9911796707
TMI Blog2017 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ,76,03,999 being waiver of dues while computing the Book Profits under Section 115JB of the Income Tax Act, 1961 ('the Act'). It is prayed that the learned AO be directed to reduce the Net profit by an amount of Rs. 390,76,03,999 being waiver of dues while computing the Book Profits under 'Section 115JB of the Act. 2. Without prejudice to Ground 1 above, the learned CIT(A) erred in rejecting the contention of the Appellant that under no circumstances the amount of Rs. 228,46,76,328 being the principal portion of the waived loan while computing the Book Profits under Section 115JB of the Act. 3. On the facts and in the circumstances of the case, the learned CIT(A) has legally erred in directing the learned AO to levy interest under Section 234B and 234C of the Act. It is prayed that the learned AO be directed to delete the interest under Section 234B and 234C of the Act." 3. Besides this, the assessee vide petition dated, 06.04.10 has filed additional grounds wherein the amount challenged of Rs. 390.76 crores has been substituted withRs.314.48 crores. The additional grounds raised by the assessee read as under: "4. Without prejudice to Ground 1 above, the Ld. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the computation of income assessee added back only the amount of Rs. 76,27,96,981/- on the ground that it was claimed as deduction in the earlier years. Regarding waiver of principal loan amount and interest payable to UTI, it was submitted that it was not claimed as allowance or deduction in the earlier years. Therefore, it does not constitute income under section 41(1) of the Act. However, the Assessing Officer vide his order dated 29.12.06 passed u/s 143(3) determined the income under the normal provisions of the Act at Rs. 152,58,98,970/- and book profit was computed at Rs. 529,36,24,104/- under section 115JB after disallowing the following expenses/deductions claimed by the assessee in the normal computation of income and also making other adjustments while computing the book profits: * Addition of Rs. 109,41,00,000/-, being the amount of depreciation attributable to the capital assets purchased out of loans taken from financial institutions but subsequently waived, liable to be taxed u/s. 41(1) of the Act. * Non reduction of Rs. 314,48,07,026/-, being waiver of loans, while determining Net Profit for the purpose of computing book profits u/s. 115JB. 5. The back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case is that, the assessee while computing the book profit under section 115JB in the revised computation of income has included the amount of Rs. 314.14 crores (i.e. Rs. 228.46 + Rs. 86.01) which represented the exceptional items of receipts on account of waiver of loan and same was not taken to 'capital reserve' or excluded by the assessee from the net profit as per profit & loss account. Instead, in the computation of income the assessee by way of a note gave a caveat that the amount of Rs. 314.14 crores which represents capital receipt is not in the nature of profit and gains of business and therefore, is not includable in the book profit under section 115JB. This note has given in the para 10.1 of the revised computation which reads as under: "The company submits that the above item is not in the nature of profits and gains of business and accordingly, is not includible within the Book Profits under Section 115JB. In any event, the principal amount waived and written back cannot be considered as income and the same should not be included in the Book Profit. While the Company has, out of abundant caution, included the above item in the computation of Book Profits to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting, that such waiver of dues are chargeable to tax due to deeming provisions of Section 41(1), it was submitted that such deemed income cannot be included for the purposes of computing Book Profits u/s 115JB of the Act as held by the ITAT, Hyderabad Bench in the case of NCL Industries (supra)." 7. The Ld. CIT(A) rejected the assessee's contention on the ground that assessee is required to prepare its profit & loss account in accordance with Part II & III of VIth Schedule of the Companies Act,1956 and the book profit so arrived is to be taken at the basis for MAT calculation subject to certain specific adjustments of amount/data prescribed in the Explanation-1 thereto. The assessee in its computation of book profit once has adopted the said amount as the part of the book profit then the same has to be accepted as such. He rejected the assessee's contention that notes given in the statement of accounts that it is not includable within book profit cannot be considered. He distinguished the judgments relied upon by the assessee and finally he upheld the action of the Assessing Officer for including the waived amount for the purpose of arriving the book profit. 8. Before us, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the account and shall disclose every material after including the credits or receipts and debits or expenses in respect of non-recurring transaction or transaction of exceptional nature. The waiver of loan can no way be reckoned as working result of the company for the period. He referred to the decision of Hon'ble Supreme Court in the case of Indo Rama Synthetics (I) Ltd. vs. CIT, (2011) 330 ITR 363 (SC) wherein it has been held that object of the MAT provision is to bring out the 'real profits' of the companies and the main thrust is to find out the working result of the company. The real working result of a company can be arrived only after excluding the capital receipt and not otherwise. On the issue that assessee itself has included the waiver of amount in its profit & loss account, Mr. Kaushal submitted that the said working has to be read with the caveat given in notes to the account which has to be read along with the balance sheet of the profit & loss account. The assessee has very categorically stated that the waiver amount is not includable in the working of the book profit and it has been shown out of abundant precaution to avoid any amount of interest or pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the charging sections and if it is not an income then same