ITA No. 931 of 2008 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 931 of 2008 Date of Decision: 30.5.2011 Commissioner of Income Tax, Faridabad ....Appellant. Versus M/s Steriplate Pvt. Ltd. ...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. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 931 of 2008, 516 and 517 of 2010 as learned counsel for the parties are agreed that the issue raised in all the three appeals is identical and relates to interpretation of Explanation 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 of 2008. 2. This appeal has been preferred by the revenue under Section 260A of the Act against the order dated 27.3.2008 passed by the Income Tax Appellate Tribunal, Delhi Bench “C”, New Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 2470/Del/2007, ITA No. 931 of 2008 -2- relating to the assessment year 2002-03, claiming the following substantial question of law:- “Whether on the facts and circumstances of the case, the Hon'ble ITAT was right in law in upholding the order of the Ld. CIT(A) in deleting the adjustment of Rs.91,80,973/- made by the Assessing Officer by holding that the provision of diminution in value of investment does not fall in the purview of clause (c) of Explanation 1 to Section 115JB(2) of the Income Tax Act, 1961?” 2. Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the assessee filed its return for the assessment year 2002-03 on 31.10.2002 declaring nil income and also computed nil book profit for the purposes of Section 115JB of the Act. The Assessing Officer vide order dated 17.2.2005 recomputed the book profit at Rs.54,30,985/- by making an adjustment for provision for diminution in value of investment at Rs.91,80,973/-. The Assessing Officer held that the provision so made by the assessee fell under clause (c) of Explanation to Section 115 JB(2) of the Act. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] who vide order dated 12.3.2007 deleted the adjustment of Rs.91,80,973/- made by the Assessing Officer to the book profit under Section 115JB of the Act holding that the provision for diminution in value of investments is not a provision for liability, much less a provision for unascertained liability. The said provision does not fall within the purview of clause (c) of ITA No. 931 of 2008 -3- Explanation to Section 115JB(2) of the Act. Dissatisfied with that order, the department filed an appeal before the Tribunal. The Tribunal vide order dated 27.3.2008 upheld the order of the CIT(A) in deleting the adjustment of Rs.91,80,973/- made by the Assessing Officer and dismissed the appeal. Feeling aggrieved, the revenue has approached this 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 the amendment by the Finance (No.2) Act, 2009 made effective retrospectively from 1.4.2001, clause (c) of Explanation 1 had been inserted in Section 115JB(2) of the Act whereby any amount or amounts set aside as provision for diminution in the value of any asset shall not reduce the book profits of an assessee. According to the learned counsel, after the retrospective amendment, the ground on which the claim of the assessee had been accepted by the CIT(A) and the Tribunal no longer survives. In other words, it was urged that the book profits, thus, would increase as the amount of provision of Rs.91,80,973/- would not be adjusted in the profits of the assessee. 5. Learned counsel for the assessee did not dispute that after the amendment which has been made effective retrospectively w.e.f. 1.4.2001, in view of the introduction of Clause (i) of Explanation 1 to Section 115JB(2) of the Act, the claim of the assessee was not maintainable. 6. It would be advantageous to reproduce here Clause (i) of Explanation 1 to Section 115JB(2) of the Act as inserted which is as under:- ITA No. 931 of 2008 -4- “Explanation 1.- For the purposes of this section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub- section (2), as increased by- (a) to (h) XX XX XX (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 to the profit and loss account, and as reduced by,- (i) to (viii) XX XX XX” 7. The aforesaid amendment has been made retrospective and is effective from 1.4.2001. The assessment years involved in the instant appeals are subsequent thereto and, therefore, the same governs 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 of investment was not tenable and the same would be added in the profit which thereby would enhance the book profit under Section 115JB of the Act. Accordingly, the appeals stand allowed. (AJAY KUMAR MITTAL) JUDGE May 30, 2011 (ADARSH KUMAR GOEL) gbs ACTING CHIEF JUSTICE ITA No. 931 of 2008 -5- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 516 of 2010 Date of Decision: 30.5.2011 Commissioner of Income Tax, Faridabad ....Appellant. Versus M/s Steriplate Pvt. Ltd. ...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. 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 May 30, 2011 (ADARSH KUMAR GOEL) gbs ACTING CHIEF JUSTICE ITA No. 931 of 2008 -6- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 517 of 2010 Date of Decision: 30.5.2011 Commissioner of Income Tax, Faridabad ....Appellant. Versus M/s Steriplate Pvt. Ltd. ...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. 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 May 30, 2011 (ADARSH KUMAR GOEL) gbs ACTING CHIEF JUSTICE