Pr. Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. M/S. Vaibhav Global Limited, Formerly Known As Vaibhav Gemsltd., K-6B, Fateh Tiba, Adrash Nagar, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 291/2017 Pr. Commissioner Of Income Tax, Jaipur-Ii, Jaipur. ----Appellant Versus M/s. Vaibhav Global Limited, Formerly Known As Vaibhav GemsLtd., K-6B, Fateh Tiba, Adrash Nagar, Jaipur ----Respondent For Appellant(s) : Mr. Amit Malani on behalf of Mr. RB Mathur, through VC For Respondent(s): Mr. Gourab Banerji, Sr. Adv. assisted by Ms. Ananya Mazumdar,by Ms. Ananya Mazumdar, Mr. Gunjan Pathak Mr. Sundaram T.S. Ms. Shobha Gupta, through VC HON'BLE THE CHIEF JUSTICE MR. AKIL KURESHI HON'BLE MR. JUSTICE SAMEER JAIN 24/01/2022 Order Revenue has filed this appeal challenging the judgment ofIncome Tax Appellate Tribunal. Following questions are presentedfor our consideration:- “1. Whether in the facts and in circumstances ofcase, the ITAT was justified in law and has notacted perversely in restricting the adjustmenton account of interest free loans advanced toAes to prevailing LIBOR +2% with addressingthe evidences and facts brought on record bythe TPO. 2. Whether in the facts and in circumstances ofcase, the ITAT was justified in law and has notacted perversely in deleting the adjustment ofRs. 42847925/- made by the Assessing officeron account of adjustment of CorporateGuarantee without appreciating the fact that asper amendment by Finance Act 2012, insertion of explanation (i) (c) to section 92B, clarifiesthat corporate guarantee comes within thescope and ambit of international transaction. 3. Whether in the facts and in circumstances ofcase, the ITAT was justified in law and has notacted perversely in allowing the write off of lossof Rs. 410227250/- on account of investmentmade in equity shares of one of its subsidiaryIndo Medico Co. S.De. R.L. De. V.V.s, Mexicowithout appreciating the fact that the amount isnot an expense, loan or advance of any kindthat is required to be debited form the profitand loss statement of the assessee and theamount even when it was an investment wasnever debited from the P&L statement of thecompany as required by accounting principles.Whether investment is not in the nature of acapital loss. 4. Whether in the facts and in circumstances ofcase, the ITAT was justified in law in allowingthe write off of investment of Rs. 410227250/-for the purpose of computing “book profit” u/s.115JB, the book profit of the assessee is to beincreased by the amount or amounts set asideto provisions made for meeting liabilities, otherthan ascertained liabilities. Whether in suchcircumstances, the write back of investment ofRs. 410227250/- for the purpose of computingbook profits u/s. 115JB is correct in law. 5. Whether in the facts and in circumstances ofcase, the ITAT was justified in law to remit backthe issue of disallowance out of provision fordoubtful loans to subsidiary to the file of theAssessing Officer for verification withoutassigning any reasons and inspite of the factsthat loan and advance are not revenueexpenses and the details/ information providedby the assessee has already been consideredduring the assessment proceedings. 6.Whether in the facts and in circumstances ofcase, the ITAT was justified in law in remittingback the issue of disallowance out of bad debtsprovision claimed in MAT to the file of theAssessing Officer for verification withoutassigning any reasons and inspite of the factthat the details/ information provided by theassessee has already been considered duringthe assessment proceedings.” 6.Whether in the facts and in circumstances ofcase, the ITAT was justified in law in remittingback the issue of disallowance out of bad debtsprovision claimed in MAT to the file of theAssessing Officer for verification withoutassigning any reasons and inspite of the factthat the details/ information provided by theassessee has already been considered duringthe assessment proceedings.” At one stage this appeal was dismissed by an order dated20.11.2017. However on an appeal filed by the revenue, theSupreme Court by an order dated 08.01.2020 has remanded theproceedings for fresh consideration. Accordingly, we have heardlearned advocates for the parties at some length. So far asquestions No. 1 and 2 are concerned, it is pointed out to us thatthe issue is squarely covered by a detailed judgment of this Courtdated 13.10.2017 in appeal No. 14/2015 concerning this veryassessee. Under the circumstances these questions are notconsidered. So far as question No. 3 is concerned, the same is coveredby a recent order dated 15.12.2021 passed by this Court in appealNo. 