cannot be brought to tax under the MAT provision also. The waiver/remission of a loan taken for the purchase of a capital asset is a capital receipt which is not chargeable to tax and therefore, waiver of a loan being a capital receipt cannot be indirectly brought to tax under section 115JB as it would defeat the entire purpose of the legislative intend behind introducing the provisions of MAT in section 115J/115JA/115JB. He also relied upon the decision of Hon'ble Kerala High Court in the case of Karimtharuvi Tea Estates Ltd. and Another vs. DCIR and Others (247 ITR 22), wherein the Hon'ble Kerala High Court after examining the object of section 115JB observed and held as under: "The object of insertion of section 115J of the Income Tax Act, 1961, was to ensure levy of minimum tax on what are known as 'prosperous zero-tax companies'. Under the scheme of the section, where the total income of companies as computed under the provisions of the Act, in respect of the previous year relevant to the assessment year, is less than 30 per cent of their book profits, the total income of such companies chargeable to inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... By way of illustration, he pointed out that clause (f) of Explanation-1 and clause (2) itself shows that any income to which provision of section 10, 10A, 10B or section 11 applies, then it requires exclusion of such income from the book profit which has so credited to the profit & loss account likewise if a capital receipt which is not taxable under the Act is credited to the profit & loss account it does not ipso facto reached to a conclusion that it is to be treated as part of book profit. He also relied upon following case laws wherein on similar issues; the matter was decided in favour of the assessee by the various Tribunals:- i. Shivalik Venture (P) Ltd. vs. DCIT (2015) 173 TTJ (Mum) 238. ii. ACIT vs. Shree Cement Ltd. (ITA Nos.614, 615 & 635/JP/2010). iii. ACIT vs. L.H. Sugar Factory Ltd. and vice versa in ITA Nos.417, 418& 339/LKW/2013 dated 9 February 2016. iv. DCIT vs. Binani Industries Ltd. in ITA No.144/Kol/2013 dated 15 February 2016. v. DCIT vs. M/s. Garware Polyester Ltd. (ITA No.5996/Mum/2013). 10. On the other hand, the Ld. CIT D.R. submitted that once the assessee itself has credited the waiver amount to the profit & loss account, then neither the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inker with such profit & loss account while computing the book profit. 11. We have heard the rival submissions of both the representatives, perused the relevant material referred to before us and the relevant findings given in the impugned order. The main issue involved here in this appeal is, whether the amount of Rs. 314,48,07,026/- being waiver of loan amount can be reduced while determining the net profit for the purpose of computing the 'book profits' under section 115JB. The waiver of the loan amount has arisen on account of the fact that assessee had availed rupee term loan and foreign currency loan from various institutions in India and foreign financial institutions for setting up of integrated steel plants. It is an undisputed fact that loan taken and utilized was for the purchase of plant and machinery for setting up of steel plant, i.e., for acquisition of capital assets. The assessee due to heavy losses and its inability to meet its financial commitment, entered into a 'corporate debt restructuring package' in respect of the loan taken from various Indian and foreign financial institutions. After negotiations the principal and interest amount which was waived by the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where, however, a receipt is of the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act, lies upon the assessee. Where the case of the assessee is that a receipt did not fall within the taxing provision, the source of the receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure, the income-tax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all the evidence in support of his contention that it is not within the taxing provision." Generally the waiver of remission of a liability cannot be regarded as income in the hands of the assessee unless it is a trading liability and if the waiver of a loan is on capital account then certainly it cannot be reckoned as income or revenue, which is clearly evident from the relevant provisions of section 41(1) which reads as under: "(1) Where an allowance or deduction has been ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41(1) has not been satisfied/fulfilled at all for the reason that the pre-component of the borrowing for acquisition of capital asset has neither been allowed as allowance nor as deduction in the earlier years and being for the purpose of acquisition of a capital asset any waiver thereof will not constitute income under section 41(1). 13. The aforesaid proposition is also well supported by Hon'ble Bombay High Court in the case of Mahindra & Mahindra vs. CIT, reported in 261 ITR 501. Similarly, in a later judgment Hon'ble Court in the case of CIT vs. Softworks Computers Pvt. Ltd., reported in 354 ITR 16, after considering the said judgment and also the judgment of Solid containers Ltd., reported in 308 ITR 417, observed and held as under:- "7. We find that the decision of this court in the matter of Solid Containers Ltd. (supra) has also considered the earlier decision in the matter of Mahindra and Mahindra Ltd. (supra) and distinguished the same by holding that in that case the loan was given for purchase of capital assets unlike in the case of Solid Containers Ltd. (supra) where waiver was of a loan taken for trading activity and thus considered to be of a revenue nature. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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.