Rajmahal Trade & Investment Pvt. Ltd. v. CIT
ITA No. 68/Bang./2008
A.Y. : 2003-2004. Dated : 8-8-2008
S. 115JB of the Income-tax Act, 1961 —
Whether while computing book profits u/s.115JB of the Act, provision for
diminution in value of investments can be added back by invoking clause (c)
of Explanation below S. 115JB on the ground that it is not an ascertained
liability — Held, No.
Facts :
For the A.Y. 2003-04, the profit & loss account
prepared by the assessee had adjustments in two parts, namely, adjustments
above the line and adjustments below the line. Profit of Rs.1,47,15,215 was
shown as net profit ‘above the line’. The following two adjustments were
made below the line :
Provision for diminution in value of investments Rs. 32,66,947
Provision for taxes Rs. 10,00,000
After the above two adjustments, the profit
transferred to balance sheet was shown at Rs.1,04,42,268. The assessee while
computing book profit added back the provision for taxes and computed the
book profit to be Rs.1,14,42,268.
While assessing the income of the assessee u/s.
143(3) of the Act, the AO while computing the book profits u/s.115JB held
that provision for diminution in the value of investments was not an
ascertained liability and therefore he invoked clause (c) of Explanation
below the Section and added this sum of Rs.32,66,947 to the profit as per
profit & loss account.
On an appeal by the assessee, the CIT(A) held
that in view of the decision of the Apex Court in the case of Apollo Tyres
the AO had no power to re-compute the book profit if the profits of the
assessee have been ascertained in accordance with Part II and Part III of
Schedule VI of the Companies Act, 1956. He agreed with the assessee’s
contention that the provision for diminution in the value of investments did
not represent any unascertained liability and, therefore, cannot be added
back under Explanation
(c) below S. 115JB. He, however, held that the
shares were held as investments and not as stock-in-trade and, therefore,
held that the AO was right in adding back the provision to the book profit.
Accordingly, he confirmed the assessment order on this point.
Aggrieved, the assessee preferred an appeal to
the Tribunal.
Held :
The Tribunal held that in view of the
observations of the Apex Court in the case of Apollo Tyres Ltd. it is not in
order for the AO or the CIT(A) to rescrutinise the assessee’s accounts to
find out whether the provision has been made for diminution in respect of
shares held as stock-in-trade or as investments. Part III of Schedule VI to
the Companies Act only requires a provision to be created for diminution in
the value of assets and no distinction has been made between an asset which
is held as stock-in-trade and assets which are held as investments by the
assessee. In rescrtuinising the accounts of the assessee and questioning
their correctness the CIT(A) has overlooked the observations of the SC in
the case of Apollo Tyres.
Parts II and III of Schedule VI to the
Companies Act do not recognise any distinction between above the line
adjustments and below the line adjustments. Therefore, the assessee itself
has not recognised any such distinction.
