The Commissioner Of Income Tax – V, Pune v. Kinetic Engineering Limited

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.2621 OF 2009 The Commissioner of Income Tax – V, Pune ..Appellant. Versus Kinetic Engineering Limited ..Respondent. Mr.Vimal Gupta for the appellant. Mr.S.N. Inamdar for the respondent. CORAM : Dr.D.Y. Chandrachud & J.P. Devadhar, JJ. DATE : 13[th] January, 2010. P.C. : 1.Admit on the following substantial questions of law : 1)Whether on the facts and circumstances of the case and in law the ITAT was justified in not appreciating that the provisions made by the assessee for diminution in the value of investments is in the nature of `reserve’ and come within the ambit of clause (b) of the Explanation to Section 115JB of the Income Tax Act 1961 ? 2)Whether on the facts and circumstances of the case and in law the ITAT was justified in holding that provision for bad and doubtful debts is not a provision for liability but is a provision for diminution in the value of assets ? 2.The appeal is directed against the judgment of the Income Tax Appellate Tribunal dated 31[st] October 2008 pertaining to assessment year 2002-2003. In so far as the issues which are canvassed in the appeal are concerned, the tribunal held as follows : “14.1 Rest of the adjustment is in respect of doubtful debts and another amount of Rs.76.78 lakhs in respect of provision for diminution in the value of investment. After hearing the submissions of both the sides and on careful examination of the facts and cases, we are of the considered view that such adjustments in the book profit are not permissible in the light of special bench decision in the case of Usha Martine Industries Limited [2007] 104 ITD 249 (Kol.) (SB). The respected special bench has discussed this issue at length and came to the conclusion as follows : `Therefore, the provision for bad and doubtful debt is not a provision for liability but it is a provision for diminution in the value of the assets. Once the provision is not for any liability, the question whether the liability is ascertained or unascertained does not arise. Therefore, clause (c) of the Explanation to Section 115JA would not be applicable in respect of provision for bad and doubtful debts’.” 3.It is common ground before us between the learned counsel appearing on behalf of the revenue and the learned counsel appearing on behalf of the assessee that the questions which arises before the Court are covered against the revenue, as a result of the amendment brought about to Section 115JB of the Income Tax Act, 1961 by the substitution of clause (i) to Explanation 1. The amendment which is brought about with retrospective effect from 1[st] April 2001 provides that for the purposes of this Section, the expression `book profit’ means the net profit as shown in the profit and loss account for the relevant previous year under sub-section (2) as increased by the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to therein is debited to the profit and loss account. In view of the amendment which has been introduced with retrospective effect from 1[st] April 2001, the appeal filed by the revenue would have to be allowed and is accordingly allowed. The judgment of the tribunal is, to the aforesaid extent, set aside and the question of law would stand answered accordingly in favour of the revenue and against the assessee. There shall be no order as to costs. (J.P. Devadhar, J.) (Dr.D.Y. Chandrachud, J.)