIDERED. ON THE OTHER HAND, LD. DR HAS RELIED UP ON THE FINDINGS OF THE LOWER AUTHORITIES. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT AO HAS APPLIED THE RULE 8D OF THE IT RULES AND MADE DISALLOWANCE. HOWE VER, WE FIND THAT SIMILAR ISSUE WAS INVOLVED IN ASSESSEES OWN CASE IN ITA NO. 1248 & 1190/KOL/2008 DATED 31.08.2009 WHERE DISALLOWANCE WAS UPHELD AFTE R APPLYING THE INCOME CRITERIA AND RELEVANT EXTRACT OF THE ORDER IS REPRO DUCED BELOW:- ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 4 15) WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF AUTHORITIES BELOW. SEC. 14A PROVIDES THAT ANY EXPEN DITURE RELATING TO EARNING OF INCOME WHICH IS NOT INCLUDIBLE IN THE TO TAL INCOME; CANNOT BE ALLOWED IN COMPUTING THE TOTAL INCOME. LANGUAGE OF SEC. 14A INDICATES THAT AN EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEMPT INCOME IS NOT PERMISSIBLE AND THEREFORE THE NEXUS OF THE EXPE NDITURE SHOULD BE ESTABLISHED WITH THE TAX FREE INCOME. WHERE AN ASSE SSEE INCURS COMPOSITE EXPENDITURE WHICH PRODUCES INCOME WHICH I S PARTLY CHARGEABLE AND PARTLY NON CHARGEABLE THEN IN WORKIN G OUT THE DISALLOWABLE EXPENDITURE U/S. 14A; APPORTIONMENT SH OULD BE MADE BY APPLYING INCOME CRITERION. IN OUR CONSIDERED PINION APPORTIONMENT OF EXPENDITURE ON INCOME CRITERIA WOULD BE REASONABLE AND APPROPRIATE HAVING REGARD TO THE LANGUAGE USED IN SEC. 14A. MOR EOVER WE FIND THAT THE SAME AO IN THE ASSESSMENT OF BRABOURNE INVESTME NTS LTD APPLIED THE INCOME CRITERIA FOR QUANTIFYING INTEREST DISALL OWABLE U/S 14A OF THE ACT. IN THE CIRCUMSTANCES, WE DO NOT FIND ANY REASO NS FOR AO TO ADOPT ENTIRELY DIFFERENT FORMULA FOR QUANTIFYING THE AMOU NT DISALLOWABLE U/S 14A OF THE ACT. FOR THIS REASONS THEREFORE WE DO NO T FIND ANY INFIRMITY IN THE CIT(A)S ORDER DIRECTING AO TO COMPUTE THE DISA LLOWANCE U/S 14A ON THE BASIS OF DIVIDEND RECEIVED WHICH WAS EXEMPT U/S 10(33) OF THE ACT. GROUND NO.3 OF THE REVENUES APPEAL IS THEREFORE REJECTED . 14. IN THE COURSE OF HEARING OF APPEAL THE A/R SUBM ITTED WORKING CHART FOR THE AMOUNT DISALLOWABLE; IN CONFORMITY WITH THE FINDINGS OF THE ITAT KOLKATA IN ITS ORDER DATED 10 TH AUGUST 2007, WHICH IS REPRODUCED BELOW: A DIVIDEND INCOME RECEIVED 30306 85 B TOTAL INCOME CREDITED IN P&L 500780 62 LESS : CLOSING STOCK OF SHARES 260710039 PROVISION OF NPA WRITTEN BACK 3129850 LIABILITY NO LONGER REQD WRITTEN BACK 8475 0 263924639 236855990 C INTEREST DEBITED TO P&L 62857763 LESS : INTEREST RELATING TO EARLIER YEAR 33350412 INTEREST ON DELAYED PAYMENT OF TDS 4423824 3 7774236 25083527 D INTEREST RELATABLE TO EARNING EXEMPT 320956 INCOME (A/B) X C 15. ON PERUSAL OF THE STATEMENT, IN THE LIGHT OF TH E ITAT KOLKATAS FINDING IN ASSESSMENT YEAR 2002-03, I FIND THAT DISALLOWANC E OF INTEREST U/S. 14A COULD ONLY BE FOR RS.3,20,956/-. SEC.36(1)(III) OF THE ACT ALLOWS DEDUCTION FOR INTEREST PAID ON BORROWED CAPITAL WHI CH IS USED FOR BUSINESS PURPOSES. THE DEDUCTION ALLOWABLE U/S. 36( 1)(III) IS HOWEVER NOW SUBJECT TO RESTRICTIONS PLACED BY SEC. 14A OF T HE ACT. SEC. 14A ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 5 PROVIDES FOR DISALLOWANCE OF ANY EXPENDITURE WHICH IS INCURRED IN RELATION TO EARNING OF INCOME WHICH DOES NOT FORM P ART OF THE TOTAL INCOME. AS PER THE FINDING OF THE ITAT KOLKATA IN T HE ASSESSEES OWN CASE, INTEREST DISALLOWABLE WAS REQUIRED TO BE COMP UTED IN THE PROPORTION OF EXEMPT INCOME TO GROSS BUSINESS INCOM E. THE DEDUCTION U/S. 36(1)(III) IS HOWEVER ALLOWED UPON SATISFACTIO N OF SPECIFIED CONDITIONS. FOR ALLOWING INTEREST, IT IS NOT NECESS ARY FOR ASSESSEE TO PROVE THAT BY USE OF BORROWED CAPITAL, ASSESSEE HAS PRODUCED CORRESPONDING OR MATCHING INCOME. FROM THE CO-JOINT READING OF PROVISIONS OF SEC. 14A AND 36(1)(III) I HOLD THAT O NLY THE INTEREST WHICH WAS INCURRED IN RELATION TO EARNING DIVIDEND, THE D ISALLOWANCE COULD BE MADE U/S. 14A OF THE ACT. FOR THESE REASONS THEREFO RE I HOLD THAT AO COULD VALIDLY MAKE DISALLOWANCE OUT OF INTEREST PAI D AMOUNTING TO RS.3,20,956/-. THE AS THEREFORE GETS RELIEF OF RS.3 ,97,88,674/-. GROUND NOS. 2 & 3 ARE PARTLY ALLOWED. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL VIABLE ON RECORD, WE FIND THAT THE SAME ISSUE WAS CONSIDERED BY THE ITAT, KOLKATA BENCH IN THE ASSESSEES OWN CASE FOR AY 200 2-03 IN ITA NO. 318/K/2006 DATED 10 TH AUGUST, 2007. WE ALSO FIND THAT SINCE THE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE BY FOLLOWIN G THE SAID DECISION OF THE ITAT, KOLKATA BENCH CITED SUPRA, WE FIND NO NEE D TO INTERFERE WITH THE SAME AND, THEREFORE, THE SAME IS HEREBY UPHELD. THIS GROUND OF APPEAL OF THE REVENUE IS, THEREFORE, DISMISSED . TAKING A CONSISTENT VIEW IN ASSESSEES OWN CASE (SU PRA) WE ACCORDINGLY RESTORE THIS ISSUE TO THE FILE OF AO TO WORK OUT TH E DISALLOWANCE IN PROPORTIONATE TO THE GROSS INCOME OF ASSESSEE IN AC CORDANCE WITH THE LAW. THIS GROUND OF ASSESSEES APPEAL IS ALLOWED FOR STA TISTICAL PURPOSE. 7. SECOND ISSUE IN THIS APPEAL OF ASSESSEE IS AS RE GARDS THAT LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF AO IN SUSTAINING THE ADDITION OF INTEREST INCOME AS PER CASS. DURING THE COURSE OF ASSESSMENT PROCEEDING, AO OBSERVED THAT ASSESSEE FAILED TO INCLUDE A SUM OF 1.50 LAKH AS INTEREST INCOME IN ITS TOTAL INCOME AS SHOWN IN THE CASS. AC CORDINGLY, HE MADE THIS ADDITION OF 1.50 LAKH. 8. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A), WHERE ASSESSEE SUBMITTED THAT THE TAX DEDUCTED AT SOURCE (TDS FOR SHORT) ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 6 DEDUCTED BY THE PARTIES NAMELY, RPG ITOCHU FINANCE LTD. WAS NEVER TAKEN IN ITS TOTAL INCOME AND ACCORDINGLY NO CREDIT FOR TDS WAS ALLOWED FOR THE INTEREST INCOME. ACCORDINGLY, ASSESSEE PRAYED FOR DELETION O F NOTIONAL INTEREST INCOME OF 1.50 LAKH AND DELETED THE SAME. HOWEVER, LD. CIT(A ) DISREGARDED THE PLEA TAKEN BEFORE HIM BY HOLDING AS UNDER:- I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND ALSO THE ORDER OF THE AO. THE AO MADE THE ADDITION ON THE BA SIS OF CASS. THE APPELLANT HAS NOT RECEIVED ANY TDS CERTIFICATE FROM THE SAID PARTY. AS SEEN FROM THE ASSESSMENT ORDER THE APPELLANT COMPAN Y IS NOT REGISTERED AS AN NBFC NOR IT IS PRIVILEGED TO ENJOY THE BENEFIT OF RBI ACT, 1934. THE COMPANY RPG ITOCHU FINANCE LTD. IS A GROUP COMPANY OF THE APPELLANT. IT IS STRANGE THAT THE GROUP COMP ANY HAS DEDUCTED TDS ON THE INTEREST PAYMENT AND THE APPELLANT HAS TREAT ED THE LOAN GIVEN TO THE SAID PARTY A NON PERFORMING ASSET FROM 01.04.20 06. SINCE THE APPELLANT COMPANY WAS REFUSED THE STATUS OF NBFC BY THE RBI, THE ARGUMENT OF THE APPELLANT THAT IT MANDATORILY FOLLO WED THE DIRECTIONS ISSUED BY RBI CANNOT BE ACCEPTED. THE APPELLANT HAD VARIOUS OTHER OPTION TO TREAT THE BAD DEBTS. TAKING INTO CONSIDER ATION THE INFORMATION FROM CASS, THE AO MADE THE ADDITION. THE ADDITION M ADE BY THE AO IS CONFIRMED TAKING THE ABOVE DISCUSSION INTO CONSIDER ATION. THIS GROUND OF APPEAL IS DISMISSED . BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 9. BEFORE US LD. AR SUBMITTED THAT THE PARTY HAS DE DUCTED THE TDS WHICH WAS BEING SHOWN UNDER CASS BUT THE SAME WAS NEVER T AKEN IN THE INCOME OF ASSESSEE. ON THE OTHER HAND, LD. DR HAS RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE BOTH PARTIES AND MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION, WE FIND THAT ASSESSEE HAS NOT INCLUDED A SUM OF 1.50 LAKH ON ACCOUNT OF INTEREST INCOME SHOWN UNDER CASS. THEREF ORE, ADDITION WAS MADE BY AO AND SUBSEQUENTLY CONFIRMED BY LD. CIT(A). FRO M THE FACTS OF THE CASE, WE FIND THAT ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING BUT ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 7 THE REAL INCOME SHOULD BE LIABLE TO TAX IRRESPECTIV E METHOD OF ACCOUNTING SYSTEM FOLLOWED BY ASSESSEE. IN THIS CONNECTION, WE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF GODHRA ELECTRICITY CO. LTD. VS. CIT 225 ITR 746 (SC) WHEREIN THE EXTRACT REPRODUCED BELOW:- THE TRIBUNAL HAD RIGHTLY HELD THAT THE CLAIM AT TH E INCREASED RATES AS MADE BY THE ASSESSEE COMPANY ON THE BASIS OF WHICH NECESSARY ENTRIES WERE MADE, REPRESENTED ONLY HYPOTHETICAL IN COME AND THE AMOUNT IN QUESTION BROUGHT TO TAX BY THE INCOME TAX OFFICER DID NOT REPRESENT INCOME WHICH HAD REALLY ACCRUED TO THE AS SESSEE COMPANY DURING THE RELEVANT PREVIOUS YEAR. IN THE SAID JUDGEMENT THE HON'BLE SUPREME COURT REI TERATED THE FOLLOWING OBSERVATIONS MADE BY IT EARLIER IN THE CA SE OF CIT V. SHOORJI VALLABHDAS & CO. [46 ITR 144] INCOME TAX IS A LEVY ON INCOME. NO DOUBT, THE INCO ME TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR IT RE CEIPT BUT THE SUBSTANCE OF THE MATTER IS INCOME. IF INCOME DOES N OT RESULT AT ALL. THERE CANNOT BE A TAX EVEN THOUGH IN BOOK KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME, WHICH DOES NOT MA TERIALIZE. AFTER REFERRING TO THE RATIOS LAID DOWN IN THE EARL IER DECISIONS, THE APEX COURT ULTIMATELY HELD IN THE SAID DECISION THAT EVE N THOUGH THE REVISION IN TARIFF WAS APPROVED BY THE SUPREME COURT AND THE ASSESSEE HAD MADE ENTRIES IN THE BOOKS FOR ELECTRICITY CHARGES A T ENHANCED RATES YET THE INCOME TAX OFFICER WAS NOT JUSTIFIED IN ASSESSI NG SUCH INCOME SINCE THE ASSESSEE DID NEVER ACTUALLY REALIZE THE INCREAS ED TARIFF FROM THE CUSTOMERS. YOUR HONOUR WILL THUS APPRECIATE THAT TH E SUPREME COURT HAS THUS REPEATEDLY HELD THAT THE SUBJECT MATTER OF TAXATION IS NOT HYPOTHETICAL INCOME BUT REAL INCOME. THE SAME PRINCIPLE WAS LAID DOWN BY THE HON'BLE CAL CUTTA HIGH COURT IN THE CASE OF SRI KEWAL CHAND BANG VS. CIT [183 ITR 207]. THE HON'BLE CALCUTTA HIGH CURT FURTHER HELD THAT WHEN NO INTERE ST WAS IN FACT CHARGED BY THE ASSESSEE THE AO COULD NOT PRESUME AC CRUAL OF INCOME IN ABSENCE OF EVIDENCE INDICATING THAT THE INTEREST WAS ACTUALLY CHARGED. THE SAME PRINCIPLE HAS ALSO BEEN LAID DOWN IN THE D ECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT V. MOTOR CREDIT CO. PVT. LTD. [127 ITR 572] AND BY THE PUNJAB & HARYANA HIGH CURT IN T HE CASE OF FEROZPUR FINANCE PVT. LTD. V. CIT [124 ITR 619]. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE CALCUTTA HIGH COURT IN THE CASE O F CIT VS. BALARAMPUR COMMERCIAL ENTERPRISES LTD. [362 ITR 439]. IN ALL THESE DECISIONS THE HIGH COURTS HAVE REPEATEDLY HELD THAT UNLESS THE ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 8 ASSESSEE ACTUALLY CHARGED THE INTEREST OR INTEREST IN REAL TERMS ACCRUED TO THE ASSESSEE, IT CANNOT BE BROUGHT TO TAX MERELY ON THE GROUND THAT THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTIN G. WE ALSO FIND THAT SIMILAR ISSUE WAS ALSO RAISED IN AGRA BENCH IN THE CASE OF DEVENDRA NATH DEWEDI, ALIGARH V. DCIT IN ITA NO.253/AGRA/2013 DATED 27.06.2014 FOR AY 2008-09, WHEREIN THE TRIBUNAL HAS HELD:- 5. HAVING HEARD THE LEARNED DEPARTMENTAL REPRESENT ATIVE AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSI DERED VIEW THAT BASED ON 26AS ALONG NO ADDITIONS CAN BE MADE. THIS CAN AT BEST BE A STARTING POINT FOR NECESSARY VERIFICATION BY THESE, BUT IT CANNOT, ON STANDALONE BASIS, JUSTIFY THE IMPUGNED ADDITIONS. H OWEVER, WE ALSO CONSIDERED IT APPROPRIATE TO REMIT THE MATTER TO TH E FILE OF THE ASSESSING OFFICER FOR STRICTLY LIMITED PURPOSE OF VERIFYING T HE INFORMATION. IN CASE, HE CAN FIND ANY INDEPENDENT EVIDENCE OF THE ASSESSE ES AY 2008-09 HAVING ACTUALLY RECEIVED THE SAID RENT, HE CAN BRIN G THE SAME