ADDL.C.I.T. RG.3(3), MUMBAI V. AAVARAN TEXTILES PVT. LTD., MUMBAI

ITA 5971/MUM/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0172 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 01-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J D MISTRY
• Keywords: Capital asset; Depreciation; Earning of tax free income; Retrospective amendment; Fair market value; Bad and doubtful debts
• Section: 14A; 115JB

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A , MUMBAI , . , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.5971/MUM/2012 ASSESSMENT YEAR: 2008 - 2009 ADDL. CIT RANGE 3(3) MUMBAI / VS. AAVARAM TEXTILES PVT LTD., 81-A, MITTAL COURT, 224 NARIMAN POINT, MUMBAI 400 021 ( / REVENUE) ( !' /ASSESSEE) P.A. NO. AAACA3414D / REVENUE BY SHRI RAJESH DAMOR CIT-DR !' / ASSESSEE BY SHRI J D MISTRY # $ % '& / DATE OF HEARING : 05/02/2018 % '& / DATE OF PRONOUNCEMENT 05/03/2018 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 30 TH MAY 2012 OF THE LEARNED FIRST APPELLATE AUTHORITY IN DELETING THE ADDITION OF RS 1,94,38,81,403/- ON ACC OUNT ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 2 DIMINUTION IN THE VALUE OF CURRENT INVESTMENT MADE TO THE BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE INC OME TAX ACT, 1961 (HEREINAFTER THE ACT), WITHOUT APPREC IATING THAT THE INVESTMENT WAS NOT ACTUALLY DISPOSED OF DU RING THE YEAR AND, HENCE, THE DIMINUTION IS ONLY IN THE NATU RE OF PROVISION IN VIEW OF THE DECISION OF THE TRIBUNAL I N THE CASE OF M/S. EASTERN PERIPHERAL LTD. VS. ACIT (ITA NO. 321/M/2007). 2. DURING HEARING, AT THE OUTSET, SHRI J D MISTRY, LEARNED SENIOR ADVOCATE, CLAIMED THAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL FOR A.Y. 2008-09 IN THE CASE OF ACIT VS. M/S. RELIANCE WELFARE ASSOCIATION CIRCL E, ORDER DATED 15 TH JANUARY 2018 ITA NO. 5976/M/2012. ON THE OTHER HAND, SHRI RAJESH DAMOR, LEARNED CIT-DR, DID NOT CONTROVERT THE CLAIM OF THE LEARNED COUNSEL FOR THE ASSESSEE BY CONTENDING THAT THE IMPUGNED ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID DECISION OF THE TR IBUNAL. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE AB OVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION FROM THE ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 3 AFORESAID ORDER DATED 15 TH JANUARY 2018 FOR READY REFERENCE AND ANALYSIS: THE ABOVE TITLED APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 30.05.2012 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) 7, MUMBAI [HEREINAFTER REFERRE D TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2008-09. 2. THE ONLY GROUND IN THIS APPEAL IS AS UNDER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS .46,94,62,365/- MADE BY AO U/S.115JB OF THE I.T. ACT UNDER THE HEAD PROVIS ION SET ASIDE FOR DIMINUTION IN THE VALUE OF INVESTMENT HOLDING THAT THE SAME ARE NOT IN THE NATURE OF PROVISION ONLY. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER:- THE ASSESSEE IS A COMPANY REGISTERED U/S.25 OF THE COMPANIES ACT, 1956 AND HOLDING ITS INVESTMENT BOTH AS CURRENT INV ESTMENT AND LONG TERM INVESTMENT. THE ASSESSEE HAD SUBMITTED ITS RET URN OF INCOME DECLARED INCOME OF RS.21,43,597/- UNDER THE NORMAL PROVISIONS AND RS.17,49,45,153/- U/S.115JB OF THE ACT. THE ASSESS ING OFFICER HAS COMPLETED THE ASSESSMENT AT TOTAL INCOME (BOOK PROF IT) U/S.115JB AT RS.64,44,07,518/- AS AGAINST TOTAL BOOK PROFIT AT R S.17,49,45,153/- RETURNED BY THE APPELLANT. THUS ASSESSING OFFICER AMENDED THE TOTAL INCOME OF RS.21,43,597/- RETURNED BY THE ASSESSEE C OMPANY THROUGH MAKING THE ADDITION OF RS.46,94,62,365/- WHICH WAS DEBITED BY THE ASSESSEE COMPANY TO PROFIT AND LOSS ACCOUNT AS DIMI NUTION IN VALUE OF CURRENT INVESTMENT AS EXPENDITURE BY DETERMINING BO OK PROFIT AT RS.64,44,07,518/- U/S.115JB OF THE ACT AS PER ORDER U/S.143(3) OF THE ACT. THE AO HAS TREATED THE SAID LOSS CLAIMED BY T HE ASSESSEE COMPANY AS PROVISION IN DIMINUTION IN THE VALUE OF INVESTME NT INSTEAD OF ACTUAL LOSS / EXPENDITURE AS CLAIMED BY THE ASSESSEE COMPA NY. 4. THE MATTER CARRIED TO CIT(A) AND CIT(A) ALLOWED THE CLAIM BY OBSERVING AS UNDER:- 4.32 THUS, I AM OF THE CONSIDERED VIEW THAT ALL THE PROVISION, WHICH ARE MADE IN THE FINANCIAL STATEMENT PREPARED AS PER PAR T II AND III OF SCHEDULE VI FOR DIMINUTION IN THE VALUE OF ANY ASSET ARE NOT TO BE INCREASED TO THE AMOUNT OF BOOK PROFIT AND ONLY THOSE AMOUNTS WHICH ARE SET ASIDE AS PROVISION CAN ALONG BE INCREASED AS PER CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT. THERE IS A DIFFERENCE IN BETWEEN RETAINING AN AMOUNT AND WRITING OFF AN AMOUNT. ONLY THOSE PROV ISIONS, WHICH ARE RETAINED CAN BE COVERED BY CLAUSE (I) OF EXPLANATIO N 1 TO S. 115JB OF THE ACT, AS THE AMOUNT RETAINED IS AN AMOUNT SET ASIDE AS PR OVISION FOR DIMINUTION IN ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 4 THE VALUE OF ANY ASSET, THEN IT IS NOT A CASE OF SE T ASIDE OF AN AMOUNT AS PROVISION AS THE PROVISION GETS OBLITERATED. WHERE THERE IS AN ACTUAL LOSS (ASCERTAINED IN