53/2021 which also concerned this very assessee. Thediscussion in the order may be noted:- “The second question pertains to the objectionof the revenue to the claim of the assessee of abusiness loss of Rs.50.72 crores (rounded off)on account of permanent diminution in thevalue of the investment made in the equityshares in one of the subsidiaries of the assesseein USA. According to the assessing officer thisloss was not allowable under Section 37 of theIncome Tax Act, 1961 since the expenditurecould not have been considered as a revenueexpenditure. He also held that this was not acase of bad debt which could be allowed underSection 36 of the Act. The assessee carried thematter in appeal. The Income Tax AppellateTribunal by the impugned judgment reversedthe decision of the assessing officer on thispoint relying upon the earlier decision of theTribunal in case of the assessee for theassessment year 2012-13. In such order thetribunal relying on the decisions of the SupremeCourt and High Courts noted that under similarcircumstances the expenditure incurred by thecompany were allowed. This was on the basisthat the assessee company in order to expandits business world wide had setup subsidiariesin other countries. The investment made insuch companies was seen as revenue expenditure since the purpose behind makingthe investment was only for expansion of thebusiness. Applying this logic to the assessee inthe present case, the Tribunal was of theopinion that such investment being in thenature of revenue expenditure was to beallowed under Section 37 of the Act. Having perused the order passed by theassessing officer and by the tribunal and havingheard learned counsel for the revenue, we findno error in the view expressed by the tribunal.As noted, the assessee had made investment inits subsidiary company in order to expand itsbusiness with a view to earn higher profit. Theinvestment was thus driven by businessexpediency. The tribunal therefore committedno error. No question of law arises.” Under the circumstances this question is also not entertained. So far as the question No.4 is concerned, the issue pertainsto the addition made by the assessing officer of the write offinvestment in the subsidiary company for the purpose ofcalculation of book profits under Section 115JB of Income Tax Act,1961. According to the assessee, this was an actual write off andnot a mere provision for diminution in value of the investments.The tribunal having accepted the stand of the assessee, therevenue is in appeal. The discussion of the tribunal in theimpugned order reads as under:- Under the circumstances this question is also not entertained. So far as the question No.4 is concerned, the issue pertainsto the addition made by the assessing officer of the write offinvestment in the subsidiary company for the purpose ofcalculation of book profits under Section 115JB of Income Tax Act,1961. According to the assessee, this was an actual write off andnot a mere provision for diminution in value of the investments.The tribunal having accepted the stand of the assessee, therevenue is in appeal. The discussion of the tribunal in theimpugned order reads as under:- “5.5 We have heard the rival contentions andperused the materials available on record. It isnoted prima facie from the available recordsthat the assessee had made provisions in thefinancial year 2008-09 relevant to assessmentyear 2009-10 and the same has beenconsidered while calculation of 115JB for thatparticular assessment year. Details are atassessee’s PB pages 440 to 442 and 460 to 462which are copy of revised computation of totalincome. The AO’s order for A.Y. 2009-10 isplaced at assessee’s PB pages 482 to 494.During this year, the assessee has written back the provisions and then written off the same.Therefore, for the year under consideration, thisamount should not have been added back forworking out the income under the provisions ofSection 115JB of the Act. This will be the doubledisallowance of the same amount. Such actionis not as per law. Therefore, we direct not toinclude this amount while working out incomefor MAT purpose. Therefore, the ground no. 3and 4 of the assessee are allowed.” Learned counsel for the respondent assessee brought to ournotice a decision of the Full Bench of the Gujarat High Court in thecase of CIT Vs. Vodafone Essar Gujarat Ltd.-[2017] 397 ITR55 in which similar issues on a reference was examined. It wassaid and observed as under:- “20. Above decisions of Supreme Court in casesof Southern Technologies Ltd. and Vijaya Bankthus bring out a clear distinction between a casewhere the assessee may make a provision fordoubtful debt and a case where the assesseeafter creating such a provision for bad anddoubtful debt by debiting in Profit and Lossaccount also simultaneously removes suchprovision from its account by reducing thecorresponding amount from the loans andadvances on the asset aside of the balance sheet.The later would be an instance of writeoff and nota mere provision. 