TO TAX. WE MAKE IT CLEAR THAT THE ONUS WILL BE ON THE ASSESSIN G OFFICER TO FIND SUCH EVIDENCE AND THAT THE ASSESSEE CANNOT BE EXPECTED T O DISCHARGE THE IMPOSSIBLE BURDEN OF PROVING A NEGATIVE I.E., THAT THE ASSESSEE DID NOT RECEIVED SUCH RENT. 6. WITH THE OBSERVATIONS AS ABOVE, AND FOR THE LIMI TED PURPOSES SET OUT ABOVE, THE MATTER STANDS RESTORED TO THE FILE OF TH E ASSESSING OFFICER. NEEDLESS TO ADD THAT ANY MATERIAL, ADVERSE TO THE A SSESSEE, WILL HAVE TO BE CONFRONTED TO THE ASSESSEE BY THE ASSESSING OFFI CER, AND THAT, IN CASE ASSESSING OFFICER INTENDS TO PASS ANY FRESH OR DER AS A RESULT OF THESE DIRECTIONS, HE WILL DO SO ONLY AFTER GIVING D UE AND FAIR OPPORTUNITY OF HEARING TO THE ASSESSEE, IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING ORDER. TAKING A CONSISTENT VIEW ON THE AFORESAID ORDER IN THE CASE OF DEVENDRA NATH DEWEDI (SUPRA) WE REVERSE THE ORDERS OF AUTHORITIES BELOW AND THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 11. THIRD ISSUE IN THIS APPEAL OF ASSESSEE IS AS RE GARDS THAT LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF AO BY SUSTAINING THE ADDITION OF THE EXPENSE INCLUDING THE INTEREST DISALLOWED U/S. 14A R.W.S 8D OF THE IT RULES IN COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT. ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 9 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO HAS APPLIED THE PROVISION OF SEC. 14A R.W.S. 8D OF THE IT RULES AND DISALLOWED THE EXPENSE OF 1,29,11,487/- WHILE WORKING OUT THE BOOK PROFIT UN DER THE PROVISION OF MINIMUM ALTERNATE TAX (MAT FOR SHORT) WHICH WAS SUB SEQUENTLY CONFIRMED BY LD. CIT(A). BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 13. BEFORE US LD. AR SUBMITTED THAT DISALLOWANCE MA DE BY AO U/S 14A OF THE ACT CANNOT BE APPLIED IN TERMS OF CLAUSE (F) OF THE EXPLANATION TO SEC. 115JB OF THE ACT. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF A UTHORITIES BELOW. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT SI MILAR ISSUE WAS DECIDED BY DELHI TRIBUNAL IN THE CASE OF QUIPPO TELECOM INFRASTRUCTURE LTD. V. ACIT IN ITA NO.4931/DEL/2010 DATED 18.02.2011 FOR THE AY 2007-0 8, THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW:- 11. IN THE PRESENT CASE, THE AO HAS ALSO MADE ADDI TION OF RS.19,58,253/- ON ACCOUNT OF ALLEGED EXPENDITURE I NCURRED TO EARN EXEMPT INCOME WHILE COMPUTING BOOK PROFIT U/S. 115J B OF THE ACT. THE AO'S ACTION HAS BEEN CONFIRMED BY THE CIT(A). BOTH THE AUTHORITIES HAVE APPLIED RULE 8D OF THE INCOME-TAX RULES WHILE COMPUTING THE AMOUNT OF EXPENDITURE DISALLOWABLE U/S. 14A OF THE ACT. AS ALREADY HELD ABOVE, THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE TO THE PRESENT ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, DIS ALLOWANCE OF EXPENDITURE BY APPLYING RULE 8D IS NOT JUSTIFIED. F URTHER, NO ACTUAL EXPENDITURE WAS DEBITED IN THE PROFIT & LOSS ACCOUN T RELATING TO THE EARNING OF EXEMPT INCOME. THEREFORE, THE PROVISION OF SECTION 14A CANNOT BE IMPORTED INTO WHILE COMPUTING THE BOOK PR OFIT U/S. 115JB OF THE ACT INASMUCH AS CLAUSE (F) OF EXPLANATION TO SE C. 115JB REFERS TO THE AMOUNT DEBITED TO THE PROFIT & LOSS ACCOUNT WHI CH CAN BE ADDED BACK TO THE BOOK PROFIT WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. IN THIS CONNECTION, RELIANCE CAN BE PLACED UPO N THE DECISION OF ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 10 ITAT DELHI BENCH IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (2009) 32 SOT 101 (DEL), WHEREIN IT HAS BEEN HELD THAT PROVIS IONS OF SUB-SEC. (2) & (3) OF SECTION 14A CANNOT BE IMPORTED INTO CLAUSE (F) OF THE EXPLANATION TO SEC. 115JA OF THE ACT. IN THIS VIEW OF THE MATTER, WE THEREFORE, DELETE THE DISALLOWANCE OF EXPENSES CONF IRMED BY THE CIT(A) WHILE COMPUTING BOOK PROFIT UNDER SEC. 115JB OF THE ACT. IN OTHER WORDS, NO ADDITION TO THE BOOK PROFIT SHALL BE MADE ON ACC OUNT OF ALLEGED EXPENDITURE INCURRED TO EARN EXEMPT INCOME WHILE CO MPUTING INCOME U/S115JB OF THE ACT. THUS, THIS GROUND NO.2 IS DECI DED IN FAVOUR OF THE ASSESSEE. TAKING A CONSISTENT VIEW IN THE CASE OF QUIPPO TELECOM INFRASTRUCTURE LTD. (SUPRA) AND FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE REVERSE THE ORDERS OF AUTHORITIES BELOW AND THIS GROUND OF ASSE SSEES APPEAL IS ALLOWED. 