SCIENTIFIC MANNER) AND SUCH LOSS IS WRITTEN OFF AGAINST THE VALUE OF ASSETS, THEN THIS CLAUSE WILL NOT APPLY BE CAUSE CLAUSE (I) OF EXPLANATION 1 OF SECTION 115JB OF THE ACT PROVIDES FOR INCREASE OF BOOK PROFIT BY THE AMOUNT SET ASIDE AS PROVISION FOR DIM INUTION IN THE VALUE OF ANY ASSET EVEN IF SUCH LOSS IS NOT ALLOWED IN COMPUTATI ON OF NORMAL INCOME. FOR EXAMPLE IF A COMPANY ADOPTS A METHOD OF VALUING ITS CURRENT INVESTMENTS ARE VALUED AT MARKET VALUE OF INVESTMENTS, THEN SUCH DE BIT WILL BE ALLOWABLE IN COMPUTATION OF BOOK PROFIT AND IT CANNOT BE ADDED B ACK UNDER THE PROPOSED VALUE (G) / (I) OF EXPLANATION IN S.115JA / 115JB R ESPECTIVELY. THIS IS IN SPITE OF FACT THAT SUCH DEBIT WILL HAVE TO BE ADDED WHILE COMPUTING TOTAL INCOME BECAUSE IN CASE OF CAPITAL ASSETS, COMPUTATION WILL BE MADE WHEN CAPITAL ASSET IS TRANSFERRED. CLAUSE (I) OF EXPLANATION 1 OF SECTION 115JB OF THE ACT PROVIDES FOR INCREASE OF BOOK PROFIT BY THE AMOUNT SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET. ANY CORPORAT E ENTITY WOULD HAVE VARIOUS ASSETS WHICH ARE REFLECTED IN THE BALANCE S HEET AS FIXED ASSETS, INVESTMENTS OR CURRENT ASSETS. THE ISSUE IS WHETHE R THE DIMINUTION IN THE VALUE OF ANY ASSET IS COVERED BY THIS CLAUSE OR NOT . LET US CONSIDER WHAT HAPPENS WHEN THERE IS A FALL IN VALUE OF STOCK-IN-T RADE. WHERE THE ASSESSEE COMPANY ADOPT METHOD OF VALUE OF STOCK-IN-TRADE AS AT COST OR MARKET VALUE WHICHEVER IS LESS, AND CONSEQUENTLY STOCK IS VALUED AT LESS THAN COST, THE DIFFERENCE BETWEEN COST AND MARKET VALUE WILL NOT B E A PROVISION FOR DIMINUTION IN VALUE OF ANY ASSET AS THE AMOUNT IS W RITTEN OFF IN THE PROFIT AND LOSS ACCOUNT AND THE VALUE OF STOCK IN TRADE IS ONL Y REFLECTED AT THE MARKET VALUE. HOWEVER, IF A HYPOTHETICAL DIMINUTION TO TH E VALUE OF STOCK IN TRADE IS PROVIDED BY NOT REDUCING THE VALUE OF STOCK IN TRAD E BUT SHOWING THE AMOUNT AS SET ASIDE AS PROVISION IN THE BALANCE SHEET, THE N THE SAME CAN BE ADDED BACK UNDER CLAUSE (I) OF EXPLANATION 1 TO SECTION 1 15JB OF THE ACT. THE SAME TREATMENT IS ALSO TO BE GIVEN TO OTHER CURRENT ASSE TS VIZ. BAD AND DOUBTFUL LOANS, ADVANCES AND SUNDRY DEBTORS WRITTEN OFF. AS FAR AS THE FIXED ASSETS (TANGIBLE/INTANGIBLE DEPRECIABLE ASSETS) ARE CONCER NED, DEPRECIATION HAS TO BE PROVIDED AS PER THE RATES PROVIDED UNDER THE COM PANIES ACT OR INCOME TAX ACT. NOW WHAT HAPPENS IN CASE THERE IS A DESTR UCTION OF AN ASSET WHICH IS COMPRISED IN THE BLOCK OF ASSETS (FOR THE PURPOS E OF INCOME TAX ACT) BUT IS INCLUDED AS AN INDIVIDUAL ASSET IN THE SCHEDULE TO FIXED ASSETS. IN SUCH A CASE, THERE WOULD BE A DIMINUTION IN THE VALUE OF F IXED ASSETS WHICH HAS TO BE WRITTEN OFF AS PER THE PROVISIONS OF COMPANIES ACT AND ACCOUNTING STANDARDS. CAN SUCH A WRITE OFF FOR A DESTROYED AS SET BE INCREASED TO THE BOOK PROFIT AS PER THE CLAUSE (I) OF EXPLANATION 1 TO S.S.115JB OF THE ACT. THE ANSWER IS PLAIN AND SIMPLE NO AS THE AMOUNT IS AC TUALLY WRITTEN OFF AND IS NOT SET ASIDE AS PROVISION. 4.33 THUS THE EXPRESSION SET ASIDE AS PROVISION FO R DIMINUTION IN THE VALUE OF ANY ASSET WOULD NOT INCLUDE PROVISIONS WH ICH HAVE BEEN WRITING OFF OF AS ACTUAL LOSS. ACTUAL LOSS MEANS WHAT IS ACTUA LLY SUFFERED, THE AMOUNT DEBITED TO THE P &L ACCOUNT AND ALSO REDUCED FROM T HE VALUE OF THE ASSET. IF ONE CAN ESTABLISH THAT THERE IS NO PROVISION SET AS IDE BUT WRITE OFF, THEN CLAUSE (I) OF EXPLANATION 1 TO S.115JB OF THE ACT W ILL NOT APPLY. ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 5 4.34 THE NEW EXPLANATION IN SECTION 36(1)(VII), HAS CLARIFIED THAT ANY BAD DEBT WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUN T OF THE ASSESSEE WILL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBT MAD E IN THE ACCOUNTS OF THE ASSESSEE. IN SUPPORT, RELIANCE IS PLACED ON PARA 2 5 OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHN OLOGIES LTD. VS. JOINT CIT REPORTED IN 320 ITR 577 WHICH READS AS UNDER: PRIOR TO APRIL 1, 1989, THE LAW, AS IT THEN STOOD, TOOK THE VIEW THAT EVEN IN CASES IN WHICH THE ASSESSEE(S) MAKES ONLY A PROVISI ON IN ITS ACCOUNTS FOR BAD DEBTS AND INTEREST THEREON AND EVEN THOUGH THE AMOU NT IS NOT ACTUALLY WRITTEN OFF BY DEBITING THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AND CREDITING THE AMOUNT TO THE ACCOUNT OF THE DEBTOR, THE ASSESSEE W AS STILL ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VII). (SEE CIT V. JW ALA PRASAD TIWARI [1953] 24 ITR 537 (BOM) AND VITHALDAS H. DHANJIBHAI BARDAN WALA VS. CIT [1981] 130 ITR 95 (GUJ.). SUCH STATE OF LAW PREVAILED UP TO AND INCLUDING THE ASSESSMENT YEAR 1988-89. HOWEVER, BY INSERTION (WI TH EFFECT APRIL 1, 1989) OF A NEW EXPLANATION IN SECTION 36(1)(VII), IT HAS BEEN CLARIFIED THAT BAD DEBT WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT OF THE ASSESSEE WILL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBT MADE IN THE ACCOUNTS OF THE ASSESSEE. THE SAID AMENDMENT INDICATES THAT BEFORE APRIL 1, 1 989, EVEN A PROVISION COULD BE TREATED AS A WRITE