Commissioner Of Income Tax, Faridabad v. M/S Steriplate Pvt. Ltd

ITA No. 931 of 2008 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Commissioner of Income Tax, Faridabad Versus M/s Steriplate Pvt. Ltd. ITA No. 931 of 2008 Date of Decision: 30.5.2011 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL,ACTING CHIEF JUSTICE. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel,for the appellant.for the appellant. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This order shall dispose of ITA Nos. 931 of 2008, 516 and517 of 2010 as learned counsel for the parties are agreed that the issueraised in all the three appeals is identical and relates to interpretation ofExplanation 1 to Section 115JB(2) of the Income Tax Act, 1961 (in short“the Act”). For brevity, the facts are being taken from ITA No. 931 of2008. 2.This appeal has been preferred by the revenue underSection 260A of the Act against the order dated 27.3.2008 passed bythe Income Tax Appellate Tribunal, Delhi Bench “C”, New Delhi(hereinafter referred to as “the Tribunal”) in ITA No. 2470/Del/2007, relating to the assessment year 2002-03, claiming the followingsubstantial question of law:- “Whether on the facts and circumstances of the case,the Hon'ble ITAT was right in law in upholding theorder of the Ld. CIT(A) in deleting the adjustment ofRs.91,80,973/- made by the Assessing Officer byholding that the provision of diminution in value ofinvestment does not fall in the purview of clause (c)of Explanation 1 to Section 115JB(2) of the IncomeTax Act, 1961?” 2.Briefly stated, the facts necessary for adjudication asnarrated in the appeal are that the assessee filed its return for theassessment year 2002-03 on 31.10.2002 declaring nil income and alsocomputed nil book profit for the purposes of Section 115JB of the Act.The Assessing Officer vide order dated 17.2.2005 recomputed the bookprofit at Rs.54,30,985/- by making an adjustment for provision fordiminution in value of investment at Rs.91,80,973/-. The AssessingOfficer held that the provision so made by the assessee fell underclause (c) of Explanation to Section 115 JB(2) of the Act. Feelingaggrieved, the assessee filed an appeal before the Commissioner ofIncome Tax (Appeals) [in short “the CIT(A)”] who vide order dated12.3.2007 deleted the adjustment of Rs.91,80,973/- made by theAssessing Officer to the book profit under Section 115JB of the Actholding that the provision for diminution in value of investments is not aprovision for liability, much less a provision for unascertained liability.The said provision does not fall within the purview of clause (c) of Explanation to Section 115JB(2) of the Act. Dissatisfied with that order,the department filed an appeal before the Tribunal. The Tribunal videorder dated 27.3.2008 upheld the order of the CIT(A) in deleting theadjustment of Rs.91,80,973/- made by the Assessing Officer anddismissed the appeal. Feeling aggrieved, the revenue has approachedthis Court by way of the instant appeal. 3.We have heard learned counsel for the parties. 4.Learned counsel for the revenue submitted that after theamendment by the Finance (No.2) Act, 2009 made effectiveretrospectively from 1.4.2001, clause (c) of Explanation 1 had beeninserted in Section 115JB(2) of the Act whereby any amount or amountsset aside as provision for diminution in the value of any asset shall notreduce the book profits of an assessee. According to the learnedcounsel, after the retrospective amendment, the ground on which theclaim of the assessee had been accepted by the CIT(A) and theTribunal no longer survives. In other words, it was urged that the bookprofits, thus, would increase as the amount of provision ofRs.91,80,973/- would not be adjusted in the profits of the assessee. 3.We have heard learned counsel for the parties. 4.Learned counsel for the revenue submitted that after theamendment by the Finance (No.2) Act, 2009 made effectiveretrospectively from 1.4.2001, clause (c) of Explanation 1 had beeninserted in Section 115JB(2) of the Act whereby any amount or amountsset aside as provision for diminution in the value of any asset shall notreduce the book profits of an assessee. According to the learnedcounsel, after the retrospective amendment, the ground on which theclaim of the assessee had been accepted by the CIT(A) and theTribunal no longer survives. In other words, it was urged that the bookprofits, thus, would increase as the amount of provision ofRs.91,80,973/- would not be adjusted in the profits of the assessee. 5.Learned counsel for the assessee did not dispute that afterthe amendment which has been made effective retrospectively w.e.f.1.4.2001, in view of the introduction of Clause (i) of Explanation 1 toSection 115JB(2) of the Act, the claim of the assessee was notmaintainable. 6.It would be advantageous to reproduce here Clause (i) ofExplanation 1 to Section 115JB(2) of the Act as inserted which is asunder:- “Explanation 1.- For the purposes of this section, “bookprofit” means the net profit as shown in the profit and lossaccount for the relevant previous year prepared under sub-section (2), as increased by- (a) to (h)XXXXXX (i)the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (i) is debited tothe profit and loss account, and as reduced by,- (i) to (viii)XXXXXX” 7.The aforesaid amendment has been made retrospectiveand is effective from 1.4.2001. The assessment years involved in theinstant appeals are subsequent thereto and, therefore, the samegoverns the present appeals. 8.Accordingly, it is held that the adjustment of Rs.91,80,973/-claimed by the assessee as provision for diminution in value ofinvestment was not tenable and the same would be added in the profitwhich thereby would enhance the book profit under Section 115JB ofthe Act. Accordingly, the appeals stand allowed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE ITA No. 931 of 2008 -5- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Commissioner of Income Tax, Faridabad Versus M/s Steriplate Pvt. Ltd. ITA No. 516 of 2010 Date of Decision: 30.5.2011 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL,ACTING CHIEF JUSTICE. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel,for the appellant.for the appellant. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. The appeal is allowed. For reasons, see the detailed order of even date recorded in ITA No. 931 of 2008 (Commissioner of Income Tax, Faridabad v. M/s Steriplate Pvt. Ltd). (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE ITA No. 931 of 2008 -6- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Commissioner of Income Tax, Faridabad Versus M/s Steriplate Pvt. Ltd. ITA No. 517 of 2010 Date of Decision: 30.5.2011 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL,ACTING CHIEF JUSTICE. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel,for the appellant.for the appellant. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. The appeal is allowed. For reasons, see the detailed order of even date recorded in ITA No. 931 of 2008 (Commissioner of Income Tax, Faridabad v. M/s Steriplate Pvt. Ltd). (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE