M/s Golden Gate Propeties Ltd., V. DCIT,

ITA 733/BANG/2013

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1339 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 27-05-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 20-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR SHANKAR PRASAD BENGALURU
• Keywords: Bad and doubtful debts; Capital receipt; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 40A(3); 115JB; 40(a)(ia); 80IB; 201; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN , ACCOUNTANT MEMBER I TA NO. 733/BANG/2013 ASSESSMENT YEAR : 2009 - 10 M/S. GOLDEN GATE PROPERTIES LTD., # 820, GOLDEN HOUSE, 80 FEET ROAD, KORAMANGALA 8 TH BLOCK, BANGALORE 560 095. PAN: AAACG 5248H VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(3), BANGALORE. APP EL L ANT RESPONDENT APP ELL ANT BY : SHRI NARENDRA SHARMA, ADVOCATE R E SPONDENT BY : DR. SHANKAR PRAS AD, ADDL.CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 10. 0 6 . 201 9 DATE OF PRONOUNCEMENT : 14. 0 6 . 201 9 O R D E R PER N V VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER DATED 18.01.2013 OF THE CIT(APPEALS)-I, BANGALORE RELATIN G TO ASSESSMENT YEAR 2009-10. 2. THERE ARE TWO ISSUES THAT ARISE FOR CONSIDERATI ON IN THIS APPEAL. THE FIRST ISSUE IS WITH REGARD TO THE DISALLOWANCE MADE BY THE AO WHILE COMPUTING TOTAL INCOME OF THE ASSESSEE OF A DEDUCTI ON OF RS.4,62,53,175 CLAIMED BY THE ASSESSEE BEING LOSS INCURRED ON ASSI GNMENT OF ADVANCES. THE SECOND ISSUES THAT ARISES FOR CONSIDERATION IS WITH REGARD TO THE ADDITION OF A SUM OF RS.14,50,66,953 TO THE PROFIT AS PER THE PROFIT & LOSS ITA NO.733/BANG/2013 PAGE 2 OF 11 (P&L) ACCOUNT ON ACCOUNT OF PROVISION FOR BAD AND D OUBTFUL ADVANCES WHILE COMPUTING BOOK PROFITS U/S. 115JB OF THE INCOME-TAX ACT, 1961 [THE ACT]. 3. AS FAR AS THE FIRST ISSUE REFERRED TO ABOVE IS C ONCERNED, THE ASSESSEE HAS FILED AN APPLICATION SEEKING TO RAISE THE FOLLO WING ADDITIONAL GROUNDS OF APPEAL:- WITHOUT PREJUDICE THE ADDITION MADE UNDER NORMAL P ROVISIONS OF RS. 4,62,53,175/- ON ACCOUNT OF DISALLOWANCE OF LOS S ON ASSIGNMENT ENHANCES THE PROFITS OF THE APPELLANT AN D CONSEQUENTLY ON THE ENHANCED INCOME THE APPELLANT I S ENTITLED FOR DEDUCTION UNDER SECTION 80-IB OF THE ACT AS PER THE CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES IN CIRC ULAR NO. 37/2016, DATED 02/11/2016. 4. THE ADDITIONAL GROUND OF APPEAL BEING PURELY A Q UESTION WHICH CAN BE DECIDED ON THE BASIS OF LEGAL PROVISIONS AND ON FACTS ALREADY AVAILABLE ON RECORD, THE SAME IS ADMITTED FOR ADJUDICATION KE EPING IN MIND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F NTPC LTD. 229 ITR 383 (SC) . 