PRINCIPAL COMMISSIONER OF INCOME TAX - 4 vs. M/S TORRENT PRIVATE LIMITED

Facts

The assessee, M/s Torrent Private Limited, filed its return of income for Assessment Year 2003-04 declaring nil total income. The assessment was completed under section 143(3) with a book profit of Rs.16,01,06,069/-, which included an addition of Rs.13,85,00,000/- on account of provision for diminution in the value of investment. The matter was remanded by the Tribunal. Subsequently, the Assessing Officer again added this provision to the book profit under section 115JB. The Commissioner (Appeals) upheld this addition. The assessee appealed to the Tribunal, which deleted the disallowance. The revenue has appealed this order of the Tribunal dated 13.4.2018 in ITA No.1163/Ahd/2014.

Held

The High Court held that the provision for diminution in the value of investment of Rs.13,85,00,000/- was duly reflected in the Profit and Loss account and was routed through it. The court found that this amount was reduced from the asset side of the balance sheet, effectively constituting a write-off. Therefore, it could not be added back to the book profit under section 115JB(2)(i) of the Act. The court found the Commissioner (Appeals)'s finding of a lack of details to be contrary to the record, as the balance sheet contained the necessary information. The Tribunal had correctly appreciated the material on record and applied the netting principle as per the decision in CIT v. Vodafone Essar Gujarat Ltd. The appeal was answered in favour of the assessee.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in deleting the disallowance of provision for diminution in value of investment of Rs.13,85,00,000/- while computing book profit under section 115JB of the Income Tax Act, 1961? Assessee's arguments: The provision for diminution in value of investment of Rs.13.85 crore was routed through the profit and loss account and reduced from the asset side of the balance sheet, constituting a write-off. Therefore, it should not be added back to the book profit under section 115JB(2)(i). The Tribunal was justified in holding this view. Revenue's arguments: The provision for diminution in value of investment should be added back to the book profit under section 115JB(2)(i). The assessee failed to provide details of the specific investments where diminution occurred and whether it related to long-term or short-term capital gains. The accounting standards were not complied with as there was no actual write-off. The Commissioner (Appeals) had rightly noted the lack of details.