15. FOURTH GROUND RAISED BY ASSESSEE IS AS REGARDS THAT LD. CIT(A) ERRED IN NOT REDUCING THE LOWER OF LOSS BROUGHT FORWARD OR U NABSORBED DEPRECIATION AS PER BOOKS OF ACCOUNT WHILE COMPUTING THE BOOK PROFI T U/S 115JB OF THE ACT. 16. AT THE OUTSET, WE FIND THAT AS PER THE PROVISIO N OF LAW, ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION FOR LOWER OF THE AM OUNT EITHER LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION. WE ACCORDINGLY DIRECT THE AO TO ALLOW THE LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION WHI CHEVER IS LESS AS PER BOOKS OF ACCOUNT OF THE ASSESSEE IN TERMS OF CLAUSE (III) U/S 115JB OF THE ACT. THIS GROUND IS ALLOWED IN FAVOUR OF ASSESSEE ACCORD INGLY TO LAW. 17. LAST ADDITIONAL GROUND RAISED BY ASSESSEE DATED ON 14.05.2012 AND SUBMITTED THAT LD. CIT(A) ERRED IN CHARGING INTERES T U/S 234B/C, WHICH IS REPRODUCED BELOW:- ADDITIONAL GROUND FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE INTEREST U/S. 234B AND U/S. 234C OF THE INCOME TAX ACT, 1961 SHOU LD NOT HAVE BEEN CHARGED ON THE ADDITIONS MADE TO THE NET PROFIT AS PER PROFIT AND LOSS ACCOUNT FOR PROVISION FOR NPA AND PROVISION FOR DIM INUTION IN THE VALUE OF INVESTMENTS AMOUNTING TO RS.26,72,794/- AND RS.5 ,23,42,633/- RESPECTIVELY FOR THE PURPOSES OF SECTION 115JB OF T HE ACT. ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 11 18. AT THE OUTSET, WE OBSERVE THAT THIS ISSUE IS SQ UARELY COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE BY THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF EMAMI LTD. V. CIT (2011) 337 ITR 470 (CAL) WHEREIN IT WAS HELD:- THE PROVISIONS OF SECTIONS 234B AND 234C OF THE IN COME-TAX ACT, 1961, ARE MANDATORY IN NATURE. HOWEVER, IN ORDER TO ATTRA CT THESE PROVISIONS, IT MUST BE ESTABLISHED THAT THE ASSESSEE HAD THE LIABI LITY TO PAY ADVANCE TAX AS PROVIDED IN SECTIONS 207 AND 208 WITHIN THE TIME PRESCRIBED UNDER SECTION 211. IN ORDER TO HELD AN ASSESSEE LIA BLE FOR PAYMENT OF ADVANCE TAX, THE LIABILITY TO PAY SUCH TAX MUST EXI ST ON THE LAST DATE FOR PAYMENT OF ADVANCE AX AS PROVIDED UNDER THE ACT OR AT LEAST ON THE LAST DATE OF THE FINANCIAL YEAR PRECEDING THE ASSESSMENT YEAR IN QUESTION. IF SUCH LIABILITY ARISES SUBSEQUENTLY WHEN THE LAST DA TE FOR PAYMENT OF ADVANCE TAX OR EVEN HE LAST DATE OF THE FINANCIAL Y EAR PRECEDING THE ASSESSMENT YEAR IS OVER, THE ASSESSEE HAD NO LIABIL ITY TO PAY ADVANCE TAX. FOR THE ASSESSMENT YEAR 2001-02, THE ASSESSEE WAS N OT LIABLE TO TAX UNDER SECTION 115JB. BY THE FINANCE ACT, 2002, SECT ION 115JB WAS AMENDED WITH RETROSPECTIVE EFFECT FROM APRIL 1, 200 1. IN VIEW OF THE AMENDMENT, THE ASSESSEE WAS NOT IN A POSITION TO DE DUCT THE SUM OF RS.26.51 CRORES WITHDRAWN FROM THE REVALUATION RESE RVES. THUS, THE AS RECOMPUTED THE BOOK PROFIT UNDER SECTION 115JB FOR THE ASSESSMENT YEAR 2001-02 ON THE BASIS THAT THE SUM OF RS.26.51 CRORES CREDITED TO THE PROFIT AND LOSS ACCOUNT WAS NOT DEDUCTIBLE. ON SUCH BASIS, THE ASSESSEE WORKED OUT THE AMOUNT OF TAX PAYABLE AT RS .1,55,62,511 AND PAID THE TAX. THE ASSESSING OFFICER COMPUTED THE TA X LIABILITY UNDER SECTION 115JB WITH INTEREST UNDER SECTIONS 234B AND 234C SINCE THE ASSESSEE DID NOT PAY ANY ADVANCE TAX WITH REFERENCE TO THE LIABILITY FOR TAX UNDER THE AMENDED SECTION 115JB. THE