5. THE FACTS WITH REGARD TO THE FIRST ISSUE AND THE ADDITIONAL GROUND OF APPEAL RASIED BY THE ASSESSEE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF CONSTRUCTION OF APARTMEN TS AND DEALING IN REAL ESTATE. THE ASSESSEE FILED A RETURN OF INCOME DECL ARING TOTAL INCOME OF RS.5,24,148. IN ARRIVING AT THE AFORESAID TOTAL IN COME, THE ASSESSEE HAD DEDUCTED A SUM OF RS.4,62,53,175 BEING LOSS INCURRE D ON ACCOUNT OF ASSIGNMENT OF ADVANCES. ACCORDING TO ASSESSEE, IN THE COURSE OF ITS BUSINESS IT MADE ADVANCES TO SECURE CONTRACTS IN CO NNECTION WITH ITS BUSINESS OF CONSTRUCTION AND COMMERCIAL AND RESIDEN TIAL COMPLEXES AND THOSE ADVANCES WERE NOT MADE WITH A VIEW TO DERIVE INCOME IN THE FORM OF DIVIDEND AND INTEREST. THE ASSESSEE AFTER REALIZIN G THAT THE PROBABILITY OF SECURING CONTRACTS FROM THE AFORESAID COMPANIES IS UNLIKELY, TRANSFERRED THE ITA NO.733/BANG/2013 PAGE 3 OF 11 ADVANCES BY WAY OF ASSIGNMENT TO ONE, M/S. AISHWARY A FINANCE LTD. HYDERABAD AT A DISCOUNT OF 75%. THE DETAILS OF THE ADVANCES MADE BY THE ASSESSEE WHICH WERE ASSIGNED AT A DISCOUNT OF 75% W ERE AS FOLLOWS:- SL.NO NAME AMOUNT (RS.) 1 VIVE K FISCAL PVT. LTD. 1,85,90,000 2 UTSAV COMMERCIAL PVT. LTD. 1,40,75,000 3 DOOMSAIN COMMERCIAL PVT. LTD. 38,50,000 4 SKYLINE SUPPLIERS PVT. LTD. 35,00,000 5 AMIGO COMMERCIAL PVT. LTD. 30,00,000 6 HANURANG PROJECTS PVT. LTD. 30,00,000 7 MANGAL MAYEE GAR MENTS PVT. LTD. 27,00,000 8 BHAIRAVTRADELINK LIMITED 20,00,000 9 OSPRAY COMMERCIAL PVT. LTD. 20,00,000 10 VISWAJYOTITRACON PVT. LTD. 20,00,000 11 CUBE FINTEX PVT. LTD. 19,00,000 12 CSK REALTORS LTD 15,00,000 13 CASECADE DEALCOM PVT. LTD. 10, 00,000 1 4 JEET VANIJYA LIMITED 10,00,000 15 APSARA TREX PVT. LTD. 7,00,000 16 K SERA PRODUCTIONS LTD. 5,05,900 17 SHIV TRADING COMPANY 3,50,000 TOTAL 6,16,70,900 6. ON ASSIGNMENT OF ADVANCES AT A DISCOUNT, THE ASS ESSEE INCURRED A LOSS OF RS.4,62,53,175 WHICH WAS CLAIMED AS A DEDUC TION IN THE P&L ACCOUNT. THE AO, HOWEVER, REFUSED TO ALLOW THE CLA IM OF DEDUCTION MADE BY THE ASSESSEE FOR THE REASON THAT PRIMARILY THE A SSESSEE HAD PAID MONEY TO VARIOUS COMPANIES FOR ALLOTMENT OF SHARES OUT OF ITS, OWN SHARE APPLICATION MONEY. THE RECEIPT IN THE NATURE OF SHA RE APPLICATION MONEY IS ITA NO.733/BANG/2013 PAGE 4 OF 11 A CAPITAL RECEIPT. WHEN THE SHARES WERE NOT ALLOTTE D BY THE VARIOUS COMPANIES, AND A PART OF THE MONEY WAS RECEIVED BY THE ASSESSEE IT WAS NOTHING BUT SHARE APPLICATION MONEY IN THE NATURE O F CAPITAL RECEIPT AND IS NOT EARNED AS INCOME FROM ITS DAY TO DAY BUSINESS A FFAIRS. THEREFORE, THE LOSS INCURRED BY THE ASSESSEE WAS IN THE NATURE OF BAD DEBT BUT WAS NOT IN THE NATURE OF REVENUE EXPENDITURE AND CANNOT BE REG ARDED AS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HENCE NOT ALLOWABLE. ACCORDINGLY THE LOSS INCURRED OF RS.4,62 ,53,175/- ON ASSIGNMENT OF ADVANCE WAS DISALLOWED BY THE AO TREATING THE SA ME AS CAPITAL IN NATURE. 