Aspinwall And Company Limited vs The Commissioner Of Income Tax on 20 November, 2025

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Kerala High Court

Aspinwall And Company Limited vs The Commissioner Of Income Tax on 20 November, 2025

This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the 'Act' for short), at the instance of the assessee, seeks to challenge the order dated 19.05.2020 in I.T.A.No.61/COCH/2015 of the Income Tax Appellate Tribunal, Cochin Bench with respect to the assessment year 2006-07 relevant to the financial year 2005-06.

2. The appellant-assessee's return of income was processed under Section 143(3) of the Act, invoking the provisions of Section 115JB of the Act providing for Minimum Alternate Tax (MAT) computation, thereby adding back: -

i. provision for diminution in the value of investment -Rs.1,45,18,200/- ii. provision for lease rent Rs.61,00,000/- iii. provision for doubtful debts Rs.36,55,248/- The appeal against the afore MAT computation before the first appellate authority being unsuccessful, a second appeal was instituted before the Tribunal. The appellate Tribunal has also confirmed the assessment as above, on account of which the appellant-assessee is in appeal before this Court, with respect 3 ITA No.7 of 2021 2025:KER:88475 to the add-back as against Serial Nos.(i) and (ii) alone.

3. The following questions of law arise for consideration in this appeal: -

i. Ought not the Appellate Tribunal have held that the provision for reduction in the face value of investment (shares) cannot be added back under Section 115JB of the Act, in the absence of a statutory provision authorising the same, as on the first day of the assessment year?

ii. Ought not the Appellate Tribunal have followed the dictum laid down in CIT v. Vatika Township, reported in (2014) 367 ITR 466 (SC) and held that the Section 115JB(2)(i) inserted in the year 2009, creates a new liability upon the appellant-assessee, and therefore, can only operate prospectively?

iii. Ought not the Appellate Tribunal have held that the appellant, while finalizing the books of account for the financial year 2005-06, which ended on 31.03.2006, was right in not adding back the provision for diminution in the value of investment, for the reason of it being an ascertained liability?

iv. Ought not the Appellate Tribunal have held that the provision for lease rent is an ascertained liability, for the reason that it was created based on the demand notice issued by the Tahsildar, Taluk Office, Kochi, pursuant to the revision of lease rent?

v. Ought not the Appellate Tribunal have held that the liability of the revised rent, for which provision was created, represents a liability in praesenti, though it will be discharged on a future date? vi. Whether the Appellate Tribunal is justified in holding that the provision for lease rent is to be allowed only in the year of crystallization of the expenditure, and not in the year of booking the same in the accounts, in the matter of an assessee who follows mercantile system of 4 ITA No.7 of 2021 2025:KER:88475 accounting?

vii. Is not the finding of fact by the Appellate Tribunal erroneous and perverse.

4. Heard Sri.Raja Kannan, the learned counsel for the appellant-assessee, and Sri.Jose Joseph, the learned Standing Counsel for the respondent revenue.

5. The first issue arising for consideration in this appeal is as regards the 'provision for diminution in the value of investment' being added back for the purpose of MAT computation. The contention of Sri.Raja Kannan is essentially to the effect that during the financial year 2005-06 (assessment year 2006-07), insofar as there was no provision in the statute providing for such an add-back, the completion of assessment was without any justification. According to him, insofar as the books of accounts were finalised on 31.03.2006, it is the statutory provision that existed as on that date, which requires to be considered. According to him, an enabling provision under Section 115JB was introduced only in the year 2009 by virtue of the insertion of clause (i) to the explanation 1 thereunder, and therefore, since the afore provision introduced 5 ITA No.7 of 2021 2025:KER:88475 a new liability, it can have only a prospective operation. He would rely on the Karimtharuvi Tea Estate Ltd. v. State of Kerala [(1966) 60 ITR 262], Commissioner of Income Tax (Central), New Delhi v. Vatika Township Pvt. Ltd. [(2015) 1 SCC 1], and Bharat Earth Movers v. Commissioner of Income Tax, Karnataka [(2000) 6 SCC 645], in support of the afore contentions.

6. Per contra, Sri.Jose Joseph, the learned Standing Counsel, would contend that, insofar as the provision introduced in the year 2009 was with retrospective effect from 2001 onwards, the completion of the assessment was in order.

7. We have considered the rival submissions and the connected records.

8. True, as rightly contended by Sri.Raja Kannan, during the financial year 2005-06, the provisions of Section 115JB of the Act did not visualise an add-back, as regards the amount/s set apart as a provision for diminution in the value of assets. Section 115JB of the Act provides for special provisions for the 6 ITA No.7 of 2021 2025:KER:88475 payment of tax by certain companies. The provision provides for the adoption of 'book profit', in the event the tax payable on the total income, as computed under the Act of a particular assessment year, is less by the extent provided in the Section. What is 'book profit", has been provided under explanation 1 to Section 115JB of the Act. The relevant portions of explanation 1 to Section 115JB of the Act are in the following lines:-

"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-

.......