TRIBUNAL U PHELD THE ORDER. ON APPEAL: HELD, THAT THE LAST DATE OF THE RELEVANT FINANCIAL YEAR WAS MARCH 31, 2001, AND ON THAT DAY, ADMITTEDLY, THE ASSESSEE HAD NO LIABILITY TO PAY ANY AMOUNT OF ADVANCE TAX IN ACCOR DANCE WITH THE LAW THEN PREVAILING. THE AMENDED PROVISIONS OF SECT ION 115JB HAVING COME INTO FORCE WITH EFFECT FROM APRIL 1, 20 01, THE ASSESSEE COULD NOT BE HELD A DEFAULT WITH RESPECT T O PAYMENT OF ADVANCE TAX. ON THE LAST DATE OF THE FINANCIAL YEAR PROCEEDING THE RELEVANT ASSESSMENT YEAR, AS THE BOOK PROFITS OF TH E ASSESSEE IN ACCORDANCE WITH THE THEN PROVISION OF LAW WERE NIL, THERE WAS NO ADVANCE TAX PAYABLE WITHIN THE LAST DAY OF THE FINA NCIAL YEAR PRECEDING THE RELEVANT ASSESSMENT YEAR AS PROVIDED IN SECTIONS 207 AND 208 OR WITHIN THE DATES INDICATED IN SECTIO N 211. INTEREST COULD NOT BE LEVIED UNDER SECTIONS 234B AND 234C. ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 12 IT WAS HELD THAT THESE ADDITIONS HAVE BEEN MADE TO THE TOTAL INCOME OF ASSESSEE AS A RESULT OF RETROSPECTIVE AMENDMENT IN THE STATUTE AND ASSESSEE PAID THE TAX. BUT THERE WILL BE NO INTEREST ON THE AFORESAID ADDITION MADE U/S 234B AND 234C IN VIEW OF THE AFORESAID JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF EMAMI LTD. (SUPRA). ACCORDINGLY WE REVERSE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION MADE BY A O. 19. COMING TO ASSESSEES ADDITIONAL GROUND FILED ON 13.01.2015, WHICH REPRODUCED BELOW:- ADDITIONAL GROUNDS 1. FOR THAT ON THE FACTS AND N THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN UPHOLDING THE ADDITION TO THE BOOK PROFIT U/S.115JB OF RS.26,72,794/- BEING PROVISION FOR NP AND PROVISION FOR DIMUNITION IN VALUE OF INVESTMENTS BY PLACING RELIANCE ON CLAU SE (I) OF THE EXPLANATION TO SEC. 115JB OF THE IT ACT. 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE APPELLANT IN ITS BALANCE SHEET WHILE DISCLOSING THE ASSETS BY WAY OF DEBTORS, LOANS AND ADVANCES, ACCRUED INTEREST AN D INVESTMENTS HAVING REDUCED THE SAID PROVISIONS AND ONLY THE NET VALUE OF THE ASSETS WERE DISCLOSED IN THE BALANCE SHEET, THE AUT HORITIES BELOW OUGHT TO HAVE HELD THE SAID PROVISIONS WERE IN THE NATURE OF ACTUAL WRITE OFF AND IN THAT VIEW OF THE MATTER, THESE PROVISIONS SHOULD NOT HAVE BEEN ADDED IN ARRIVING AT BOOK PROFITS U/S 115JB OF THE ACT. 20. ASSESSEE SUBMITTED THAT LD. CIT(A) ERRED IN UPH OLDING THE ADDITION TO THE BOOK PROFIT U/S 115JB OF THE ACT IN TERMS OF TH E CLAUSE (I) TO THE EXPLANATION OF SEC.115JB OF THE ACT ON ACCOUNT OF FOLLOWING:- (I) PROVISION FOR SUNDRY DEBTORS OF RS. 26,72,794/ -; (II) PROVISION OF DIMINUTION IN THE VALUE OF INVES TMENT OF RS.5,23,42,633/- DURING THE YEAR, ASSESSEE HAS WRITTEN OFF THE AFORE SAID AMOUNT BY REDUCING THE RESPECTIVE ITEMS OF ITS BALANCE-SHEET REFLECTED ON THE ASSET SIDE. THE ASSESSEE SUBMITTED THAT PROVISION AGAINST THE DEBTO RS AND INVESTMENT HAS ACTUALLY BEEN WRITTEN OFF FROM THE RESPECTIVE ASSET S. HOWEVER, AO DURING THE COURSE OF ASSESSMENT PROCEEDING DISALLOWED BOTH THE AFORESAID ITEMS AFTER HAVING RELIANCE ON CLAUSE (I) OF THE EXPLANATION TO SECTION 115JB OF THE ACT. ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 13 21. MATTER WAS CARRIED BEFORE LD. CIT(A) WHO AFTER HEARING ASSESSEE HAS SUSTAINED THE ADDITION MADE BY AO FOR WORKING OUT T HE BOOK PROFIT U/S 115JB OF THE ACT. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 22. BEFORE US LD. AR SUBMITTED THAT ASSESSEE HAS NO T CREDITED ANY PROVISION AGAINST SUNDRY DEBTORS AND INVESTMENT AS ENVISAGED IN CLAUSE (I) TO THE EXPLANATION TO SEC.115JB OF THE ACT. THE ASSESS EE HAS ACTUALLY WRITTEN OFF THE RESPECTIVE ASSETS AND THEREFORE THESE TRANSACTI ONS ARE OUT OF PURVIEW OF THE PROVISION OF CLAUSE (I) TO THE EXPLANATION OF S EC.115JB OF THE ACT. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF AUT HORITIES BELOW. 23. FROM THE AFORESAID DISCUSSION, WE FIND THAT ASS ESSEE HAS ACTUALLY WRITTEN OFF BAD DEBTS FROM THE SUNDRY DEBTORS AND A LSO WRITTEN OFF THE DIMINUTION IN THE VALUE OF INVESTMENT FROM THE RESP ECTIVE ITEMS AS APPEARING IN THE BALANCE-SHEET OF ASSESSEE. FROM THE FACTS OF THE CASE WE FIND THAT ASSESSEE HAS NOT SHOWN THE BAD DEBTS AND DIMINUTION IN THE VALUE OF INVESTMENT ON THE LIABILITY SIDE OF ITS BALANCE-SHE ET BY CREATING ANY PROVISION. NOW THE QUESTION BEFORE US IS AS TO WHETHER THE AMO UNT ACTUALLY WRITTEN OFF AGAINST THE SUNDRY DEBTORS AND THE VALUE OF INVESTM ENT REQUIRES ANY ADDITION FOR WORKING OUT THE BOOK PROFIT U/S 115JB OF THE AC T. WE, WITH REGARD TO THE BAD DEBT ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNT, FIND THAT THE ACTION OF THE ASSESSEE IS WITHIN THE PURVIEW OF LAW AND OUTSIDE T HE PURVIEW OF THE PROVISIONS OF SECTION 115JB OF THE ACT. IN THIS CON NECTION, WE RELY ON THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CAS E OF CIT V. YOKOGAWA INDIA LTD. (2012) 17 TAXMANN.COM 15 (KAR), WHEREIN IT WAS HEL D:- IN THE INSTANT CASE, THE DEBT IS AN AMOUNT RECEIVA BLE BY 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, ITEM (C) OF T HE EXPLANATION IS NOT ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 14 ATTRACTED TO THE FACTS OF THE CASE. ITEM (C) IN SEC TION 115JA AND 115JB(1) ARE IDENTICAL. IN ORDER TO ATTRACT THE EXP LANATION THE DEBT WHICH IS DOUBTFUL OR BAD SHOULD SATISFY THE REQUIREMENT C ONTEMPLATED IN ITEM (C) OF THE EXPLANATION. IT IS THE AMOUNT OR AMOUNT SET ASIDE AS PROVISIONS MADE FOR MEETING THE LIABILITY OTHER THA N THE ASCERTAINED LIABILITIES. IN THE INSTANT CASE ALSO THE BAD AND D OUBTFUL DEBT FOR WHICH A PROVISION IS MADE WHICH IS IN THE NATURE OF DIMINUT ION IN THE VALUE OF ANY ASSET WOULD NOT FALL WITHIN ITEM (C) OF EXPLANATION (1). IT IS IN THAT CONTEXT THE APPELLANT COMMISSIONER AS WELL AS THE TRIBUNAL HAS GRANTED RELIEF TO THE ASSESSEE. REALIZING THE FATALITY OF THE SAID AR GUMENT, IT IS CONTENDED NOW THAT ITEM (I) CANNOT AMOUNT TO SATISFACTION AS PROVISION FOR DIMINISHING IN THE VALUE OF ASSETS IS SUBSTITUTED, IF CASE OF THE ASSESSEE FALLS UNDER ITEM (C). IN MEETING THE AFORESAID CASE , THE ASSESSEE OUGHT ON RECORD THE JUDGMENT OF THE APEX COURT IN THE CAS E OF VIJAYA BANK V. CIT [2010] 323 ITR 166/190 TAXMAN 257 WHERE THE APE X COURT HAD AN OCCASION TO CONSIDER THIS EXPLANATION. IT ACCEPTED THE ARGUMENT ON BEHALF OF THE REVENUE TO THE EFFECT THAT THE EXPLAN ATION MAKES IT VERY CLEAR THAT THERE IS A DICHOTOMY BETWEEN ACTUAL WRIT E OFF ON THE ONE HAND AND PROVISION FOR BAD AND DOUBTFUL DEBT ON THE OTHE R. A MERE DEBIT TO THE PROFIT AND LOSS ACCOUNT WOULD CONSTITUTE A BAD AND DOUBTFUL DEBT, BUT IT WOULD NOT CONSTITUTE ACTUAL WRITE OFF AND THAT W AS THE VERY REASON WHY THE EXPLANATION STOOD INSERTED. PRIOR TO THE FINANC E ACT, 2001 MANY ASSESSEES USED TO TAKE THE BENEFIT OF DEDUCTION UND ER SECTION 36(1)(VII) BY MERELY DEBITING THE IMPUGNED BAD DEBT TO THE PRO FIT AND LOSS ACCOUNT AND, THEREFORE, THE PARLIAMENT STEPPED IN BY WAY OF EXPLANATION TO SAY THAT A MERE REDUCTION OF PROFITS BY DEBITING THE AM OUNT 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 CR EATING 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 AND ADVANCES/DEBTOR S ON THE ASSETS SIDE OF THE BALANCE SHEET AND CONSEQUENTLY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR THE DEBTORS ON THE ASSETS SIDE OF THE BALANCE SHEET WAS SHOWN AS NET OF THE PROVISIO N FOR THE IMPUGNED BAD DEBT. THEN THE SAID AMOUNT REPRESENTING BAD DEB T OR DOUBTFUL DEBT CANNOT BE ADDED IN ORDER TO COMPUTE BOOK PROFIT. TH EREFORE, AFTER THE EXPLANATION THE ASSESSEE IS NOW REQUIRED NOT ONLY T O DEBIT THE PROFIT AND