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TMI Blog2012 (5) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ited Real Estates and Buildings Pvt. Ltd. and M/s. Sukhsagar Developers Pvt. Ltd. [wholly owned subsidiaries of the assessee-company] have been amalgamated under the scheme of amalgamation vide order of the Hon'ble Bombay High Court dated 27-4-2007. These companies were amalgamated into M/s. United Estates Pvt. Ltd., i.e. the assessee company and as per the order of the High Court the effective date of amalgamation was 1-1-2007. The AO verified the profit & loss account and balance sheet of the assessee-company and noted that in the balance sheet a reserve of Rs. 39,79,89,292/- was credited by transfer the same from profit & loss account. The assessee was asked to explain as to why the same should not be added to the book profits as per the provisions of sec.115JB. In response to this show-cause notice it was mainly pleaded that the assessee-company prepared the accounts in accordance with Part II & Part III of Schedule VI of the Companies Act, 1956 and none of the provisions of sec.115JB have been violated while preparing the profit & loss account. The break-up of the general reserve is as under: (i) Share premium account 1,40,00,000 (ii) General Reserve 38,32,08,934 (iii) Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/- has been debited to profit & loss account. Out of the above a sum of Rs. 39,79,89,282/- has been credited as reserve. The AO also observed that the decisions of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra), and also of Bombay High Court in the case of Kinetic Motor Co. Ltd. (supra), were of no relevance because he has not altered or disturbed the profit & loss account given by the company. Thereafter he computed the book profits u/s.115JB as under: Computation of income u/s 115JB Net profit as per P&L A/c 43,883/- Add:- Amount referred to in clauses (a) to (f) - of the Explanation of Sub-section (2) of this section (i) Provision for Tax 56,000/- (ii) Amount carried to general reserve 39,79,89282/- Book Profit Rs 398,089,165/- 10% of the Book Profit 398,08,917/- 3. Before the CIT(A) it was mainly contended that the amalgamation was approved by the High Court of Bombay and as per the requirements of amalgamation, assets and liabilities have to be valued at fair market value and the same were valued on the basis of the report of a valuer as on 1-1-07 and the resulting difference due to this amalgamation was credited to general reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of asset to the amalgamating company and, therefore, any increase in the cost of assets due to amalgamation would be ignored. He also observed that one cannot make profit merely on revaluation of assets, therefore, same could not be considered for the purpose of sec.115JB and there cannot be any dichotomy between the provisions of sec.115JB and sec. 43C(1). The ld. CIT(A) thereafter relied on the decisions of the Hon'ble Madras High Court in the case of CIT v. M. CT. M. Corpn. (P.) Ltd. [1996] 221 ITR 524 and Hon'ble Supreme Court in the case of National Hydroelectric Power Corpn. Ltd. v. CIT [2010] 320 ITR 374/187 Taxman 193, and held that additions on account of notional reserve to book profits were not maintainable and accordingly deleted the same. 5. Before us, Ld. DR submitted that the AO has not rescrutinised/recast accounts, therefore, the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) has no relevance on the issue before us. He carried us through Explanation 1(b) to sec.115JB and pointed out that any amount carried to any reserve by whatever name called has to be added back. In case before us assessee has debited a sum of Rs. 47,39,19, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learly held that any transfer made during the amalgamation cannot give rise to any capital gain. 7. The Ld. Counsel of the assessee also submitted that clause (b) of Explanation 1 to sec.115JB was not applicable in the case before us because no amount has been debited to the profit & loss account. He submitted that the Hon'ble Supreme Court has clearly decided this issue by making similar observations in the case of National Hydroelectric Power Corpn. Ltd. (supra). Alternatively he submitted that addition by the AO on account of reserve also contains a sum of Rs. 1.40 crores on account of share premium account and Rs. 7,80,348/- on account of credit balance in the profit & loss account which was merely a transfer entry and cannot be called a debit to the profit & loss account, because such amount already stood on the credit side of amalgamating company and therefore there is no justification for taking these amounts also into reserve account. 8. We have considered the rival submissions carefully. We agree with the submissions of the Ld. DR that the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) has no relevance because AO has not tried to recast the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies By Closing Work in Prog. Project 1-Aqua Marine I 24,00,00,000 Project 1-Aqua 24,08,06,324 Project 2-Aqua Marine III 23,00,00,000 Marine I Project 2-Aqua Marine III 23,08,26,441 Project 3-United Tower Phase II 13,12,355 Project 3 -United Tower Phase II 13,52,860 Project-4 Kurla 26,07,291 47,39,19,646 Project 4-Kurla 26,13,069 47,55,98,694 To Direct Expenses Project 1-Aqua Marine I 85,087 Project 2-Aqua Marine III 73,727 Project 3-United Tower Phase II 10,101 1,68,915 To Maint. Exp. of Flat in stock 2,77,163 To Finance Expenses 10,50,714 To Perssonel Expenses Salary 45,000 Travelling Exp. 2,329 47,329 To Depreciation Exp. 83,362 To Administrative Expenses Auditors Remuneration 52,807 Legal & Professio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f book profit, assessee deducted the AAD component from total sale price and only the balance amount net of AAD was taken into P&L a/c and book profit. Consequently, AAR ruled (which is challenged herein) that reduction of AAD from the "sales" was nothing but a reserve which has to be added back on the basis of cl. (b) of Expln. 1 to s. 115JB of the IT Act, 1961 ("1961 Act", for short)." After quoting the provisions of clause (b) of Explanation 1 to sec.115JB the Hon'ble Supreme Court observed that there was no debit in the profit & loss account and the amount did not enter into the stream of income for the purpose of determination of net profit and hence clause (b) of Explanation 1 to sec.115JB was not applicable. 10. Now let us see the facts of the case before us in the light of the above decisions. The AS-14 recommends the treatment of various reserves etc., as under: "The Scheme of amalgamation sanctioned under the provisions of the Companies Act,1956 or any other statute may prescribe the treatment to be given to the reserves of the transferor company after its amalgamation. Where the treatment is so prescribed; the same is followed." The Hon'ble High Court while sanctioni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors P. Ltd. 75,C To Makson Trading & Invest P. Ltd. 75,C To Mrs. Mumtaz N Masani 280,C To Saizad N Maknojia 530,5 To Shamim Merchant 100,0 To Unimax Realtors P. Ltd 75,0 To United Estate P. Ltd. 75,0 To United Ressorts & Retreats P Ltd. 65,0 To United Shelters P. Ltd. 50,0 To Usman J Shama 3,600,0 To Yasmin R Karedia 300 0 To telephone Expenses Payable 6,5 To Professional Fees Payable 70,6 To FBT Payable 18,8 To Security Expenses Payable 67,4 To TDS Payable 303,3 To Rent & Maintenance Payable 209,4 To Petrol Expenses Payable 5,0 To Electricity Exp. Payable 2,5 To BMC Assessment Tax Payable 6,0 To Interest Payable 2,566,1 To Income Tax and FBT 18,0 To FBT Tax Provisions (A Y 2007-08) 22,3 To Income Tax Provisions (AY 2006-07) 300,0 To FBT Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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