OFF. HOWEVER, AFTER AP RIL 1, 1989, A DISTINCT DICHOTOMY IS BROUGHT IN BY WAY OF THE SAID EXPLANA TION TO SECTION 36(1)(VII). CONSEQUENTLY, AFTER APRIL 1, 1989, A MERE PROVISION FOR BAD DEBT WOULD NOT BE ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VII). TO UNDERSTAND THE ABOVE DICHOTOMY, ONE MUST UNDERSTAND HOW TO WRITE OFF. I F AN ASSESSEE DEBITS AN AMOUNT OF DOUBTFUL DEBT TO THE PROFIT AND LOSS ACCO UNT AND CREDITS THE ASSET ACCOUNT LIKE SUNDRY DEBTORS ACCOUNT, IT WOULD CONS TITUTE WRITE OFF AN ACTUAL DEBT. HOWEVER, IF AN ASSESSEE DEBITS DOUBTFUL DEBT TO THE PROFIT AND LOSS ACCOUNT AND MAKES A CORRESPONDING CREDIT TO THE PRO VISIONS FOR DOUBTFUL DEBT ON THE LIABILITIES SIDE OF THE BALANCE SHEET, THEN IT WOULD CONSTITUTE A SETTING ASIDE A PROVISION FOR DOUBTFUL DEBT. IN THE LATER CASE, THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION AFTER APRIL 1, 1989. 4.35 RELIANCE IS ALSO PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK V. CIT 323 ITR 166, WHEREIN THE HONBLE SUPREME COURT HAS DECIDED ON THE FOLLOWING QUESTION: WHETHER IT IS IMPERATIVE FOR THE ASSESSEE-BANK TO C LOSE THE INDIVIDUAL ACCOUNT OF EACH OF ITS DEBTORS IN ITS BOOKS OR A MERE REDUC TION IN THE LOANS AND ADVANCES OR DEBTORS ON THE ASSETS SIDE OF ITS BALAN CE SHEET TO THE EXTENT OF THE PROVISION FOR BAD DEBT WOULD BE SUFFICIENT TO CONST ITUTE A WRITE OFF IS THE QUESTION WHICH ARE REQUIRED TO ANSWER IN THESE CIVI L APPEALS? 4.36 BEFORE THE HONBLE SUPREME COURT THE ASSESSEE HAD CONTENDED THAT ONCE A PROVISION STOOD CREATED AND, ULTIMATELY, CARRIED TO THE BALANCE SHEET WHEREIN LOANS AND ADVANCES OR DEBTORS DEPICTED STOOD REDUCE D BY THE AMOUNT OF SUCH PROVISION, THEN, THERE WAS ACTUAL WRITE OFF BECAUSE , IN THE FINAL ANALYSIS, AT THE YEAR END THE SO CALLED PROVISION DOES NOT REMAI N AND THE BALANCE SHEET AT THE YEAR END. ONLY CARRIED THE AMOUNT OF LOANS AND ADVANCES OR DEBTORS, NET OF SUCH PROVISION MADE BY THE ASSESSEE FOR THE IMPU GNED BAD DEBT. IN THE SAID CASE BEFORE THE HONBLE SUPREME COURT THE TRIB UNAL, HAD UPHELD THE ABOVE CONTENTION OF THE ASSESSEE ON THREE GROUNDS. FIRSTLY, ACCORDING TO THE ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 6 TRIBUNAL, THE ASSES SEE HAD RIGHTLY MADE A PROVISIO N FOR BAD AND DOUBTFUL DEBT BY DEBITING THE AMOUNT OF BAD DEBT TO THE PROF IT AND LOSS ACCOUNT SO AS TO REDUCE THE PROFITS OF THE YEAR. SECONDLY, THE P ROVISION ACCOUNT SO CREATED WAS DEBITED AND SIMULTANEOUSLY THE AMOUNT OF LOANS AND ADVANCES OR DEBTORS STOOD REDUCED AND, CONSEQUENTLY, THE PROVISION ACCO UNT STOOD OBLITERATED. LASTLY, ACCORDING TO THE TRIBUNAL, LOANS AND ADVANC ES OR THE SUNDRY DEBTORS OF THE ASSESSEE AS AT THE END OF THE YEAR LYING IN THE BALANCE SHEET WAS SHOWN AS NET OF PROVISIONS FOR DOUBTFUL DEBT CREATED BY W AY OF DEBIT TO THE PROFIT AND LOSS ACCOUNT OF THE YEAR. 4.37 IN THE AFORESAID FACTS, THE HONBLE SUPREME CO URT HELD THAT IN THE APPEAL, BROADLY, TWO QUESTIONS ARISE FOR DETERMINATION. TH E FIRST QUESTION WHICH ARISES FOR DETERMINATION CONCERNS THE MANNER IN WHI CH ACTUAL WRITE OFF TAKES PLACE UNDER THE ACCOUNTING PRINCIPLES. THE SECOND QUESTION WHICH ARISES FOR DETERMINATION, IS WHETHER IT IS IMPERATIVE FOR THE ASSESSEE BANK TO CLOSE THE INDIVIDUAL ACCOUNT OF EACH DEBTOR IN ITS BOOKS OR A MERE REDUCTION IN THE LOANS AND ADVANCES ACCOUNT OR DEBTORS TO THE EXTENT OF THE PROVISION FOR BAD AND DOUBTFUL DEBT IS SUFFICIENT? THE HONBLE SUPREME COURT WITH REFERENCE TO THE FI RST QUESTION HAS HELD AS UNDER:- ONE POINT NEEDS TO BE CLARIFIED. ACCORDING TO SHR I BISHWAJIT BHATTACHARYA, THE LEARNED ADDITIONAL SOLICITOR GENERAL APPEARING FOR THE DEPARTMENT, THE VIEW EXPRESSED BY THE GUJARAT HIGH COURT IN THE CAS E OF VITHALDAS H. DHANJIBHAI BARDANWALA [1981] 130 ITR 95 WAS PRIOR T O THE INSERTION OF THE EXPLANATION VIDE THE FINANCE ACT, 2001, WITH EFFECT FROM APRIL 1, 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 SE CTION 36(1)(VII) WITH EFFECT FROM APRIL 1, 1989, A MERE DEBIT OF THE IMPUGNED AM OUNT 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 A PROVISION FOR BA D AND DOUBTFUL DEBT ON THE OTHER. HE SUBMITTED THAT A MERE DEBIT TO THE PROFI T AND LOSS ACCOUNT WOULD CONSTITUTE A PROVISION FOR BAD AND DOUBTFUL DEBT, I T WOULD NOT CONSTITUTE ACTUAL WRITE OFF AND THAT WAS THE VERY REASON WHY T HE EXPLANATION STOOD INSERTED. ACCORDING TO HIM, PRIOR TO THE FINANCE A CT, 2001, MANY ASSESSEES USED TO TAKE THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII) OF THE 1961 ACT BY MERELY DEBITING THE IMPUGNED BAD DEBT TO THE PRO FIT AND LOSS ACCOUNT AND THEREFORE, PARLIAMENT STEPPED IN BY WAY OF EXPLANAT ION TO SAY THAT MERE REDUCTION OF PROFITS BY DEBITING THE AMOUNT TO THE PROFIT AND LOSS ACCOUNT PER SE WOULD NOT CONSTITUTE ACTUAL WRITE OFF. TO THIS EXTENT, WE AGREE WITH THE CONTENTIONS OF SHRI BHATTACHARYA. HOWEVER, AS STAT ED BY THE TRIBUNAL, IN THE PRESENT CASE, BESIDES DEBITING THE PROFIT AND LOSS ACCOUNT AND CREATING A PROVISION FOR BAD AND DOUBTFUL DEBT, THE