By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Chartered Accountants
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46 (2008) 304 ITR (AT) 123 (Ahmedabad)
Deepak Nitrate v. Dy. CIT
ITA No. 1646 and 1748/Ahd./2004
A.Y. : 1998-99. Dated : 9-4-2007
S. 115JA — Assessing officer has no power to scrutinise the
accounts except as provided in Explanation to S. 115JA and hence no addition can
be made by him on account of reduction in value of inventory and obsolescence
loss for computation of book profit in terms of S. 115JA of the Act.
According to the Assessing Officer the two amounts viz.
(i) provision made for obsolescence loss, and (ii) reduction due to change in
method of inventory valuation should be added back in computation of the book
profits as per S. 115JA. He therefore added the said amounts to the income of
the assessee invoking the provisions of S. 154. The CIT(A) upheld the addition
no. (i) and deleted the addition no. (ii).
On cross appeals by the assessee and Revenue, the Tribunal
observed as under :
(1) Diminution in value of asset is not a provision for any
liability and consequently it would not be a case of reserve.
(2) As per the relevant provisions of the Companies Act, an
amount set apart to become a provision has to be either (i) provision for
depreciation, renewals, or diminution in value of asset, or (ii) provision for
any known liability of which the amount cannot be determined with substantial
accuracy. However, the Income-tax Act has included only one part of this
definition for increasing the net profit to determine the book profits and
that is provision for meeting liability other than ascertained liability.
Hence provision for diminution in the value of asset cannot be added back
u/s.115JA.
(3) The change in method of valuation of inventory was
adopted by the assessee being more scientific and was consistently followed.
Even otherwise, it would be a diminution in value of inventories and since
these items had not been found to be wrong by any authorities under the
Companies Act, the Assessing Officer did not have the jurisdiction under the
provisions of the Act to add back such items for calculating book profits.
Case relied upon :
(i) Apollo Tyres Ltd. v. CIT, (2002) 255 ITR 273
(SC)
