Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of ITO Vs. TCFC Finance Limited (ITA No. 1299/Mum/2009) (Judgement date- 9 March 2011 Assessment Year 2004-05) held that the provisions of Minimum Alternate Tax (MAT) deals with amount of provision for diminution in the value of any asset and not with the value of asset which remains after diminution. Once provision is made for diminution in the value of any asset, the same has to be added for computing book profit, regardless of the fact whether or not any balance value of the asset remains after diminution.
Further, the Tribunal held that the reflection of the amount of provision for diminution in the value of investment separately on the liability side of the balance sheet or by way of reduction from investment on the asset side of balance sheet is totally irrelevant for computing book profit.
Facts
- The taxpayer had made investment in unquoted shares of RFB Latex Limited. RFB Latex Limited discontinued its operation therefore the taxpayer estimating the amount was irrecoverable wrote off the INR 12.5 million as ‘provision for diminution in value of investment’.
- The Assessing Officer (AO) held that provision made was diminution in the value of shares and therefore was required to be added to book profit under Section 11 5JB of the Income-tax Act, 1961 (the Act).
Taxpayer’s contentions