ASSESSEE-B ANK HAD CORRESPONDINGLY / SIMULTANEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNT BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCE / D EBTORS 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 ASS ET SIDE OF THE BALANCE SHEET WAS SHOWN AS NET OF THE PROVISION FOR THE IMP UGNED BAD DEBT. IN THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF V ITHALDAS H. DHANJIBHAI ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 7 BARDANWALA [1981] 130 ITR 95, A MERE DEBIT TO THE P ROFIT AND LOSS ACCOUNT WAS SUFFICIENT TO CONSTITUTE ACTUAL WRITE OFF WHERE AS, AFTER THE EXPLANATION, THE ASSESSEE(S) IS NOW REQUIRED NOT ONLY TO DEBIT THE PROFIT AND LOSS ACCOUNT BUT SIMULTANEOUSLY ALSO REDUCE LOANS AND ADVANCES O R THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHEET TO THE EXTENT OF T HE CORRESPONDING AMOUNT SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS A ND ADVANCES / DEBTORS IS SHOWN AS NET OF THE PROVISIONS FOR THE IMPUGNED BAD DEBT. THIS ASPECT IS LOST SIGHT OF BY THE HIGH COURT IN ITS IMPUGNED JUDGMENT . IN THE CIRCUMSTANCES, WE HOLD, ON THE FIRST QUESTION, THAT THE ASSESSEE W AS ENTITLED TO THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII) OF 1961 ACT AS T HERE WAS AN ACTUAL WRITE OFF BY THE ASSESSEE IN ITS BOOKS, AS INDICATE ABOVE . 4.38 HAVING REGARD TO THE AFORESAID DISCUSSION, IT IS HELD THAT THE AMOUNT OF PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT S IS NOT SET ASIDE BY THE APPELLANT AS THE AMOUNT IS WRITTEN OFF AGAINST THE CURRENT INVESTMENTS HELD BY THE APPELLANT. THE WRITE OFF OF THE AMOUNT AGAINST THE ASSET HAS OBLITERATED THE PROVISION AND THE CURRENT ASSETS ARE REFLECTED IN THE BOOKS OF ACCOUNT NET OF PROVISION. ONCE THE AMOUNT OF DIMINUTION IN THE VALUE OF INVESTMENTS IS WRITTEN OFF AGAINST THE ASSET, THERE CAN BE NO USE OF ANY AMOUNT HAVING BEEN SET ASIDE FOR DIMINUTION IN THE VALUE OF ASSETS. 4.39 HAVING CIRCUMSPECTED THE ENTIRE SPECTRUM OF FA CT AND CIRCUMSTANCES OF THE CASE VIS--VIS FINDING OF THE ASSESSING OFFICER AND SUBMISSIONS OF THE APPELLANT, CAREFULLY. I HAVE ALSO PERUSED THE PROV ISIONS OF SECTION 115JB OF THE INCOME-TAX ACT, 1961, SECTION 211 OF THE COMPAN IES ACT, 1956 AND ACCOUNTING STANDARD 13 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. 4.40 ON PERUSAL OF PROVISIONS OF SECTION 115JB IT I S VERY CLEAR THAT WHAT IS APPELLANT COMPANY EXPLICIT, REQUIRED TO BE ADDED TO BOOK PROFIT IS AMOUNT SET ASIDE AS PROVISIONS FOR DIMINUTION IN VALUE OF INVE STMENT. UNDER THE CIRCUMSTANCES, WHAT IS REQUIRED TO BE DECIDED IS WH ETHER THE AMOUNT OF RS.46,94,62,365/- DEBITED TO PROFIT & LOSS ACCOUNT IS SET ASIDE AS A PROVISIONS OR HAS IT BEEN WRITE OFF AS A LOSS AGAIN ST THE VALUE OF THE ASSET. BEFORE COMING TO THE CONCLUSION AND ALSO TO MAKE TH E ISSUE INVOLVED IN THIS APPELLANTS CASE, I WISE TO NARRATE THE FACTS OF TH E CASE AS UNDER: 1. THE APPELLANT MADE INVESTMENT IN UNITS OF MUTUA L FUND IN MARCH,2008. 2. INTENTION OF THE APPELLANT WAS TO HOLD IT FOR S HORT PERIOD AND ACCORDINGLY CLASSIFIED THE SAID INVESTMENT AS CURRENT INVESTMEN T IN THE BALANCE SHEET OF THE APPELLANT COMPANY AS ON 30/03/08. THE CONDUCT OF THE APPELLANT APPROVES THE INTENTION OF THE APPELLANT AS THE UNIT S IN QUESTION WERE SOLD IN APRIL,2008 WITH IN A PERIOD OF AROUND 1 MONTH. 3. THE APPELLANT BEING A COMPANY IS REQUIRED TO DR AW ITS ACCOUNT IN ACCORDANCE WITH PART II OF SCHEDULE VI OF THE COMPA NIES ACT AS PROVIDED IN SECTION 211 OF THE COMPANIES ACT, 1956. 4. AS-13 WHICH IS A STANDARD FOR ACCOUNTING OF INV ESTMENT IS MANDATORY IN NATURE CLASSIFIED DIFFERENT TREATMENT FOR ACCOUNTIN G OF CURRENT INVESTMENT AND LONG TERM INVESTMENT. CURRENT INVESTMENT IS REQUIR ED TO BE STATED IN ACCOUNTS AT LOWER OF COST OR FAIR VALUE AS ON BALAN CE SHEET DATE. WHEREAS ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 8 WHEN THERE IS FALL IN THE VALUE OF INVESTMENT, PROV ISION IS REQUIRED TO BE MADE IN ACCOUNTS. 5. AMENDED PROVISIONS OF SECTION 115JB REQUIRES PR OVISION FOR DIMINUTION IN VALUE OF INVESTMENT TO BE ADDED BACK TO BOOK PRO FIT TO DETERMINE MINIMUM ALTERNATE TAX. 6. FAIR VALUE OF UNIT OF MUTUAL FUND WAS LOWER THA N ITS COST BY RS.46,94,62,365/- AND THE SAME BEING CURRENT INVEST MENT, THE APPELLANT FOLLOWING MANDATORY AS-13, CHARGED RS.46,94,62,365/ - TO PROFIT & LOSS ACCOUNT AND PREPARED ITS ACCOUNTS IN ACCORDANCE WIT H SCHEDULE VI AS PROVIDED IN SECTION 211 OF THE COMPANIES ACT, 1956. 