LOSS ACCOUNT BUT SIMULTANEOUSLY ALSO REDUCE THE LOA NS AND ADVANCES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHE ET TO THE EXTENT OF THE CORRESPONDING AMOUNT SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS AND ADVANCES/DEBTOR IS SHOWN A NET OF THE PRO VISIONS FOR THE IMPUGNED BAD DEBT. THEREFORE, IN THE FIRST PLACE IF THE BAD DEBT OR DOUBTFUL DEBT IS REDUCED FORM THE LOANS AND ADVANCE S OR THE DEBTOR FROM THE ASSETS SIDE OF THE BALANCE SHEET THE EXPLA NATION TO SECTION 115JA OR 115JB IS NOT AT ALL ATTRACTED. IN THAT CON TEXT EVEN IF ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 15 AMENDMENT WHICH IS MADE RETROSPECTIVE THE BENEFIT G IVEN BY THE TRIBUNAL AND THE APPELLATE COMMISSIONER TO THE ASSE SSEE IS IN NO WAY AFFECTED. IN THAT VIEW OF THE MATTER, THERE IS NOT MERIT IN THIS APPEAL. RESPECTFULLY FOLLOWING THE PRECEDENTS, AS ABOVE, WE ALLOW THIS GROUND OF ASSESSEES APPEAL WITH REGARD TO BAD DEBTS WRITTEN OFF IN ITS BOOKS OF ACCOUNT. HOWEVER, WITH REGARD TO THE AMOUNT OF DIMINUTION IN THE VALUE OF INVESTMENT WHICH WAS WRITTEN OFF AGAINST THE AMOUNT OF THE INV ESTMENT VALUE SHOWN ON THE ASSET SIDE OF ASSESSEES BALANCE SHEET, WE DIFF ER WITH THE ARGUMENT ADVANCED BY LD. AR OF THE ASSESSEE. WE FIND THAT TH E DIMINUTION IN THE VALUE OF INVESTMENT IS NOT PERMANENT IN NATURE. THE VALUE OF INVESTMENT MADE IN THE SHARES AND SECURITIES KEEP ON CHANGING DEPENDING UP ON THE MARKET RATE. THEREFORE, THERE CAN BE A CASE FOR A PARTICULAR YEA R THAT THERE WILL BE DIMINUTION IN THE VALUE INVESTMENT BUT IN THE NEXT YEAR BUT THERE WILL BE APPRECIATION IN THE VALUE OF INVESTMENT. SO WE SHOU LD NOT CONSIDER THE DIMINUTION AND APPRECIATION IN THE VALUE OF INVESTM ENT UNLESS IT IS NOT PERMANENT IN NATURE. IN THIS CONNECTION, WE FIND TH AT THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA IN TERMS OF ITS ACCOUNTING STAN DARD 13 HAS RECOMMENDED TO IDENTIFY THE LOSS IN THE BOOKS ON ACCOUNT OF DIM INUTION IN THE VALUE OF INVESTMENT UNTIL AND UNLESS IT IS PERMANENT IN NATU RE. THE RELEVANT EXTRACT OF THE AS 13 IS REPRODUCED BELOW:- 32. INVESTMENTS CLASSIFIED AS LONG TERM INVESTMENT S SHOULD BE CARRIED IN THE FINANCIAL STATEMENTS AT COST. HOWEVER, PROVISION FO R DIMINUTION SHALL BE MADE TO RECOGNISE A DECLINE, OTHER THAN TEMPORARY, IN TH E VALUE OF THE INVESTMENTS, SUCH REDUCTION BEING DETERMINED AND MADE FOR EACH I NVESTMENT INDIVIDUALLY IN ADDITION TO ABOVE, THE CASE LAW CIT V. YOKOGAWA INDIA LTD. (2012) 17 TAXMANN.COM 15 (KAR) AS DISCUSSED ABOVE SPEAK ONLY ABOUT BAD DEBT WRITTEN IN THE BOOKS OF ACCOUNT AND DO NOT TALK ABOUT THE D IMINUTION IN THE VALUE OF INVESTMENT. THEREFORE WE HOLD THAT FACTS OF THE AFO RESAID CASE ARE DIFFERENT FROM THE FACTS OF THE PRESENT CASE BEFORE US. THERE FORE, IN OUR CONSIDERED VIEW, THE ACTION TAKEN BY AUTHORITIES BELOW IN CONN ECTION THE DIMINUTION IN THE VALUE OF INVESTMENT IS CORRECT AND WITHIN THE AMBIT OF LAW. HENCE, WE CONFIRM ITA NO.1838/KOL/2010 A.Y. 2007-08 UNIVERSAL INDUSTRIAL FUND LTD. V. DCIT, CIR-6, KO L. PAGE 16 THE ORDER OF LOWER AUTHORITIES WITH REGARD TO ADDIT ION MADE BY AUTHORITIES BELOW UNDER CLAUSE (I) TO THE EXPLANATION OF SEC. 1 15B OF THE ACT AS FAR AS INVESTMENT IS CONCERN. THIS GROUND OF ASSESSEES AP PEAL IS PARTLY ALLOWED. 24. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT 27 /05/2016 SD/- SD/- (S.S.VISHWANETHRA RAVI) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 27 / 05 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-UNIVERSAL INDUSTRIAL FUND LTD., 31, NETA JI SUBHAS ROAD, KOLKATA-01 2. /RESPONDENT-DCIT, CIRCLE-6, P7, CHOWRINGHEE SQUARE, KOLKATA-69 3. ) *+ , , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5. 012 33*+, , *+ , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ , , /TRUE COPY/ / , *+ ,