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TMI Blog2016 (5) TMI 1032X X X X Extracts X X X X X X X X Extracts X X X X ..... s the loss of ₹ 66,86,13,773/-. There is no concept like multiple profit in the profit & loss account. It is well settled proposition of law that, as per explanation-1 below section 115JB(2) of the Act, only adjustment as permitted to the book profit are those as provided in the said explanation. The purpose of section 115JB of the Act is to provide an alternative method of computation of tax by accepting the book profits as shown by the assessee, albeit with certain adjustment as specified in Explanation-1 to section 115JB(2) and levying tax thereon as alternative to the tax computed under the other provisions of the Act. Assessing Officer wrongly disputed the correctness of the accounts of the assessee. - Decided in favour of assessee. - ITA NO.2825/Mum/2013 - - - Dated:- 22-4-2016 - Shri Joginder Singh, Judicial Member, and Shri Ashwani Taneja, Accountant Member For The Assessee by Shri Nitesh Joshi For The Revenue : Shri M. Dayasagar ORDER Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 13/03/2013 of the First Appellate Authority, Mumbai, on the grounds mentioned in the grounds of appeal. 2. During ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was further invited to the language contained in section 115JB of the Act, ITA No.5810/Mum/2008; 45 SOT 399 and decision from Hon ble Bombay High Court in CIT vs Veekayal Investment Co. Pvt. Ltd. Ors (249 ITR 597) (Bom.) order dated 08/02/2001. Further reliance was placed upon the decision in Rain Commodity 40 SOT 265 (Special Bench). It was also explained that the accounting treatment (page 44 of the paper book) has been affirmed by Hon ble High Court and the Department has not doubted the credibility of the accounting treatment. 4.1. On the other hand, the ld. DR contended that the computation of income is not as per schedule, therefore, the addition was rightly made. So far as, the cases relied upon by the assessee is concerned, the ld. DR contended that these are on different facts. The crux of argument is in support to the assessment order as well as the order of the Commissioner of Income Tax (Appeal) by contending that it was not a real loss but notional. 4.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that till 04/01/2009, the assessee was named as Khatau International Ltd and was carrying on its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such the scheme was never opposed by either party. It has been further observed that the requisite statutory compliance has been made. 4.3. The assessee in its annual accounts, prepared for year ending 31/03/2009, inter-alia, debited loss of ₹ 145,23,56,165/-, which arose on transfer of asset on demerger. This loss was duly disclosed by the assessee as extraordinary item in its profit loss account. This loss was arrived at by reducing from the book value of the asset transferred to the tune of ₹ 146,93,56,165/-. The book value of the liabilities transferred of ₹ 1,70,00,000/- and the treatment, given by the assessee, to the loss arising on demerger is in accordance with part II and III of Schedule VI of the Companies Act as well as accounting standard 5 dealing with net profit or loss for the period prior period items and changes in accounting policies issued by ICAI. 4.4. On 05/01/2010, the assessee declared nil income (Assessment year 2009-10), in regular computation of income and loss of ₹ 64,21,12,555/- was computed u/s 115JB of the Act (page 1 2 of the paper book). This computation of income was based on the annual accounts prepared for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities by way of borrowings from financial institutions. 4.6. On appeal, before the First Appellate Authority, the adjustment to book profit, as computed by the Assessing Officer u/s 115JB of the Act, was upheld. According to the Commissioner of Income Tax (Appeal), the amount of profit/loss, in the profit loss account was reflected at five different placed in profit loss account of which four of them were correctly mentioned. However, with respect to the 5th amount/loss of ₹ 66,86,13,773/-, as taken by the assessee, the starting point for computation of book profit was held to be not correct. He also observed that scheme of arrangement was between Khatau International Ltd. and Khatau Resorts Ltd. to which the assessee was not a party. It was further observed that the transaction of demerger did not result in any profit or loss to the assessee as it was an arrangement between share holder and the share holders of the demerge company had received shares of the resulting company. 4.7. Before this Tribunal, the claim of the assessee is that the starting point for computation of book profit u/s 115JB of the Act is the net profit as shown in the profit loss account fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. 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- (a) the amount of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r clause (j) in Explanation 1 below sub-section (2) of section 115JB by the Finance Act, 2015, w.e.f. 1- 4-2016 : (k) the amount of gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through profit or loss account, as the case may be; if any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by,- (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through profit or loss account, as the case may be; (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation.-For the purposes of this clause,- (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or (iv) to (vi) [***] (vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under subsection (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation below sub-section (2) of section 288, certifying that the book profit has been computed in accordance with the provisions of this section along with the return of income filed under sub-section (1) of section 139 or along with the return of income furnished in response to a notice under clause (i) of subsection (1) of section 142. (5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section. (5A) The provisions of this section shall not apply to any income accruing or arising to a company from life insurance business referred to in section 115B. (6) The provisions of this section shall not apply to the income accrued or arising on or after the 1st day of April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be: Provided that the provisions of this sub-section shall cease to have effect in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012. If the aforesaid provision of the Act is analyzed, as per E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said part of the schedule, one also has to be reflect profit losses in respect of transaction of a kind not usually under taken by the company or undertaken in circumstances of an exceptional or non-recurring nature. The stand of the assessee is that the assessee is required to debit its profit loss account by the loss arising on demerger as the same is mandated by clauses of part II to schedule VI of the companies Act. The Hon ble jurisdictional High Court in CIT vs Veekaylal Investment Co. Pvt. Ltd. 249 ITR 597 concluded as under:- Held, allowing the appeal, that according to section 115J of the act, in the case of an assessee being a company, if the total income is less than 30 per cent of its book profits then the total income of such company shall be deemed to be an amount equal to 30 per cent. Of such book profit and such income shall be chargeable to tax. The important thing to be noted is that while calculating the total income under the Income Tax Act, the assessee is required to take into account income by way of capital gains under section 45 of the Income Tax Act. In the circumstances, while computing the book profits under the companies Act, the assessee has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prepared in accordance with Parts II and III of Schedule VI to the Companies Act. Moreover, the taxability of capital gain is relevant only for the purpose of computation of income under the normal provisions of Income tax Act, and has nothing to do with the preparation of profit and loss account in accordance with the provisions of Part II and III of Schedule VI to the Companies Act . The Ld A.R submitted that, since the assessee before the Special Bench did not comment about such inclusion in the Notes of accounts, but claimed deduction only at the time of computing Book Profit u/s 115JB of the Act, the Special Bench took the view that the assessee, having included the capital gain in the Profit and Loss account which was agreed to have been prepared in accordance with Parts II and III of the Schedule VI to the Companies Act, cannot claim that the same should be excluded from net profit for the purpose of computing book profit u/s 115JB of the Act. 4.10. The ld. counsel for the assessee explained that the note mentioned in the aforesaid order was not put in, therefore, the aforesaid conclusion will not apply to the facts of the present appeal. Broadly, we are of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins unchanged. Accounts for the year ended 31st March 2009 have prepared after giving effect of the scheme of demerger. 2. Change in accounting policy. During the year the company has changed its accounting policy with respect to accounting for cost of investments sold from weighted average basis to first in first out basis, due to which profit for the year is overstated by ₹ 39,83,16,862/- and the carrying cost of investment is overstated by ₹ 39,83,16,862/-. 4.11. If the conclusion drawn by the Tribunal in the case of M/s Shivalik Venture Pvt. Ltd. vs DCIT (supra) is analyzed with the facts of the present appeal and also the factum that such demerger was approved by the Hon ble jurisdictional High Court, it can be concluded that the facts are different. Even otherwise, before the Special Bench, the assessee did not comment about such inclusion in the notes of accounts but merely claimed deduction while computing book profit u/s 115JB of the Act, in that situation, a particular view was taken. The profit loss account should be read along with notes forming part of the account. The case of the assessee is fortified by the decision in Sain P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elexes, facsimile connections and installations, utilities, electricity and other services, provisions, funds; benefits of all agreements, contracts and arrangements arid all other interests, privileges, advantages and, benefits in connection with or in relation thereto as on the Appointed Date; (iv) all records, files papers, engineering and process information,' computer programs, manuals, data, catalogues, quotations, sales and advertising materials, lists of present and former customers and suppliers, customer credit information, customer pricing information, 'and other records, whether in physics' form 'or electronic form in connection with or in relation thereto as on the Appointed Date; and (v) all debts, duties, obligations and liabilities (including contingent liabilities) pertaining or in relation thereto as on the Appointed date. xxxxxxxxxxxxxxxxxxxxxxxxxxx 1.6. Any question that ma~ arise as to whether a specific asset liability pertains or relates, or does not pertain or relate to the Hospitality Undertaking or whether it arises out of the activities or operations of the Hospitality Undertaking shall be decided by mutual agreement between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss, arose on demerger is in accordance with part II III to schedule VI of the Companies Act and such demerger was approved by the Hon ble High Court vide order dated 19/09/2008. Even otherwise, as mentioned earlier, the statutory auditors have accepted the book treatment in respect of loss arose on account of demerger, thus, we are not in agreement with the observation of the Ld. Assessing Officer that such loss could not be debited to the profit and loss account and ought to have been adjusted against the reserve of the assessee company. The starting point for computation of book profit u/s 115JB of the Act is the net profit as shown in the profit loss account for the relevant previous year. In the present case, such amount is the loss of ₹ 66,86,13,773/-. There is no concept like multiple profit in the profit loss account. It is well settled proposition of law that, as per explanation-1 below section 115JB(2) of the Act, only adjustment as permitted to the book profit are those as provided in the said explanation. The purpose of section 115JB of the Act is to provide an alternative method of computation of tax by accepting the book profits as shown by the assessee, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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