7. FURTHER IN SUBSEQUENT YEAR, THE APPELLANT HAS C REDITED DIFFERENCE BETWEEN SALE PRICE AND FAIR VALUE AS ON 31/03/2008 TO PROFI T & LOSS ACCOUNT AND NOT THE DIFFERENCE BETWEEN SALE PRICE AND ITS COST. SU CH ACCOUNTING TREATMENT IS IMPOSSIBLE WHERE THE PROVISION IS MADE INSTEAD OF W RITE OFF. 4.41. ON PERUSAL OF THE ABOVE FACTS, I AM OF THE CO NSIDERED VIEW THAT DEBIT OF RS.46,94,62,365/- APPEARING IN PROFIT & LOSS ACCOUN T IS NOT A PROVISIONS SET ASIDE FOR DIMINUTION IN VALUE OF INVESTMENT BUT A A CTUAL CHARGE TO THE PROFIT & LOSS ACCOUNT WHICH HAS BEEN WRITTEN OFF AGAINST T HE VALUE OF THE CURRENT ASSET. THUS CONSIDERING ALL FACTS AND PROVISIONS O F INCOME-TAX ACT, 1961 AND COMPANIES ACT, 1956, I AM OF THE CONSIDERED VIEW TH AT DEBIT OF RS.46,94,62,365/- APPEARING IN PROFIT & LOSS ACCOUN T IS NOT A PROVISIONS SET ASIDE FOR DIMINUTION IN VALUE OF INVESTMENT BUT IT IS ACTUAL CHARGED FOR THE LOSS IN THE DIMINUTION IN VALUE OF INVESTMENT. HAV ING HELD THAT THIS IS NOT PROVISION SET ASIDE, I HELD THAT BOOK PROFIT FOR TH E PURPOSE OF SECTION 115JB IS NOT REQUIRED TO BE INCREASED BY RS.46,94,62,365/ - AS THE SAME IS NOT IN THE NATURE OF PROVISION. ACCORDINGLY, THESE GROUNDS OF APPEAL ARE ALLOWED. IN THE RESULT, THE ADDITION SO MADE BY A.O. TO THE BOO K PROFIT IS DELETED. 4.42 EVEN I FIND THAT THE A.O.S ALTERNATE ARGUMENT THAT THE LOSS OCCURRED TO THE APPELLANT COMPANY SUBSEQUENT TO DIVIDEND EARNING FR OM INVESTMENT IN MUTUAL FUNDS WILL AMOUNTS TO EXPENDITURE TO BE DISA LLOWED U/S.115JB OF THE ACT IN ACCORDANCE TO THE PROVISIONS OF SECTION 14A OF THE ACT IS NOT CORRECT TAKING NOTE OF THE DECISION OF ITAT, INDORE BENCH I N THE CASE OF ACIT, INDORE VS. KAILASH CHANDRA DHANUKA REPORTED IN 13 TTJ 213, WHEREIN THE HONBLE ITAT UPHELD THE ORDER OF CIT(A) CORRECT AFTER TAKIN G NOTE OF HONBLE ITAT, MUMBAIS DECISION IN THE CASE OF CIT VS. WALFORT SH ARES AND STOCK BROKERS PVT. LTD. AND THE HONBLE BOMBAY HIGH COURT IN THE SAME CASE. THE RELEVANT PORTION OF THE SAID ORDER IS EXTRACTED AS UNDER:- WE HAVE CONSIDERED RIVAL SUBMISSION AND MATERIAL A VAILABLE ON RECORD. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF WALFORT SHARES AND STOCK BROKERS PVT. LTD. IN PARA 57&58, IT IS HELD: 23. THE ALTERNATIVE ARGUMENT OF THE REVENUE THAT T HE LOSS ARISING FROM THE TRANSACTION IN QUESTION IS LIABLE TO BE TREATE D AS AN EXPENDITURE INCURRED FOR EARNING THE TAX FREE INCOME AND HENCE DISALLOWA BLE UNDER SECTION 14A IS NO SUSTAINABLE. SECTION 14A DEALS WITH THE EXPENDI TURE INCURRED FOR EARNING TAX FREE INCOME. ADMITTEDLY, NO EXPENDITURE IS INC URRED IN PURCHASING THE DIVIDEND BEARING UNITS. IT IS ONLY BECAUSE THE UNI TS ARE SOLD AT A LOSS ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 9 IMMEDIATELY AFTER RECEIVING THE DIVIDED INCOME, THE REVENUE WANTS TO TREAT THE LOSS AS A DEEMED EXPENDITURE INCURRED FOR EARNI NG TAX FREE DIVIDEND INCOME. WHAT SECTION 14A CONTEMPLATES IS THE EXPEN DITURE ACTUALLY INCURRED FOR EARNING TAX FREE INCOME AND NOT ASSUMED EXPENDI TURE OR DEEMED EXPENDITURE. IN THESE CIRCUMSTANCES, THE DECISION OF THE TRIBUNAL IN REJECTING THE ALTERNATIVE ARGUMENT OF THE REVENUE CANNOT BE F AULTED. THERE IS NO EXPENDITURE INCURRED FOR EARNING DIVIDEND INCOME AN D EVEN UNDER THE NEWLY INSERTED SECTION 94(7), THE LOSS ARISING FROM THE T RANSACTION IN QUESTION IS NOT CONSIDERED AS AN EXPENDITURE INCURRED FOR EARNING D IVIDEND INCOME. 24. CONSIDERING THE ABOVE, WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF THE LD. CIT(A) IN ALLOWING THIS ISSUE IN FAVOUR OF THE ASSESSEE. THIS GROUND OF APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. 4.43 HAVING TAKEN NOTE OF THE AFORESAID DECISION OF HONBLE ITAT, INDORE WHICH IS BASED ON JURISDICTIONAL BOMBAY HIGH COURT DECISION REPORTED IN 310 ITR 421, I AM NOT IN AGREEMENT WITH THE A.O.S ALTERNA TIVELY ACTION ALSO THAT THE LOSS OF RS.46,94,62,365/-, WHICH WAS INCURRED TO TH E APPELLANT WILL AMOUNTS TO EXPENDITURE IN RELATION TO EXEMPT INCOME AND HEN CE TO BE ADDED TO BOOK PROFIT U/S.115JB OF THE ACT. ACCORDINGLY THE A.O. S THIS FINDING IS ALSO CONSIDERED TO BE NOT CORRECT AND JUSTIFIED. ACCORD INGLY THE APPELLANTS REQUEST, AS MADE ABOVE IN ITS SUBMISSION IS ACCEPTE D AND THE APPELLANTS APPEAL IS ALLOWED HOLDING THAT THE LOSS CANNOT BE H ELD TO BE EXPENDITURE AS CLAIMED BY THE A.O. IN RELATION TO EXEMPT INCOME. ACCORDINGLY, THE ADDITION SO MADE BY THE A.O. TO BOOK PROFIT IS DELETED. THU S, THE APPELLANTS APPEAL IS ALLOWED. 5. THE LEARNED DR SUBMITTED THAT ASSESSEE DEBITED A N AMOUNT OF DIMINUTION IN VALUE OF INVESTMENT TO PROFIT & LOSS ACCOUNT AND CREDIT THE ASSETS THEN IT WOULD CONSTITUTE A WRITE OFF AN ACTUAL ASSETS. HOWEVER, IF AN ASSESSEE DEBITS DIMINUTION IN VALUE OF INVESTMENT TO THE PROFIT & LOSS ACCOUNT AND MAKES A CORRESPONDING CREDIT TO CURRENT LIABILITIES AND PRO VISION ON THE LIABILITIES SIDE OF THE BALANCE SHEET, THEN IT WOUL D CONSTITUTE A PROVISION OF DIMINUTION IN VALUE OF INVESTMENT AND WOULD NOT BE ENTITLED TO DEDUCTION. 