INCOME TAX ACT, 1961

Section 115JB

MAT - Book profit under section 115JB - Loss arising on disposal of depreciated asset, debited to P&L Account - Whether treated as provision for diminution in the value of asset

AO made an addition on account of provision for diminution in the value of asset, while computing book profit under section 115JB. However, CIT(A) deleted the addition on the ground that impairment of asset was not a provision but a direct expense, similar to depreciation. Therefore, could not be added back to book profit while computing MAT as per clause (i) of the Explanation to section 115JB. Assessee contended that the provision was made only when the asset shown in the balance sheet was more than its real realizable value but in the instant case, the asset in question became obsolete when assessee changes office premises. Held: Provision would be created on account of diminution in the value of existing asset. However, in the instant case assets were ceased to exist as the same were disposed off as scrap. And once the asset ceased to exist and the loss arising on disposal of the depreciated asset was debited to P&L Account, the amount booked in the P&L Account could not be regarded as a provision, much less, the provision on account of diminution in the value of asset.

REFERRED :

FAVOUR : In assessee's favour by way of remand

A.Y. : 2008-09

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