-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) ------ to (f) -------- if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by- (i) ------- to (viii) --------. From the reading o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be subjected to tax under any other provision of the Act. 15. Now whether the surplus arising on account of waiver of the principal amount of loan is required to be credited to the profit & loss account in terms of provisions of Part II & III of VIth Schedule of the Companies Act needs to be seen. The starting point for computation of book profit under section 115JB is the 'net profit' as per the profit & loss account prepared in accordance with the provisions of the Companies Act. The primary purpose of preparing profit & loss account under the Companies Act is to find out the result of the working of the company during the period covered by the profit & loss account which has been enshrined in Part II of the Companies Act. The relevant portion of Part II reads as under:- "1. The provisions of this Part shall apply to the income and expenditure account referred to in sub-section (2) of section 210 of the Act, in like manner as they apply to a profit and loss account, but subject to the modification of references as specified in that sub-section. 2. The profit and loss account- (a) shall be so made out as clearly to disclose the result of the working of the company du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losure of non-transaction or transaction of an exceptional nature. One has to keep in mind that the aforesaid provisions mainly requires a broad disclosure of the exceptional items or non-recurring transactions referred to therein and if for some reason or the other they have been accounted for in the profit & loss account then those provisions do not require that those items must necessarily be accounted as a part of the profit & loss account. Separate disclosure is intended to ensure that the reader of the profit & loss account gets a fair and clear picture of the result of the working of the company during the period covered by the profit & loss account. The aforesaid provision cannot be so read so as to require that every non-recurring transaction or transaction of an exceptional nature to be debited/credited to the Profit & Loss account. Accounting Standard-5 prescribes the classification and disclosure requirements of certain items in the statement of profit & loss account, whereas the Accounting Standard-9 gives the illustration of revenue recognition. AS-5 defines Profit or Loss for the period in the following manner: "All items of income and expense which are recognised i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accounting compulsions and second are disclosure compulsions. The accounting compulsion comes into play since there is a double entry system of accounting, for instance, when a loan amount is waived, a debit goes to the liability account and a credit has to go to any of the liability/ reserve account, which in the present case has been taken to the Profit and Loss account. The disclosure compulsions merely require the assessee to disclose the material items in the Profit & Loss account. A mere disclosure of an extraordinary item in the profit & loss account statement does not mean that the said item represents the 'working result' of the company, when the accounting standard, especially AS-9 clearly provides that remission of a liability is not to be recognized as revenue, then it has to be reckoned that it cannot be treated as revenue for the purpose of either net profit or consequently book profit. The primary purpose of preparing the Profit &Loss account in Part II of the Companies Act is to find out the result of the company, during the period covered by the profit & loss account and the exceptional nature items are required to be disclosed separately so as to assess the corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d directly to the credit of the capital reserve account instead of being credited to the profit & loss account so as to ensure that it is not left for being distributed through the profit & loss account. 16. From our above analysis and discussion of the various provisions of the Companies Act as well as Accounting Standards it can be ostensibly deduced that an item of 'capital surplus' can never be a part of profit & loss account albeit it is a part of a capital reserve as the waiver of a loan taken for acquisition of a capital asset is a capital receipt falling within the category of capital surplus which is non-recurring and exceptional item which to be disclosed as per the requirement of the Companies Act. Further it is quite pertinent to note that, clause (ii) of Explanation -1 of section 115JB is also an indicator of the intention of the legislature and also the scheme of the section that the incomes which are treated as exempt under the Income Tax Act are to be excluded from the profit & loss account. The said clause excludes; (ii) the amount of income to which any of the provision 0f section 10 or section 11 or section 12 apply, if any such amount is credited to the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the amounts falling under Chapter III are to be excluded. When an amount which forms part of the book profit itself cannot be taxed under section 115J when it does not have the income character, it has to be accepted that, when what is routed through the profit and loss account and carried to re-.serve is of a capital nature and does not have an income character, it cannot be added back to the book profits merely because of the enabling provision in the Explanation to section 115J for the purpose of imposing a tax thereon. Apart from the fact that capital gains is deemed to be income under section 45, it has to be kept in mind that even section 115J deems 30 per cent of the book profit to be total income chargeable to tax. The legislative history shows that the tax under section 115J was with reference to the business profit as it was in replacement of section 80VVA which sought to reduce the deductions available in computing the income from business. When section 80VVA was introduced in 1983-84, the intention was to restrict the various tax incentives and concessions available in computing the income from business to 70 per cent thereof. Significantly, the deduction under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit and loss account is not drawn up in accordance with the provisions of the Companies Act. As far as fixed assets and investments are concerned, the valuation of such assets is not a necessary part of the process of determining the trading result since they do not form part of the stock-intrade. Any revaluation of fixed