7. THE ASSESSEE HAD BEFORE THE AO JUSTIFIED ITS CLA IM FOR DEDUCTION BY RELYING UPON NOTE 7 OF SCHEDULE 18 OF THE FINANCIAL STATEMENT WHEREIN THE DESCRIPTION OF ADVANCES TO THE THIRD PARTIES WERE A S FOLLOWS:- THE COMPANY IN PREVIOUS YEARS HAD PAID SHARE APPLI CATION MONEY TO VARIOUS COMPANIES HOWEVER NO SHARES WERE I SSUED TO THE COMPANY TILL THE END OF THE PREVIOUS YEAR. DURI NG THE YEAR THE COMPANY HAS SOLD / ASSIGNED THE RIGHTS OF THESE INV ESTMENT TO AISHWARYA FINANCE LIMITED, A RELATED PARTY, AT A LO SS OF RS. 4,62,53,175/-' 8. IT IS ON THE BASIS OF THE AFORESAID REPLY GIVEN BY THE ASSESSEE THAT THE AO CAME TO THE CONCLUSION THAT THE LOSS IN QUES TION WAS A CAPITAL LOSS AND WAS NOT INCIDENTAL TO THE BUSINESS OF ASSESSEE. 9. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) CONF IRMED THE ORDER OF AO. THE FOLLOWING WERE THE OBSERVATIONS OF THE CIT (APPEALS):- 3.3. I HAVE GONE THROUGH THE SUBMISSIONS OF THE AP PELLANT AND EXAMINED THE REASONS GIVEN BY THE A.0 IN THE ASSESS MENT ORDER. IT IS AN UNDISPUTED FACT THAT THE APPELLANT INVESTED B Y WAY OF THE SUBSCRIPTION OF SHARES IN VARIOUS COMPANIES. IT IS ALSO SEEN THAT THE INVESTMENT WAS MADE OUT OF THE SHARE APPLICATIO N RECEIVED BY IT. AS THE INVESTMENT WAS NOT YIELDING ANY GOOD RET URNS, THE ITA NO.733/BANG/2013 PAGE 5 OF 11 APPELLANT COMPANY WANTED TO ASSIGN THESE RIGHT TO C OLLECT THE MONEY/ RIGHT TO SUBSCRIBE THE SHARES TO M/S AISHWAR YA FINANCE LTD. HYDERABAD AT 75% DISCOUNT. ACCORDINGLY THE APP ELLANT REALIZED RS. 1,54,17,725/- AND INCURRED A LOSS OF R S. 4,62,53,175/- IT IS THE CONTENTION OF THE APPELLANT THAT THE LOSS WAS INCURRED IN THE COURSE OF ITS BUSINESS AND FOR THE EXTENSION OF ITS BUSINESS AND ELIGIBLE FOR DEDUCTION U/S 37 OF THE ACT. THE APPEL LANT INVESTED IN THE EQUITY OF VARIOUS COMPANIES AND THE INVESTMENT BECOMES THE CAPITAL IN NATURE, NO MATTER WHETHER THE SOURCE OF INVESTMENT IS OUT OF CAPITAL RECEIPT OR REVENUE RECEIPT. THE APPE LLANT ALSO ARGUED THAT THE EXPENSES BY WAY OF A LOSS INCURRED FOR THE EXTENSION OF THE BUSINESS. NO MATERIAL IS AVAILABLE IN THIS REGARD AND EVEN OTHERWISE ANY EXPENDITURE IN CONNECTION WI TH THE EXTENSION OF THE EXISTING BUSINESS IS OF CAPITAL NA TURE. ONE OF THE CONDITIONS FOR THE DEDUCTION U/S 37 OF THE ACT IS T HAT THE EXPENDITURE SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE. THEREFORE, THE APPELLANT IS NOT ELIGIBLE FOR DEDUCT ION U/S 37 OF THE ACT. THE APPELLANT RELIED ON CERTAIN JUDICIAL DECIS IONS WHICH ARE DISTINGUISHABLE ON-FACTS AND NOT APPLICABLE TO THE ISSUE UNDER CONSIDERATION. THEREFORE, THE DISALLOWANCE OF THE A .0 IS CONFIRMED. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE SHALL FIRST CONSIDER THE GRIEVANCE OF THE ASSESSEE AS PROJECTED IN THE ADDIT IONAL GROUND OF APPEAL FILED BEFORE THE TRIBUNAL. THE SUM AND SUBSTANCE O F THE ADDITIONAL GROUND IS THAT EVEN IF THE ADVANCES WRITTEN OFF IS CONSIDE RED AS NOT AN ALLOWABLE DEDUCTION IN COMPUTING INCOME FROM BUSINESS, THEN T HE DISALLOWANCE MADE BY THE AO WILL GO TO INCREASE THE PROFITS OF BUSINE SS OF THE ASSESSEE. IT IS THE PLEA OF THE ASSESSEE THAT ITS INCOME FROM BUSIN ESS IS ELIGIBLE FOR DEDUCTION U/S.80IB OF THE ACT AND THEREFORE TO THE EXTENT OF DISALLOWANCE MADE BY THE AO THE PROFITS OF THE ELIGIBLE BUSINESS WILL GET ENHANCED AND ON SUCH ENHANCED PROFITS THE ASSESSEE SHOULD BE ALL OWED DEDUCTION U/S.80IB OF THE ACT AND CONSEQUENTLY THE DISALLOWAN CE WILL HAVE NOT TAX IMPLICATIONS VIS--VIS THE ASSESSEE. ON THIS ADDIT IONAL GROUND, RELIANCE WAS PLACED BY THE ASSESSEE ON CBDT CIRCULAR NO.37/2 016 DATED 02.11.2016 WHEREIN THE CBDT HAS EXPRESSED THE VIEW THAT WHENEVER A ITA NO.733/BANG/2013 PAGE 6 OF 11 DISALLOWANCE OF EXPENDITURE WHILE COMPUTING THE INC OME FROM BUSINESS IS MADE, THAT WILL HAVE AN EFFECT ON THE PROFITS OF TH E BUSINESS GETTING ENHANCED. WHEREVER THE ASSESSEE CLAIMS DEDUCTION U NDER CHAPTER VIA ON PROFITS OF BUSINESS AND IF THE DISALLOWANCE OF EXPE NDITURE WOULD GO TO INCREASE THE PROFITS OF BUSINESS ON WHICH DEDUCTION UNDER CHAPTER VIA OF THE ACT IS CLAIMED BY THE ASSESSEE, THEN THE DISALL OWANCE WILL HAVE NO EFFECT BECAUSE THE DEDUCTION UNDER CHAPTER VIA HAS TO BE ALLOWED ON SUCH ENHANCED PROFIT. THE VIEW EXPRESSED IN THE CBDT CI RCULAR IS BASED ON THE DECISION RENDERED BY SEVERAL HIGH COURTS AND THESE HAVE BEEN SET OUT IN THE CIRCULAR WHICH IS REPRODUCED AS FOLLOWS:- 2. THE ISSUE OF THE CLAIM OF HIGHER DEDUCTION ON T HE ENHANCED PROFITS HAS BEEN A CONTENTIOUS ONE. HOWEVER, THE CO URTS HAVE GENERALLY HELD THAT IF THE EXPENDITURE DISALLOWED I S RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DE DUCTION HAS BEEN CLAIMED, THE DEDUCTION NEEDS TO BE ALLOWED ON THE ENHANCED PROFITS. SOME ILLUSTRATIVE CASES UPHOLDING THIS VIE W ARE AS FOLLOWS: (I) IF AN EXPENDITURE INCURRED BY ASSESSEE FOR THE PURPOSE OF DEVELOPING A HOUSING PROJECT WAS NOT ALLOWABLE O N ACCOUNT OF NON-DEDUCTION OF TDS UNDER LAW, SUCH DISALLOWANCE WOULD ULTIMATELY INCREASE ASSESSEE'S P ROFITS FROM BUSINESS OF DEVELOPING HOUSING PROJECT. THE UL TIMATE PROFITS OF ASSESSEE AFTER ADJUSTING DISALLOWANCE UN DER SECTION 40(A)(IA) OF THE ACT WOULD QUALIFY FOR DEDUC TION UNDER SECTION 80-IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURTS IN THE FOLLOWING CASES: INCOME-TAX OFFICER -WARD 5(1) V. KEVAL CONSTRUCTIO N [2013] 33 TAXMANN.COM 277 (GUJ.) COMMISSIONER OF INCOME-TAX-IV, NAGPUR V. SUNIL VISHWAMBHARNATH