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TMI Blog2015 (8) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... se of modernization and diversification of the assessee's processing plant relating to cashew. The assessee filed the Sanction Letter of Government of India regarding the grant before the AO. According to the assessee, this amount of grant was received for addition to fixed assets, the assessee erroneously accounted it under the head 'Other Income' in the Profit & Loss Account, thereby resulting in an overstatement of the revenue profits of the assessee to the extent of Rs. 49,92,354/-. Similar was the case with the amount of compensation received from the State Government towards damages caused to the Compound Wall of the assessee. The amounts received from the State Government was Rs. 64,276/-. It is seen that the profit and loss account was signed on 07.09.2010 for adoption of the Annual General Meeting. The overstatement of profit in the Profit & Loss Account was noticed while filing the return of income in ITR VI on 26.09.2010. Since, the P&L Account was already signed on 07.09.2010, no correction was possible when the assessee noticed the error on 26.09.2010. However, it is to be noted that in the computation of book profits and the return of income, the assessee dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d take into consideration the depreciation claimed by the assessee by reducing the grant-in-aid received from the Central Government for the value of the fixed assets. However, the AO has not agreed with the assessee and considered the above item of receipt for computing the book profit. On the other hand, the CIT(Appeals) directed the Assessing Officer to allow the claim of deduction of Rs. 50,56,630/- as deduction from the book profits and allowed the claim of the assessee. Against this, the Revenue is in appeal before us. 4. The ld. DR submitted that for the purpose of sec.115JB of the Act, "book profits" means the net profit as shown in the profit and loss account for the relevant previous year prepared in accordance with the provisions of Parts II and II of Schedule VI to the Companies Act, 1956 as increased by the items mentioned as (a) to (j). 5. On the other hand, the ld. AR submitted that while computing the book profits u/s. 115JB, the assessing authority did not deduct an amount of Rs. 49,92,354 which was received from the Central Government as machinery grant by the assessee for the purpose of modernization and diversification of the assessee's processing plant. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be decided. Part-Il of Schedule-VI of the Companies Act deals with the requirement of profit and loss account whereas Part-III deals with its interpretation. The subsidy and compensation receipts cannot be treated as revenue receipts arising from the carrying on the business of the assessee. 5.2. According to the ld. AR, as per the definition of income under S. 2(24) of the Act, income includes any capital gains which are not chargeable under section 45 shall not be treated as income under section 2(24) of the Income-tax Act and consequently as the charging section i.e., section 4 of the Income-tax Act fails and such receipts shall not be chargeable to tax under any other provisions of Income-tax Act. The subsidy receipts and compensation receipts by the assessee are not assessed to tax as capital gains. In this regard, the assessee relies the decision of the Supreme Court in the case of CIT vs. D.P. Sandhu Brothers reported in 273 ITR 1. The assessee therefore submits that the receipts which are not taxable under any provisions of the Act cannot be treated as part of book profit under section 115JB and brought to tax. In view of the above, the assessee submits that only operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibres Ltd. v. JCIT (90 ITD 654) 9. GKW Ltd. v. JCIT (74 ITD 161(Cal.) 10.ACIT, Kottayam, v. The Niligiri Tea Easte Ltd. (47 Taxman.com 329) 6. We have heard both the parties and perused the material on record. The moot question that needs to be decided is whether Parts II and III of Schedule VI to the Companies Act permits the exclusion of the above receipts relating to Central and State Government grant. In other words, can a profit and loss account drawn up without considering the above receipts said to be in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act or not ?". 7. It is to be noted that the assessee has not made any claim of deduction of these receipts from the book profit, which goes to show that these receipts as such is not deductible from the net profit prepared in accordance with Parts II and III of Schedule VI to the Companies Act. Moreover, the taxability of these receipts is relevant only for the purpose of computation of income under the normal provisions of the Income-tax Act, and has nothing to do with the preparation of the profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the profit and loss account prepared in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act is specifically provided in section 115J or 115JA or 115JB itself as the case may be, and consequently all other provisions of the Act providing the manner of computation of total income under the normal provisions of the Act cannot be applied while computing book profit under section 115J or 115JA or 115JB, as the case may be. We do not find any difference between section 115J or 115JA or 115JB in so far as method of computation of book profit as provided in the Explanation appended thereto is concerned. The Tribunal in the case of ITO v. Frigsales (I) Ltd. [2005] 4 SOT 376 has not applied the ratio of the decision of the Supreme Court in the case of Apollo Tyres Ltd. [2002] 255 ITR 273. But the fact remains that the propositions laid down by the hon'ble Supreme Court in the case of Apollo Tyres Ltd. [2002] 255 ITR 273 have been reiterated and relied upon by the Supreme Court in the case of HCL Comnet Systems and Services Ltd. [2008] 305 ITR 409 which has been rendered in the context of section 115JA of the Act. As per sub-section (5) of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the apex court in the case of Apollo Tyres Ltd. [2002] 255 ITR 273 and HCL Comnet Systems and Services Ltd. [2008] 305 ITR 409 and the rest of the cases, the facts are distinguishable in view of decision of Special Bench, Hyderabad in the case of Rain Commodities Ltd. v. CIT [4 ITR (Trib) 551]. Even declaration of dividend is not a must for application of section 115JB. The purpose of this section is to tax companies which were making profits but not paying taxes due to so many exemptions and deductions. The reference to the declaration of dividend in the context of section 115JB by the Finance Minister or by the circulars are merely explanations to the kind of malaise that the section sought to address. For invoking this section, there is no prerequisite condition that the company should have declared dividend to the shareholders. 10. It is not the intention of the Legislature to substitute the other provisions of the Act in place of what is specifically made available in section 115JB in so far as the computation of book profit under section 115JB of the Act is concerned. The entire mechanism for the computation of book profit is clearly set out in sub-section (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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