6. ON THE OTHER HAND, LEARNED COUNSEL OF THE ASSESS EE SUBMITTED THAT ASSESSEE HAS NOT MADE ANY PROVISION IN BOOKS O F ACCOUNT OF DIMINUTION IN VALUE OF CURRENT INVESTMENT AND THE C URRENT INVESTMENT IS STATED IN THE BALANCE SHEET IS AT LOW ER OF THE COST AND FAIR VALUE RESULTANT FIGURE OF DIMINUTION IN VA LUE AMOUNTING TO RS.46,94,62,365/- IS DEBITED THE INCOME AND EXPE NDITURE ACCOUNT AS DIMINUTION VALUE OF INVESTMENT. THE LE ARNED AR SUBMITTED THAT AS PER ACCOUNTING STANDARD 13 IS PRE SCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FOR ACC OUNTING FOR INVESTMENTS MANDATORY FOR EVERY COMPANY, THE CLAUSE 14,15 AND ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 10 16 IS RELEVANT. AS PER ABOVE ACCOUNTING STANDARD I T IS CLEAR THAT WHENEVER THERE IS DECLINE IN THE VALUE OF CURRENT I NVESTMENT, THE SAME SHOULD BE CHARGED TO PROFIT AND LOSS STATEMENT AND VALUE ITS INVESTMENTS AT THE LOWER OF COST AND FAIR VALUE. T HUS FOLLOWING THE ACCOUNTING STANDARD-13, THE CURRENT INVESTMENTS WAS CARRIED IN THE FINANCIAL STATEMENT AT ITS FAIR VALUE AS ON 31/03/2008 AND FALL IN THE VALUE AMOUNTING TO RS.46,94,62,365/- DE BITED TO INCOME AND EXPENDITURE ACCOUNT TOWARDS DIMINUTION IN THE V ALUE OF INVESTMENTS. THE LEARNED AR ALSO RELIED UPON THE D ECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF COMMISSIO NER OF INCOME TAX VS. VODAPHONE ESSAR GUJARAT LTD. WHEREIN THE HONBLE HIGH COURT IN TAX APPEAL NO.749 OF 2012 HAS CONSIDERING THE DECISION OF VARIOUS DECISION OF HONBLE SUPREME COURT IN CASE OF M/S.VIJAYA BANK VS. COMMISSIONER OF INCOME TAX ( 323 ITR 0166) AND SOUTHERN TECHNOLOGIES LIMITED VS. JT. COM MISSIONER OF INCOME TAX (320 ITR 577). THE LEARNED AR SUBMITTED THAT THE ISSUE IN CONTROVERSY IS DIRECTLY COVERED BY DIVISIO N BENCH OF GUJARAT HIGH COURT, THEREFORE REVENUE APPEAL IS DIS MISSED. 7. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE P ARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT CIT(A) HAS OBSERVED THAT A DEBIT OF RS.46,94,62,365/- APPEARIN G IN PROFIT & LOSS ACCOUNT IS NOT A PROVISION SET ASIDE FOR DIMIN UTION IN VALUE OF CURRENT INVESTMENT BUT THE ACTUAL CHARGE TO PROF IT & LOSS ACCOUNT WHICH HAS BEEN WRITTEN OFF IN VALUE OF CURR ENT ASSETS. WE FIND THAT ON PERUSAL OF SECTION 115JB OF THE ACT IS VERY CLEAR THAT APPELLANT COMPANY REQUIRE TO ADDED BACK THE BOOK PR OFIT SET ASIDE AS PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT UNDER THE CIRCUMSTANCES WHAT IS REQUIRED TO BE DECIDED WHETHE R THE AMOUNT OF RS.46,94,62,365/- DEBITED TO PROFIT & LOSS ACCOU NT SET ASIDE A PROVISION OR HAS BEEN WRITE OFF AS A LOSS AGAINST T HE VALUE OF ASSETS. THE ASSESSEE HAS MADE INVESTMENT IN MUTUAL FUND IN MARCH 2008. THE INTENTION OF THE ASSESSEE WAS TO H OLD A SHORT PERIOD AND ACCORDINGLY CLASSIFIED THE SAID INVESTME NT AS CURRENT INVESTMENT IN BALANCE SHEET OF THE ASSESSEE COMPAN Y AS ON 31.03.2008. THE ASSESSEE COMPANY SOLD THIS UNIT IN APRIL, 2008 I.E. WITHIN A PERIOD OF ONE MONTH. THE ASSESSEE CO MPANY REQUIRED TO DRAW ITS ACCOUNTS IN ACCORDANCE WITH PART II OF SCHEDULE VI OF THE COMPANIES ACT AS PROVIDED IN SECTION 211 OF THE COMPANIES ACT, 1956. AS PER ACCOUNTING STANDARD THE STANDARD FOR ACCOUNTING OF INVESTMENT IS MANDATORY IN NATURE CLA SSIFIES DIFFERENT TREATMENT OF ACCOUNTING OF CURRENT INVEST MENT AND LONG TERM INVESTMENT. THE CURRENT INVESTMENT IS REQUIRE D TO BE STATED IN ACCOUNTS AT LOWER OF COST OR FAIR VALUE AS ON BA LANCE SHEET DATE. ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 11 WHEREAS WHEN THERE IS FALL IN THE VALUE OF INVESTME NT, PROVISION IS REQUIRED TO BE MADE IN ACCOUNTS. AS PER AMENDED PR OVISIONS OF SECTION 115JB REQUIRES PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT TO BE ADDED BACK TO DETERMINE MINIMUM AL TERNATE TAX. FAIR VALUE OF UNITS OF MUTUAL FUNDS WAS LOWER THAN ITS COST BY RS.46,94,62,365/- AND THE SAME BEING CURRENT INV ESTMENT, THE APPELLANT FOLLOWING MANDATORY ACCOUNTING STANDARD 13, CHARGED RS.46,94,62,365/- TO PROFIT & LOSS ACCOUNT AND PREPARED ITS ACCOUNTS IN ACCORDANCE WITH SCHEDULE VII PROVID ED IN SECTION 211 OF THE COMPANIES ACT 1956. THE ASSESSEE HAD CR EDITED THE DIFFERENCE BETWEEN THE SALE PRICE AND FAIR VALUE AS ON 31.03.2008 TO PROFIT & LOSS ACCOUNT AND NOT THE DIFFERENCE BET WEEN SALE PRICE AND ITS COST. SUCH ACCOUNTING TREATMENT IS I MPOSSIBLE WHERE THE PROVISION IS MADE INSTEAD OF WRITE OFF. 8. WE FIND THAT CONSIDERING THE ABOVE FACTS A DEBIT OF RS.46,94,62,365/- APPEARING IN PROFIT & LOSS ACCOUN T IS NOT A PROVISIONS SET ASIDE FOR DIMINUTION IN VALUE OF INV ESTMENT BUT A ACTUAL CHARGE TO THE PROFIT & LOSS ACCOUNT WHICH HA S BEEN WRITTEN OFF AGAINST THE VALUE OF THE CURRENT ASSET. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT DEBIT OF RS.46,94,6 2,365/- APPEARING IN PROFIT & LOSS ACCOUNT IS NOT A PROVISI ON OF SET ASIDE FOR DIMINUTION IN VALUE OF INVESTMENT BUT THE ACTUA L CHARGED FOR THE LOSS IN THE DIMINUTION IN VALUE OF INVESTMENT. THEREFORE, WE ARE OF THE VIEW THAT FOR THE BOOK PROFIT PURPOSE OF SECTION 115JB IS NOT REQUIRED TO BE INCREASED BY RS.46,94,62,365/- A S THE SAME IS NOT IN THE NATURE OF PROVISION. 