The Income Tax Appellate Tribunal(ITAT), Ahmedabad bench held that when actual write-off of diminution in value of the asset from the corresponding amount of trade receivables and shown in the balance sheet, then the addition made relying upon the explanation of section 115 JB of the Income Tax Act, 1961 is not sustainable.
The assessee, Corrtech Energy Ltd engaged in the business of manufacturing gas turbine blades, engineering services, contracts of gas turbines and trading of spare parts. The assessment originally completed under Section 143(3) of the Act with the total income of the assessee was determined by the Assessing Officer(AO) at Rs.2,43,30,933/- after making certain additions and disallowances.
The AO noted that the assessee-company in its Profit and Loss Account had debited Rs.6,03,098/- and Rs.31,00,000/- on account of provision for doubtful debts and provision for diminution in value of investment respectively.
The AO added the provision for doubtful debts amounting to Rs.6,03,098/- and the provision for diminution in the value of investment amounting to Rs.31,00,000/- to the book profit under Section 115JB of the Act by relying on the amendment made in Section 115JB of the Act by the Finance Act, 2009, with retrospective effect from 01.04.2001, whereby it was made clear that the amounts set aside as provision for diminution in value of the asset were required to be added to the book profit.
The CIT(A) did not find merit in the submission of the assessee and confirmed the additions made by the Assessing Officer to the book profit of the assessee company under Section 115JB of the Act.
It was contended by the assessee that the trade receivables and investments at the end of the year as reflected on the asset side of the balance sheet thus were net of the provisions and since it was a case of an actual write off; it would not be hit by clause (i) of the Explanation to Section115JB of the Act as held in the case of Vodafone Essar Gujarat Ltd (supra
It was evident from the annual account of the assessee-company, that the provision made for doubtful debts as well as for diminution in the value of the investment was reduced by the assessee from the corresponding amount of trade receivables and investments as reflected in the balance sheet at the end of the year.
In light of the case of Vodafone Essar Gujarat Ltd, Shri P M Jagtap, vice-president and Ms Madhumita Roy, judicial member had deleted both the additions made by the Assessing Officer and confirmed by the CIT(A) to the book profit of the assessee-company under Section 115JB of the Act on account of provision for doubtful debts and provision for diminution in the value of the investment and partly allowed the appeal of the assessee.
Shri Tushar Hemani & Shri Parimalsinh B. Parmar appeared for the assessee and Shri Mukesh Thakwani appeared for the revenue.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan Premium. Follow us on Telegram for quick updates.
