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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ : NEW DELHI
Before: SHRI N.K. SAINI & SHRI A.T. VARKEY
O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :
This appeal, at the instance of the assessee, is filed against the order of CIT (Appeals)-X, New Delhi dated 17.12.2012 for the assessment year 2008- 09. 2. The grounds of appeal taken by the assessee read as under :-
1. On the facts and circumstances of the case the Commissioner (A) is wrong in sustaining an addition of Rs.43.47 lacs made by the Assessing officer on account of appreciation in value of investment in shares of Salora Retail Ventures Limited ( formerly known as FX Technologies Limited).
2. That the appellant during assessment year 2002-03 provided a sum of Rs.43.47 lacs in its books of account on account of diminution in value of shares in the Profit & Loss account of FX Technologies Limited (now known as Salora Retail Ventures Limited) but while submitting return of income added back that amount for tax purposes.
That the said amount provided in 2002-03 was restored back to its original value during the assessment year under appeal and claimed the same as not taxable since the amount was not claimed as deduction in 2002-03 assessment.
That the ld. Commissioner (Appeals) without appreciating the facts of the case sustained addition made by the Assessing Officer.
That the order of the ld. Commissioner (Appeals) in upholding the addition made by the Assessing Officer is against the law & facts of the case.” 3. Brief facts of the aforesaid grounds are that the assessee is a widely held public limited company whose shares are quoted at stock exchange engaged in the business of manufacture of CTVs, its components and trading in computers and other electronic goods. The return of income was filed on 17.12.2008 declaring income of Rs.31,73,45,620/-. The return was processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter ‘the Act’). The case was selected for scrutiny assessment and pursuant thereto, an order u/s 143(3) dated 22.12.2010 was made at an income of Rs.32,50,16,230/- by inter alia making an addition of Rs.43,47,000/- representing diminution in value of investment written back.
3.1 As regards the above addition, the AO observed that on perusal of accounts filed by the assessee, it was revealed that assessee had added Rs.43.47 lacs, as diminution in investment value, in the profit before extra ordinary items in order to arrive at profit before tax. The AO found that the said figure (profit before tax) came to Rs.33.5 crores, however, while computing the taxable income, assessee had reduced the said amount from the profit before tax and this resulted into claim of Rs. 43.47 lacs as diminution in investment. The AO observed that as a matter of fact, such provisions were not ascertained liability, therefore, could not be allowed as per the Act. The AO in this regard placed reliance on the decision of Hon'ble Supreme Court in the case of Indian Molasses Company Pvt Ltd vs CIT. He further observed that a distinction is made between an actual liability in praesenti and a liability de futuro which, for the time being, is only contingent. The former is deductible but not the latter. He observed that the case which illustrates this distinction is Peter Merchant Ltd. Vs. Stedeford (1948) 30 TC 496 (CA) and no doubt, that case was decided under the system of income-tax laws prevalent in England, but the distinction is real. He observed that what a prudent trader sets apart to meet a liability, not actually present but only contingent, cannot bear the character of expenses till the liability becomes real.
3.2 Similarly, the AO observed that in the case of CIT Vs. Gemini Cashew Sales Corpn., the Hon’ble Supreme Court held that, “broadly stated, the present value on commercial valuation of money to become due in future, under a definite obligation, would be a permissible outgoing or deduction in computing the taxable profits of a trader even if in certain conditions the obligation might cease to exit because of forfeiture of the right. Where, however, the obligation of the trader was purely contingent, no question of estimating its present value might arise, for, to be a permissible outgoing or allowance, there must in the year of account be a present obligation capable of commercial valuation." Accordingly, the AO disallowed Rs.43.47 lakhs as diminution in value of investment and added the same to the income of the assessee.
3.3 Aggrieved, the assessee went in appeal before the first appellate authority and the ld. CIT (A) confirmed the addition by observing as under :-
“6.3. After going through the observations of the AO and the submissions of the A.R. of the appellant, it is clear that the appellant has not disputed that this was a contingent liability and could not be allowed. The A.O. was fully justified in disallowing this claim. The contentions of the A.R. of the appellant was not supported by any evidence or documents and are liable to be rejected. Accordingly, this ground of the appellant is dismissed.”
4. The assessee, being aggrieved, is in appeal before us against the aforesaid addition of Rs.43.47 lakhs.
5. Ld. AR for the assessee submitted that during the course of appellate proceedings, it was submitted that the aforesaid amount had been added back in AY 2002-03 and during the year under consideration, the value of investment was written off and shown as income in P & L Account, but while filing the return of income, this amount was reduced from the assessable income as the deduction of this amount was not claimed in 2002-03 assessment. Accordingly, he submitted that this deduction should be allowed in this year but the same was not rightly appreciated by the authorities below.
He, therefore, pleaded that the orders of the authorities below be set aside and the addition be deleted. The Ld DR relied on the order of the lower authorities and does not want us to interfere in the same.
We have heard both the sides on the issue and perused the material on record. The claim of the assessee is that figure of Rs.43,47,360/- represented diminution in value of investment in shares of M/s. Salora Retail Ventures Ltd. earlier known as FX Technologies Ltd. However, it has been stated that the diminution was not claimed by the assessee in the return for AY 2002-03 and, therefore, correspondingly when the said value has been written back in the instant year, the said value should be reduced from the income of the instant year. We are in agreement with the claim made by the assessee, but the same should be allowed only if the assessee is able to establish to the satisfaction of the AO, that the amount written back in the instant year pertains to the diminution in value of investments in AY 2002-03. We may add here, that both the authorities below had committed a fundamental fallacy in as much as a sum written back has been taxed without even coming to a conclusion that there was a transfer of the investment u/s 45 of the Act. It is claimed that appreciation/diminution in the value of investment are neither taxable nor deductible. It is on account of this very principle that the diminution was not claimed according to the assessee in AY 2002-03 and, therefore, correspondingly such write-back of diminution in the instant year has claimed to be not taxable. In the light of the above, the issue is restored to the file of AO to be decided in the light of the direction herein above.
In the result, the appeal is allowed for statistical purposes.
Order pronounced in open court on this 30th day of November, 2015.