9. WE FIND THAT RECENTLY HONBLE GUJARAT HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. VODAPHONE ESSAR G UJARAT LTD. WHEREIN THE HONBLE HIGH COURT IN TAX APPEAL N O.749 OF 2012 HAS DISCUSSED THE ISSUE IN DETAIL BY DISCUSSIN G DECISION HONBLE SUPREME COURT IN CASE OF M/S.VIJAYA BANK VS . COMMISSIONER OF INCOME TAX (323 ITR 0166) AND SOUTH ERN TECHNOLOGIES LIMITED VS. JT. COMMISSIONER OF INCOME TAX (320 ITR 577) HELD AS UNDER:- 11. FURTHER, RECENTLY THE HONBLE HIGH COURT OF GU JARAT IN CASE OF COMMISSIONER OF INCOME TAX VS. VODAPHONE ESSAR GUJA RAT LTD. DECIDED AFTER REFERENCE WAS MADE TO THE LARGER BENCH FOR CO NSIDERATION OF THE FOLLOWING QUESTION: WHETHER IN VIEW OF DECISION OF THE SUPREME COURT I N CASE OF VIJAYA BANK (SUPRA), JUDGEMENT IN CASE OF DEEPAK NITRITE LIMITE D (SUPRA) WAS NOT ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 12 CORRECTLY DECIDED AND, THEREFORE, LATER JUDGEMENT I N CASE OF INDIAN PETROCHEMICALS CORPORATION LTD. (SUPRA) LAYS DOWN T HE CORRECT LAW? THE HONBLE HIGH COURT OF GUJARAT OBSERVED THE FOLL OWINGS: 20. ABOVE DECISIONS OF SUPREME COURT IN CASES OF S OUTHERN TECHNOLOGIES LTD. (SUPRA) AND VIJAYA BANK (SUPRA) T HUS BRING OUT A CLEAR DISTINCTION BETWEEN A CASE WHERE THE ASSESSEE MAY M AKE A PROVISION FOR DOUBTFUL DEBTS AND A CASE WHERE THE ASSESSEE MAY MA KE A PROVISION FOR DOUBTFUL DEBTS AND A CASE WHERE THE ASSESSEE AFTER CREATING SUCH A PROVISION FOR BAD AND DOUBTFUL DEBT BY DEBITING IN PROFIT & L OSS ACCOUNT ALSO SIMULTANEOUSLY REMOVES SUCH PROVISION FROM ITS ACCO UNT BY REDUCING THE CORRESPONDING AMOUNT FROM THE LOANS AND ADVANCES ON THE ASSET SIDE OF THE BALANCE SHEET. THE LATER WOULD BE AN INSTANCE OF W RITE-OFF AND NOT A MERE PROVISION. FURTHER OBSERVED THAT: 23. BY WAY OF CULMINATION OF ABOVE JUDICIAL PRONOUN CEMENTS 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 LT D. (SUPRA), THEN THE 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 ASI DE FOR PROVISION FOR DIMINUTION IN THE VALUE OF THE ASSET MADE BY THE AS SESSEE, WOULD BE ADDED BACK FOR COMPUTATION OF BOOK PROFIT UNDER SECTION 1 15JB OF THE ACT. HOWEVER, IF THIS WAS NOT A MERE PROVISION MADE BY T HE ASSESSEE BY MERELY DEBITING THE PROFIT AND LOSS ACCOUNT AND CREDITING THE PROVISION FOR BAD AND DOUBTFUL DEBT, BUT BY SIMULTANEOUSLY OBLITERATING S UCH 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 A SSET ASIDE OF THE BALANCE SHEET AS NET OF THE PROVISION FOR BAD DEBT, IT WOUL D 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 THE CASE OF DEEPAK NITRITE LIMITED (SUPRA) FELL IN THE FORMER CATEGORY WHEREAS FROM THE BRIEF DISCUSSION AVAILABLE IN THE JUDGMENT IT APPEARS THAT CASE OF INDIAN PETROCHEMIC ALS CORPORATION LTD. (SUPRA) FELL IN THE LATER CATEGORY. 10. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THE DEPARTMENTAL APPEAL. WE NOTE THAT ON IDENTICAL ISSUE THE TRIBUNAL HAS MA DE AN ELABORATE DISCUSSION AND BY CONSIDERING THE DECISIO N FROM HON'BLE APEX COURT IN THE CASE OF VIJAYA BANK VS. C IT 323 ITR 166 AND VARIOUS OTHER CASES INCLUDING FROM HON' BLE ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 13 BOMBAY AND GUJARAT HIGH COURTS AS MENTIONED IN PARA 3.34 ONWARDS, DISMISSED THE APPEAL OF THE REVENUE. IN T HE APPEAL BEFORE US, THE CRUX OF ARGUMENT IS IDENTICAL , AS MADE BEFORE THE LEARNED CIT(A) AND THE RATIO LAID DOWN I N THE AFORESAID ORDER OF THE TRIBUNAL. THE LEARNED ASSES SING OFFICER HAS MADE A DISCUSSION IN PARA 4.1 TO 4.7 OF THE ASSESSMENT ORDER AND CONSIDERED THE SUBMISSIONS OF THE ASSESSEE VIDE LETTER DATED 15.12.2010. THE LEARNED ASSESSING OFFICER MADE THE ADDITION TO THE BOOK PRO FIT OF RS 194,38,91,403/- AFTER TAKING NOTE OF SUB CLAUSE (I) TO EXPLANATION 1 TO SECTION 115JB OF THE ACT. BEFORE THE LEARNED CIT(A) THE DETAILED SUBMISSIONS DATED 20.07 .2011 WHICH HAS BEEN MENTIONED IN PARA 4.4 OF THE IMPUGNE D ORDER HAS BEEN MADE AND CONSIDERED BY THE LEARNED C IT(A). THE SUBMISSIONS DATED 28.03.2012, MADE BY THE ASSES SEE WHICH HAS BEEN CONSIDERED IN PARA 4.5 ONWARDS WERE ALSO CONSIDERED ALONG WITH THE DECISION IN THE CASE OF V IJAYA BANK VS. CIT (323 ITR 166) AND SOUTHERN TECHNOLOGIE S VS. JCIT (320 ITR 577) AND, ULTIMATELY, DECIDED IN FAVO UR OF THE ASSESSEE. THE SUBMISSION OF THE ASSESSEE IS THAT TH E CURRENT INVESTMENT, WHICH IS CLASSIFIED IN SCHEDULE D OF TH E BALANCE SHEET UNDER THE HEAD B AS CURRENT INVESTMENT, W HICH ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 14 WERE INTENDED TO BE INVESTMENT FOR A SHORT PERIOD A ND THE ASSESSEE COMPANY PROPOSED TO HOLD FOR LESS THAN ONE YEAR WHEREAS THE LONG TERM INVESTMENT WHICH WERE MENTION ED IN THE BALANCE SHEET UNDER THE HEADING A IN SCHEDULE D OF LONG TERM INVESTMENT WERE MADE WITH A PLAN TO HOLD IT FOR MORE THAN ONE YEAR. THE LEARNED ASSESSING OFFICER WHILE MAKING THE ADDITION TOOK NOTE OF THE PROVISION OF S ECTION 100JB OF THE ACT WHICH WAS AMENDED BY THE FINANCE A CT (2), 2009 WITH RETROSPECTIVE EFFECT FROM 01.04.2001 SO A S TO INCREASE BOOK PROFIT BY THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF THE ASS ET, RESULTING INTO ADDITION OF RS 1,94,38,91,403/- TO T HE BOOK PROFIT OF THE ASSESSEE. THE LEARNED ASSESSING OFFI CER FURTHER MADE AN ALTERNATIVE GROUND FOR THE IMPUGNED ADDITIO N STATING THAT THE AMOUNT WHICH WAS DEBITED TO THE PR OFIT AND LOSS ACCOUNT IS AN EXPENDITURE IN RELATION TO INCOM E EXEMPT