21. Karnataka High Court in case of YokogawaIndia Ltd. applying such principle found that caseon hand was one of a debt which was an amountreceivable by the assessee and not any liabilitypayable by the assessee and observed thatclause(c) of the explanation to section115JA/115JB, would not apply. In context ofapplicability of clause(i) to the explanation,relying on the decision of Supreme Court in caseof Vijaya Bank, the Court observed that there is adichotomy between actual write off and provisionfor bad and doubtful debt. A mere debit to theProfit and Loss account would constitute a badand doubtful debt but it would not constituteactual write off. However, if simultaneously suchamount is obliterated from the accounts byreducing corresponding loans and advances on the asset side, the same would amount to a writeoff. It was concluded as under : "...Therefore, after the Explanationthe assessee is now required not onlyto debit the P&L A/c butsimultaneously also reduce the loansand advances or the debtors from theassets side of the balance sheet tothe extent of the correspondingamount so that, at the end of theyear, the amount of loans andadvances/debtors is shown as net ofthe provisions for the impugned baddebt. Therefore, in the first place ifthe bad debt or doubtful debt isreduced from the loans and advancesor the debtors from the assets side ofthe balance sheet the Explanation to s. 115JA or JB is not at all attracted." the asset side, the same would amount to a writeoff. It was concluded as under : "...Therefore, after the Explanationthe assessee is now required not onlyto debit the P&L A/c butsimultaneously also reduce the loansand advances or the debtors from theassets side of the balance sheet tothe extent of the correspondingamount so that, at the end of theyear, the amount of loans andadvances/debtors is shown as net ofthe provisions for the impugned baddebt. Therefore, in the first place ifthe bad debt or doubtful debt isreduced from the loans and advancesor the debtors from the assets side ofthe balance sheet the Explanation to s. 115JA or JB is not at all attracted." 22. In case of Kirloskar Systems Ltd., theKarnataka High Court adopted the sameprinciple. 23. By way of culmination of above judicialpronouncements and statutory provisions, thesituation that arises is that prior to theintroduction of clause(i) to the explanation tosection 115JB, as held by the Supreme Court incase of HCL Comnet Systems and ServicesLtd. , the then existing clause (c) did not covera case where the assessee made a provision forbad or doubtful debt. With insertion of clause(i) to the explanation with retrospective effect,any amount or amounts set aside for provisionfor diminution in the value of the asset madeby the assessee, would be added back forcomputation of book profit under section 115JBof the Act. However, if this was not a mereprovision made by the assessee by merelydebiting the Profit and Loss Account andcrediting the provision for bad and doubtfuldebt, but by simultaneously obliterating suchprovision from its accounts by reducing thecorresponding amount from the loans andadvances on the asset side of the balance sheetand consequently, at the end of the yearshowing the loans and advances on the assetaside of the balance sheet as net of theprovision for bad debt, it would amount to awrite off and such actual write off would not behit by clause (i) of the explanation to section115JB. The judgment in case of Deepak NitriteLimited fell in the former category whereasfrom the brief discussion available in thejudgment it appears that case of Indian Petrochemicals Corporation Ltd., fell in the latercategory. 24. Viewed from this angle and subject to theobservations and clarifications made above, inour view, there is no conflict between the twojudgments and both operate in different fields.Reference is answered accordingly.” Respectfully adopting the view which has been adopted by a larger Bench of Gujarat High Court, we are not inclined toentertain this question also. The questions No. 5 and 6 arise out of the order of theIncome Tax Appellate Tribunal remanding certain issues to theassessing officer for fresh consideration. Being a pure remand andwe are informed that decisions have also been rendered in suchremand, no question of law arises. In the result, the appeal is dismissed. (SAMEER JAIN),J (AKIL KURESHI),CJ NAVAL KISHOR /30