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TMI Blog2011 (12) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... e Foreign Exchange Fluctuation due to restated term loan and that was made the component of the net profit of the assessee-company. Further assessee has not demonstrated that as per Schedule-VI of Companies Act, the impugned income is beyond the scope of profit of the company. By very adoption and inclusion of the said income in the profits of the company it has been affirmed that the same had come within the ambits of the "book profit". We therefore hold that the assessee was not justified in reducing the said amount while computing the "book profit" – Decided against the assessee. - IT APPEAL NO. 72 (AHD.) OF 2009 - - - Dated:- 30-12-2011 - MUKUL Kr. SHRAWAT, B.P. JAIN, JJ. Dhiren Shah for the Appellant. Abhishek Kumar for the Respondent. ORDER Mukul Kr. Shrawat, Judicial Member This is an appeal at the behest of the Assessee which has emanated from the order of Learned CIT(Appeals)-VI, Ahmedabad dated 10/10/2008. The only ground is in respect of the disallowance of deduction of Rs. 33,11,687/- while computing the tax u/s.115JB of the I.T. Act, which reads as follows:- I. DISALLOWANCE OF DEDUCTION OF Rs. 33,11,687/- FROM THE NET PROFIT ON ACCOUNT OF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been accounted for in fixed assets accounts in the books of accounts. No change has been done in the block of assets and the depreciation as per income tax rules. 5. AS-11 (revised-2003) shall be applicable in respect of accounting period commencing on or after 01/04/2004 and is mandatory in nature. 6. During the year we have changed the method of accounting of difference in foreign exchange due to restated the terms loan and the difference has been accounted for in profit and loss account being notional income/expenditure. 7. We are giving below the details of AS-11 .." 2.1 The assessee has also cited few case laws listed below:- "1. Rajkot District Gopalak Co-op. Milk Producers Union Ltd. v. CIT 204 ITR 590 (Guj.) 2. CIT v. Shoorji Vallabhdas Co. 46 ITR 144 (SC). 3. Godhra Electricity Company Ltd. v. CIT (225 ITR 746) [SC]. 4. Highways Construction Co. Pvt. Ltd. v. CIT [1992] (Gau.) 199 ITR 702. 5. Hitkari Fibres Ltd. v. Jt. CIT 90 ITD 654 (Mum.) 6. GKW Ltd. v. Jt. CIT 74 ITD 161/68 TTJ (Cal.) 756 7. ITO v. Frigsales (India) Ltd. 4 SOT 376 (Mum.)" 3. However, after discussing the provisions of section 115JB of the I.T. Act, the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income which is not a real income, since could not be taxed under the normal provisions of the Act, therefore should also be out of the ambits of "book profit". The ld. AR has placed reliance on ITO v. Frigsales (India) Ltd. [2005] 4 SOT 376 (Mum.) (order dated 22.6.2005), ITO v. Su-Raj Jewellery (India) Ltd. [2008] 21 SOT 79 (Mum.) (order dated 10.10.2007), CIT v. Shoorji Vallabhdas Co. [1962] 46 ITR 144 (SC), Indian Overseas Bank v. CIT [1990] 183 ITR 200/51 Taxman 283 (Mad.) EIH Associated Hotels Ltd. v. Dy. CIT [2009] 126 TTJ 246 (Kal.). 6. From the side of the Revenue, ld. Sr. DR Mr. Abhishek Kumar appeared and placed strong reliance on the wordings of the provisions of section 115JB of the I.T Act. The ld. DR's first plank of argument is that the language of section 115JB(2) is very clear that for the purpose of this section if Profit Loss account is prepared in accordance with the provisions of Companies Act, 1956, then in terms of the verdict of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 (SC) no adjustment is admissible. Ld. Sr. DR Mr. Abhishek Kumar has also placed reliance on a decision of N.J. Jose Co. Ltd. v. Asstt. CIT [2010] 321 ITR 132/17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2005 as per bank 07,36,379.71 Loan outstanding as per book as on 31.03.2005 7,62,10.032.71 Difference foreign exchange Fluctuation (Rs.) 31.03.2005 (A) 25,78,653.00 2. Account No. 003020600022880 USD outstanding loan on 31.03.2005 10,66,992.12$ Rate per $ Rs. 43.7450 Term loan in terms of rupees Outstanding as on 31.03.2005 As per bank 4,66,75,570.29 Term Loan outstanding as on 31.03.2005 as per book 4,74,08,604.29 Difference foreign exchange Fluctuation (Rs.) 31.03.2005 (B) 7,33,034.00 Total difference (A-B) being Foreign exchange fluctuation due 33,11,687.00 To restated of term loan" 7.1 This compilation consisted an account of UTI FCNR loan account No.11538 and UTI FCNR loan account No.22880 and the total of the closing balance was sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount for such financial year or part of such financial year falling within the relevant previous year." 8.1 This subsection thus prescribes that for the purpose of the application of section 115JB of the I.T. Act a company is under obligation to prepared its Profit Loss account for a relevant previous year in accordance with the provision of Part-II III of Schedule-VI of Companies Act, 1956. This sub-section has provided that while preparing the annual accounts, the Accounting policies and the accounting standards adopted for preparing those accounts, shall be the same as have been adopted and laid at the AGM in accordance with the provisions of section 210 of the Companies Act. Up to this extent, there is no dispute that the accounts in question of this assessee-company are as per the Companies Act Schedule-VI and those were duly laid before the AGM as prescribed u/s 210 of the Companies Act. The only exception prescribed is that where the company had adopted the accounts, however, those were different from the accounting policies, then they should be adjusted, so that they should correspond to the accounting policies and accounting standards. 8.2 This section overrides th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the interest u/s 234 has been approved in respect of the tax imposed vide application of Minimum Alternate Tax (MAT) provisions. Hence, we hereby hold that the provisions of section 115JB of the I.T. Act being code by itself therefore the adjustments can be made as prescribed within this code. Under this code if a Profit Loss account has been made in terms of the Companies Act, then no adjustment or tinkering is available except as provided in Explanation. The ld. AR has not demonstrated that as per Schedule-VI of Companies Act, the impugned income is beyond the scope of profit of the company. Naturally, the accounts of the company have been finalized by the Auditors after analyzing the nature of receipts which they have found to be the profits of the company therefore duly credited in the Profit Loss account . Hence that credit have formed part and parcel of the net profit of the company. Had that income, i.e. "Foreign Exchange Fluctuation Term Loan" was not the eligible profit as per Companies Act, naturally they have not included in the profits of the company. By very adoption and inclusion of the said income in the profits of the company it has been affirmed by the Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 349 of Companies Act which provides that credit for the profit arising on sale of immovable property should not be taken into Profit Loss account. We have also expressed in above paragraphs that accounts are required to be finalized in accordance with Schedule-VI of Companies Act, and if those provisions prohibit inclusion of any such income in the net profit of the company, then naturally such receipts or income should not form part of the "book profit". But that aspect ought to have been considered and looked into by the Auditors while finalizing the accounts and declaring the net profit of a company. In the present case as well, they should have undergone that process and thereafter only should have arrived at the figure of the net profit of the company. 12. Before we conclude this judgement, we hereby place reliance on the judgment of Apollo Tyres Ltd. (supra), wherein tinkering in the "book profit" has been prohibited. The Hon'ble Court has expressed that quote "The Assessing Officer, while computing the book profits of a company under section 115J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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