TIWARI [2016] 63 TAXMANN.COM 241 (BOM.) (II) IF DEDUCTION UNDER SECTION 40A(3) OF THE ACT I S NOT ALLOWED, THE SAME WOULD HAVE TO BE ADDED TO THE PRO FITS OF THE UNDERTAKING ON WHICH THE ASSESSEE WOULD BE ENTI TLED ITA NO.733/BANG/2013 PAGE 7 OF 11 FOR DEDUCTION UNDER SECTION 80-IB OF THE ACT. THIS V IEW WAS TAKEN BY THE COURT IN THE FOLLOWING CASE: PRINCIPAL CIT, KANPUR V. SURYA MERCHANTS LTD. [2016 ] 72 TAXMANN.COM 16 (ALL.). THE ABOVE VIEWS HAVE ATTAINED FINALITY AS THESE JUD GMENTS OF THE HIGH COURTS OF BOMBAY, GUJARAT AND ALLAHABAD HAVE B EEN ACCEPTED BY THE DEPARTMENT. 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SETTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A)(IA), 40A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DIS ALLOWANCES, RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT O F THE PROFITS OF THE ELIGIBLE BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALL OWANCE. 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FILE D ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS AL READY FILED IN COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESSED UPON. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED. 11. THE LD. COUNSEL FOR THE ASSESSEE THEREFORE SUBM ITTED THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S. 80IB OF THE ACT AND DISALLOWANCE MADE COULD INCREASE THE PROFITS ON WHI CH 80IB DEDUCTION WAS CLAIMED BY THE ASSESSEE AND FOLLOWING THE CBDT CIRC ULAR, THE ASSESSEE SHOULD BE ALLOWED DEDUCTION ON THE ENHANCED PROFITS . 12. THE LD. DR SUBMITTED THAT THE FACTS WITH REGARD TO THE DISALLOWANCE GOING TO ENHANCE THE PROFITS ON WHICH THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION U/S. 80IB OF THE ACT, CONSEQUENT TO THE I MPUGNED DISALLOWANCE, ARE NOT CLEAR FROM THE RECORD AND HE RELIED ON THE ORDER OF CIT(APPEALS). ITA NO.733/BANG/2013 PAGE 8 OF 11 13. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT PRIMA FACIE THE CLAIM MADE BY THE ASSESSEE IN THE ADDITIONAL G ROUND OF APPEAL DESERVES TO BE ACCEPTED. HOWEVER, IT REQUIRES TO B E VERIFIED WHETHER THE IMPUGNED DISALLOWANCE WOULD GO TO ENHANCE THE PROFI TS ON WHICH THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 80IB OF THE ACT . WE THEREFORE SET ASIDE THE ORDER OF CIT(APPEALS) ON THIS ISSUE AND R ESTORE THE SAME TO THE FILE OF AO TO EXAMINE THIS ASPECT AND IF THE CLAIM MADE BY THE ASSESSEE IS FOUND TO BE CORRECT, THEN ASSESSEE SHOULD BE ALLOWE D DEDUCTION U/S. 80IB ON THE ENHANCED PROFIT AND CONSEQUENTLY THE DISALLO WANCE MADE BY THE AO WILL HAVE NO EFFECT. THEREFORE, THE QUESTION WHETH ER THE DISALLOWANCE IS JUSTIFIED OR NOT IS LEFT OPEN. WE HOLD AND DIRECT ACCORDINGLY. 