U/S. 14A OF THE ACT. THE LEARNED ASSESSING OFFICER MADE DISCUSSION IN PARA 4.4.3 OF THE ASSESSMENT ORDER. BEFORE THE LEARNED CIT(A) THE ASSESSEE TOOK THE SHELTER OF SEC TION 211 OF THE COMPANIES ACT 1956, WHICH DEALS WITH THE FORM A ND CONTENTS OF THE BALANCE SHEET AND THE PROFIT AND LO SS ACCOUNT. THE RELEVANT SECTION 211 OF THE COMPANIES ACT HAS ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 15 BEEN EXTRACTED ON PAGE 13 ONWARDS OF THE IMPUGNED O RDER. BASED UPON THIS SECTION, THE ASSESSEE TOOK THE PLEA THAT THE INVESTMENT IN QUESTION WAS INVESTMENT IN THE UNITS OF ICICI AND WAS NOT INTENDED TO BE KEPT FOR LONG TERM, THER EFORE, IT WAS CLASSIFIED AND HELD AS CURRENT INVESTMENT BY TH E ASSESSEE. BEFORE THE LEARNED CIT(A) THE ASSESSEE A LSO STATED THAT AS PER AS 13 THE PROVISIONS ARE REQUIRED TO BE MADE IN RESPECT OF LONG TERM INVESTMENT FOR FALL IN THE VAL UE OF INVESTMENT WHEREAS IN THE CASE OF THE CURRENT INVES TMENT THE FALL WAS REQUIRED TO BE CHARGED TO PROFIT AND L OSS ACCOUNT BY VALUING THE SAME AT LOWER OF COST OR FAIR MARKET VALUE AS IN THE BALANCE SHEET THUS, THE DEBIT OF THE IMPUGNE D AMOUNT TO THE PROFIT AND LOSS ACCOUNT IS DIMINUTIO N IN THE VALUE OF INVESTMENT AND NOT PROVISION FOR DIMINUT ION IN THE VALUE OF INVESTMENT. IT WAS ALSO ARGUED BEFORE TH E LEARNED CIT(A) THAT THE ASSESSEE DURING THE YEAR ENDING 31. 03.2009, ON THE SALE OF SAID INVESTMENT THE DIFFERENCE BETWE EN THE SALE PRICE AND FAIR VALUE OF INVESTMENT AS ON 31.03 .2008 WAS CREDITED TO PROFIT AND LOSS ACCOUNT AND THIS ACCOUN TING TREATMENT WAS POSSIBLE ONLY IF THE FALL IN VALUE OF INVESTMENT WAS ACTUALLY CHARGED TO PROFIT AND LOSS ACCOUNT. ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 16 4. SO FAR AS THE SCOPE OF CLAUSE (C) OF EXPLANATION (1) TO SECTION 11JB OF THE ACT IS CONCERNED THE LEARNED CI T(A) HAS MADE REFERENCE TO THE DECISION FROM HON'BLE APEX CO URT IN CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD. (292 I TR 299), WHEREIN IT WAS HELD AS UNDER: THE ASSESSEES CASE WOULD, THEREFORE, FALL WITHI N THE AMBIT OF ITEM (C) ONLY IF THE AMOUNT IS SET ASIDE A S PROVISION; THE PROVISION IS MADE FOR MEETING A LIAB ILITY; AND THE PROVISION SHOULD BE FOR OTHER THAN AN ASCERTAINED LIABILITY, I.E., IT SHOULD BE FOR AN UNASCERTAINED LIABILITY. IN OTHER WORDS, ALL THE INGREDIENTS SHOULD BE SATISFIED TO ATTRACT ITEM (C) OF THE EXPLANATION TO SECTION 115JA THE LEARNED CIT(A) IN PARA 4.28 HAS CONSIDERED THE SUBMISSIONS OF THE ASSESSEE WITH RESPECT TO CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB AND GUIDANCE NOTE ON TERMS USED IN FINANCIAL STATEMENTS ISSUED BY ICAI D EFINING THE TERM PROVISION AND ALSO PARAGRAPH 7(1) OF PART III OF SCHEDULE 6 OF THE COMPANIES ACT AGAIN WITH RESPECT TO THE TERM PROVISION AND CONCLUDED THAT THERE IS A DIFFER ENCE BETWEEN RETAINING AN AMOUNT AND WRITING OFF AN A MOUNT. ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 17 EVEN THE LEARNED CIT(A) HAS CONSIDERED EXPLANATION IN SECTION 36(1)(VII) WITH RESPECT TO BAD DEBT WRITTEN OFF AS IRRECOVERABLE, IN THE LIGHT OF THE DECISION FROM HO N'BLE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. ACIT (320 ITR 577), CONSIDERING THE DECISION IN CIT VS. JWALA PRASAD TIWARI (24 ITR 537) (BOM) AND VITHALDAS HD BARDANWALA VS. CIT 130 ITR 95 (GUJ) AND THE DECISIO N IN VIJAYA BANK VS. CIT (323 ITR 166). THE STAND OF TH E ASSESSEE IS THAT THERE WAS DRASTIC FALL IN THE VALU E OF INVESTMENT AND THE ASSESSEE COMPANY STATED THAT THE SE INVESTMENT AS ON 31.03.2008, IN THE BALANCE SHEET A T LOWER OF THE COST OR FAIR VALUE FOLLOWING ACCOUNTING STAN DARD 13. THE DIFFERENCE BETWEEN THE COST AND FAIR VALUE AS O N 31.03.2008 WAS CHARGED TO PROFIT AND LOSS ACCOUNT. THE ASSESSEE COMPANY DEBITED TO PROFIT AND LOSS ACCOUNT , CONSIDERING THE SAME AS ACTUAL LOSS OF THE IMPUGNED AMOUNT AS DIFFERENCE BETWEEN COST AND FAIR MARKET V ALUE AS ON 31.03.2008. THE CLAIM WAS MADE THROUGH PROFIT A ND LOSS ACCOUNT OF THE AFORESAID SUM BASED ON THE DIMINUTIO N IN THE VALUE OF SUCH INVESTMENT, WHICH HAS BEEN CATEGORIZE D UNDER THE HEAD CURRENT ASSET. THUS, WITHOUT GOING INTO MUCH DELIBERATION AND FOLLOWING THE DECISION OF THE TRIB UNAL DATED ITA NO.5971/MUM/2012 AAVARAN TEXTILES PVT LTD 18 15.1.2018 IN THE CASE OF RELIANCE WELFARE ASSOCIATI ON (SUPRA), WE FIND NO INFIRMITY IN THE ORDER OF THE L EARNED FIRST APPELLATE AUTHORITY, RESULTANTLY, THE APPEAL OF THE REVENUE IS DISMISSED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LEARNED REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 5 TH MARCH, 2018. SD/- (G. MANJUNATHA) SD/- (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER # $ MUMBAI; + DATED : 05 /03/2018 SA %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. ,-./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. 2 2 # 3' , ( ,- ) / THE CIT, MUMBAI. 4. 2 2 # 3' / CIT(A)- , MUMBAI 5. 56 0' , 2 ,-& , , # $ / DR, ITAT, MUMBAI 6. 7 8$ / GUARD FILE. / BY ORDER, / (DY./ASSTT. REGISTRAR) , # $ / ITAT, MUMBAI