(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or .......

(i) the amount or amounts set aside as provision for diminution in the value of any asset,"

In the case at hand, it is not in dispute that clause (i) referred to above covers the situation noticed as above.

9. However, the question arising for our consideration is as to whether the afore clause can be applied for the assessment year 2006-07. The learned counsel placed considerable reliance 7 ITA No.7 of 2021 2025:KER:88475 on the judgment of the Apex Court in Karimtharuvi Tea Estate Ltd (supra). However, the question arising for consideration in that case was as to whether the surcharge introduced by the Kerala Surcharge on Taxes Act, 1957, with effect from 01.09.1957, without any retrospective operation, would apply for the assessment year 1957-58. It is in that context that the Apex Court held that an amendment which came to force after the first day of April of the financial year would not apply for the assessment of that year, even when the assessment is completed after the insertion of the provision. Similarly, judgment of the Apex Court in Vatika Township Pvt. Ltd. (supra) considered a question as regards the applicability of Section 113 of the Act, which only had a prospective operation; holding that it cannot have any retrospective operation. The judgment of the Apex Court in Bharat Earth Movers (supra) is also not apposite, insofar as the case at hand involves the application of explanation 1 to Section 115JB of the Act introduced with retrospective operation. 8

ITA No.7 of 2021 2025:KER:88475

10. In the case at hand, admittedly, clause (i) referred to above has been provided a retrospective effect from 01.04.2001 so as to cover the assessment year 2001-02 and subsequent years. It is settled principle of law that a provision introduced by a statute has to be extended full effect. If we are to accept the contention raised by the assessee in this appeal, the amendment in the statute would become a dead letter, and this is not to be permitted.

11. True, the assessee can challenge the constitutionality of the provisions of the statute to contend that the provision introduced in the year 2009 with retrospective operation is oppressive. But such a contention cannot be raised in the appeal instituted under the provisions of the Act by the assessee. Therefore, we are of the opinion that the assessee is not entitled to succeed.

12. The second point arising for consideration is as regards the lease rent added back by the assessing authority. In this regard, Sri.Raja Kannan would essentially contend that the 9 ITA No.7 of 2021 2025:KER:88475 liability being an 'ascertained' one, there cannot be any addition, going by clause (c) of Explanation 1 to Section 115JB of the Act, which excludes 'ascertained liabilities'. To answer this question, certain factual aspects need to be noticed. The Government of Kerala sought to realise the lease rent with respect to certain leasehold land wherein the registered office of the assessee was situated at Fort Kochi. The liability on account of the revision amounted to Rs.1,59,80,172/-, whereas the assessee made a provision of Rs.61,00,000/- for meeting the liability towards lease rent payable. When we notice the afore factual situation, on the basis of which the provision was created, we are of the opinion that the afore amount would not partake the character of an 'ascertained liability'. This is firstly because if the stand of the assessee is to be accepted, the provision ought to have been made for the afore amount demanded by the Tahsildar. As against this, the provision made was for Rs.61,00,000/-. Further, we notice that it is only pursuant to the order passed by the Government in the year 10 ITA No.7 of 2021 2025:KER:88475 2013, the amount has crystallised. When that be so, as regards the assessment year 2006-07, the provision noticed by the assessing authority would definitely require to be added back, and we do not find any infirmity with respect to the same.

On the whole, we are of the opinion that the appellant- assessee is not entitled to succeed. The appeal would stand dismissed, answering the questions of law raised against the appellant-assessee and in favour of the revenue.

Sd/-

A.MUHAMED MUSTAQUE JUDGE Sd/-

                                   HARISANKAR V. MENON
                                          JUDGE
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   ITA No.7 of 2021                                       2025:KER:88475



                           APPENDIX OF ITA 7/2021

APPELLANT'S ANNEXURES:

ANNEXURE A      TRUE COPY OF THE ASSESSMENT ORDER DATED 31.12.2008

ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -1(1), KOCHI, UNDER SECTION 143(3) OF THE IT ACT, 1961.

ANNEXURE B TRUE COPY OF THE ORDER DATED 30.09.2014 ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-11, KOCHI IN APPEAL NO.ITA 79/R-1/E/CIT-II/2008-09. ANNEXURE C TRUE COPY OF THE APPEAL MEMORANDUM (WITHOUT ANNEXURES) DATED 22.01.2015 FILED BY THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH.

ANNEXURE D TRUE COPY OF THE ORDER DATED 19.05.2020 ISSUED BY THE ITAT, COCHIN BENCH IN ITA NO.61/COCH/2015 FOR THE A.Y.2006-07.

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