As per AS-13, in case of permanent investment, the value of investments is to be decreased only when there is a permanent diminution in value of investment. Hence, if the loss is not of temporary in nature i.e. incurred in current year and the net worth of the Company is substantially reduced, then the value of investment in subsidiary is to be reduced to reflect fair value of investment and balance is to be provision for diminution in value of investments. The above accounting treatment is to be given in accounts prepared as per Companies act.
But while preparing the computation as per IT Act, no provision made is allowed as deduction. Hence, such a diminution is value of investment in subsidiary will not be allowed as deduction and will be added to net income.
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