14. AS FAR AS THE SECOND ISSUE RAISED BY THE ASSESS EE IS CONCERNED, THE SAME IS WITH REGARD TO THE DETERMINATION OF BOOK PR OFITS U/S. 115JB OF THE ACT. EVEN WITH REFERENCE TO THIS GROUND, THE ASSES SEE HAS FILED AN APPLICATION FOR ADMISSION OF ADDITIONAL GROUND AS F OLLOWS:- THE AUTHORITIES BELOW OUGHT TO HAVE ALLOWED A SUM OF RS.14,50,66,593/- AS BAD DEBTS IN COMPUTING THE REG ULAR INCOME ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 15. AS FAR AS THE ISSUE OF COMPUTATION OF BOOK PROF ITS U/S. 115JB OF THE ACT IS CONCERNED, THE FACTS ARE THAT WHILE COMPUTIN G BOOK PROFITS U/S. 115JB OF THE ACT, THE AO ADDED TO THE PROFIT AS PER THE P &L ACCOUNT A SUM OF RS.14,50,66,953, WHICH WAS PROVISION FOR BAD AND DO UBTFUL ADVANCES DEBITED IN THE P&L ACCOUNT. IN DOING SO, THE AO RE LIED ON EXPLANATION 1 CLAUSE (I) TO SECTION 115JB OF THE ACT, WHICH PROVI DES THAT BOOK PROFITS MEANS NET PROFIT SHOWN IN THE P&L ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB(2) OF THE ACT; AS I NCREASED BY THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET. ITA NO.733/BANG/2013 PAGE 9 OF 11 AS A RESULT, THE TAX PAYABLE BY THE ASSESSEE WAS DE TERMINED BY THE AO IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB AND NOT UNDER THE NORMAL PROVISIONS OF THE ACT. THE CIT(APPEALS) CONFIRMED THE ORDER OF AO. HENCE THE PRESENT APPEAL BY THE ASSESSEE BEFORE THE TRIBU NAL. 16. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. KIRLOSKAR SYSTEMS LTD., 220 TAXMAN 1 (KAR) WHEREIN ON AN IDENTICAL ISSUE, THE HONBLE HIGH CO URT CAME TO THE CONCLUSION THAT THERE NEED NOT BE ANY A DDITION TO THE PROFIT AS PER THE P&L ACCOUNT BY INVOKING CLAUSE (I) OR (C) O F EXPLANATION 1 TO SECTION 115JB OF THE ACT IN A CASE WHERE THERE IS A CORRESP ONDING REDUCTION OF THE SUM DEBITED TO THE PROFIT AND LOSS ACCOUNT ON ACCOU NT OF PROVISION FOR BAD AND DOUBTFUL DEBTS FROM THE ADVANCES SHOWN IN THE B ALANCE SHEET OF THE ASSESSEE. SUCH A PRESENTATION IN THE BOOKS OF ACCO UNTS IS AKIN TO WRITE OF DEBTS DUE AS BAD AND DOUBTFUL, THOUGH THE NOMENCLAT URE USED IS PROVISION FOR BAD AND DOUBTFUL DEBTS. IN THE PRESENT CASE, IT HAS BEEN THE CLAIM OF ASSESSEE BEFORE THE CIT(APPEALS) THAT UNDER THE HEA D ADMINISTRATIVE EXPENSES, SUM OF RS.14,50,66,593 WHICH WAS PROVISI ON FOR BAD AND DOUBTFUL ADVANCES WAS CLAIMED AS A DEDUCTION IN THE PROFIT AND LOSS ACCOUNT AND THAT IN THE BALANCE SHEET, FROM THE LOA NS & ADVANCES, THIS PROVISION HAS BEEN DEDUCTED. IT WAS THE PLEA OF TH E ASSESSEE THAT BY VIRTUE OF DEBIT IN THE P&L ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL ADVANCES AND BY REDUCING THE SAME AMOUNT FROM THE L OANS & ADVANCES AS APPEARING IN THE BALANCE SHEET, THERE IS IN EFFECT A WRITE OFF OF BAD AND DOUBTFUL ADVANCES AND IT CANNOT BE SAID THAT THERE WAS ONLY A PROVISION ON ACCOUNT OF BAD AND DOUBTFUL ADVANCES DEBITED IN THE P&L ACCOUNT, WHICH HAS TO BE ADDED TO THE PROFIT AS PER P&L ACCOUNT WH ILE DETERMINING THE BOOK PROFITS U/S. 115JB OF THE ACT BY INVOKING CLAU SE (I) OR (C ) TO EXPLANATION-1 TO SEC.115JB OF THE ACT. THE ASSESSE E HAD IN THIS REGARD RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF VIJAYA ITA NO.733/BANG/2013 PAGE 10 OF 11 BANK V. CIT, 323 ITR 166 (SC) FOR THE PROPOSITION THAT BY DEBITING IN THE P&L ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL ADVAN CES AND BY REDUCING THE SAME AMOUNT FROM THE LOANS & ADVANCES AS APPEAR ING IN THE BALANCE SHEET, THERE IS IN EFFECT A WRITE OFF OF BAD AND DO UBTFUL ADVANCES AS BAD DEBTS. 17. THE HONBLE HIGH COURT OF KARNATAKA ON A SIMILA R OBJECTION IN THE CASE OF KIRLOSKAR SYSTEMS LTD. (SUPRA) TOOK A VIEW THAT ADDITION OF PROVISION OF BAD AND DOUBTFUL DEBTS TO THE PROFIT AS PER P&L ACCOUNT TO DETERMINE THE BOOK PROFITS U/S. 115JB OF THE ACT IS NOT WARRANTED . THE COURT HELD THAT PROVISION FOR DIMINUTION IN VALUE OF ASSETS DEBITED TO PROFIT AND LOSS ACCOUNT IS NOT REQUIRED TO BE INCREASED AS PER CLAUSE (I) O F EXPLANATION 1 TO SECTION 115JB TO COMPUTE BOOK PROFIT UNDER SECTION 115JB WH EN ASSESSEE HAS DEBITED DIMINUTION IN VALUE OF ASSETS AS A PROVISIO N TO PROFIT AND LOSS ACCOUNT AND SIMULTANEOUSLY REDUCED THE SAID SUM FRO M THE ADVANCES SHOWN IN THE BALANCE SHEET. SIMILARLY, PROVISION FO R DOUBTFUL DEBTS DEBITED TO PROFIT AND LOSS ACCOUNT IS NOT REQUIRED TO BE IN CREASED AS PER CLAUSE (C) OF EXPLANATION 1 TO SECTION 115JB TO COMPUTE BOOK P ROFIT UNDER SECTION 115JB. 18. IN THE LIGHT OF AFORESAID DECISION OF THE HONB LE JURISDICTIONAL HIGH COURT, WE ARE OF THE VIEW THAT THE PROVISION FOR BA D AND DOUBTFUL ADVANCES DEBITED IN THE P&L ACCOUNT AND ITS SIMULTANEOUS RED UCTION IN THE LOANS & ADVANCES IN THE BALANCE SHEET WILL NOT ONLY MEAN TH AT THERE WAS AN ACTUAL WRITE OFF OF BAD AND DOUBTFUL ADVANCES IN THE P&L A CCOUNT, BUT ALSO THAT THERE WAS NO DEDUCTION CLAIMED ON ACCOUNT OF PROVIS ION BY THE ASSESSEE. CONSEQUENTLY, THE ADDITION MADE BY THE AO IN DETERM INING THE BOOK PROFITS OF THE ASSESSEE IS NOT WARRANTED AND THE SAID ADDIT ION DIRECTED TO BE DELETED. CONSEQUENTLY, THE SECOND ISSUE IS DECIDED IN FAVOUR OF ASSESSEE. ITA NO.733/BANG/2013 PAGE 11 OF 11 19. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS TR EATED AS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF JUNE, 2019. SD/- SD/- ( B.R. BASKARAN ) ( N.V . VASU DEVAN ) A CCOUNTANT MEMB ER VIC E PRESIDENT BANGALORE, DATED, THE 14 TH JUNE, 2019. / D ESAI S MURTHY / COPY TO: 1. THE APP ELLANT 2. THE R ESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUA R D F ILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.