assets or investments does not indicate the accrual of any profit because profit or loss will arise only on sale or disposal and not on revaluation and such unrealized profit on revaluation cannot be brought to tax. However, it is well recognized that, in case of unrealized appreciation of fixed assets, they are written up on revaluation on the assets side of the balance-sheet to give a true and fair view of the company's affairs on a particular date, i.e. balance sheet date and the net surplus is shown as a capital reserve. This is not a regular annual feature but an exercise undertaken at appropriate junctions in the career of a company. In contrast, in the case of stock-in-trade, if the assessee had been following the method of valuing at cost and changes to the method of valuation at market value, such a valuation has to be made thereafter every ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in Explanation- 1 to sub section (2) of section 115JB. First of all, from the perusal of the Profit &Loss account for the year ending 31.03.2004 it is seen that assessee had shown profit before exceptional item at Rs. 571.84 crores. Thereafter, it has disclosed exceptional item of Rs. 390.76 crores which is on account of waiver of dues. However, while computing the book profit and tax payable under section 115JB the assessee included the said amount for calculating the tax under MAT. Along with the said computation, the assessee has given the following note which reads as under: "The Company has credited an amount of Rs. 390,76,03,999 as an exceptional item in its Profit and Loss account. This includes write-back of certain principal amounts and certain interest dues, as a part of a restructuring package with its lenders Out of these amounts, the Company has not considered the writeback of principal amounts (amounting to Rs. 228,46,76,328) as a taxable income since the same is in the nature of capital receipt in the hands of the Company. Further, these amounts do not represent the reversal of any amount allowed as a deduction in any earlier year. Hence the provisions, of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be included in the net profit. It is a equally a trite proposition of law that an income cannot be taxed by an acquiescence or consent of the assessee but as per the mandate of the statutory provision and if assessee shows that a particular income is not taxable then he can always demonstrate and satisfy to the authorities that a particular income was not taxable in his hand and it was returned under an erroneous impression of law. There cannot be imposition of tax without the authority of law. One has to look what is envisaged under the Act to be taxed and there is no room for intendment or tax authorities can capitalize on acquiescence by assessee sans any authority by law. The court and taxing authorities have bounden duty to decide as to whether a particular category of assessee is to pay a particular tax or not. Even if we agree that Assessing Officer could not have entertained such a fresh claim but in view of the decision of Hon'ble Supreme Court in the case of Goetz India Ltd. vs. CIT (supra) as heavily relied upon by the Ld. CIT D.R., however, it does not impinge upon the powers of the appellate authorities including Ld. CIT(A) and Tribunal. This has been clarified by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with the Part II & III of Schedule VI of the Companies Act. Only when accounts are drawn as provided in section 115JB, then the proposition laid down by the Hon'ble Apex Court will apply. In our humble opinion the Judgment and law as envisaged by the Hon'ble Apex Court will not apply here because, as we have held above that waiver amount is a capital reserve which cannot be included in the net profit as shown in the profit & loss account for the relevant previous year and consequently cannot be taxed as book profit. 20. So far as non-inclusion of interest amount payable to UTI in the net profit or working result of the company, our finding given above will not only apply to waiver of principal loan but also to the waiver of interest payable to UTI for the reason that, it is not taxable as per the provision of section 41(1), because, admittedly the assessee has not claimed the said amount as deduction in the earlier years in view of the provisions of section 43B. Once it has not been claimed as deduction then there is no question to be offered for tax under section 41(1). Thus it cannot be regarded as income in the hands of the assessee. The legal proposition as discussed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I of Sch. VI to the Companies Act where a company receives the amount on account of surrender of leasehold rights, the company is bound to disclose in the P&L a/c the said amount as non-recurring transaction or a transaction of an exceptional nature irrespective of its nature i.e. whether capital or revenue. That, it would be inappropriate to directly transfer such amount to capital reserve [see Companies Act by A. Ramaiya, p. 1669 (Fourteenth Edn.]. Such receipts are also covered by Cl. 2(b) of Part II of Sch. VI of the Companies Act which, inter alia, states that P&L a/c shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature. Lastly, even under cl. 3(xii)(b) profits or losses in respect of transactions not usually undertaken by the Company or undertaken in circumstances of exceptional or non-recurring nature shows clearly that capital gains should be included for the purposes of computing book profits. That, capital gains would certainly be one of the various items whose information is required to be given to the shareholders under the said cl. 3(xii)(b). So also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e written down value was treated as profit on sale of factory and said capital gain was credited to the Profit and Loss account as other income. The assessing held that the said amount should form a part of the assessee and accordingly, added back the same for the purpose of assessment u/s. 115JB. In this background it was held as under:- "Now the question is, in such circumstances, where the assessee has option to account the surplus profit in two different methods, one by including in the prof its and the other without including in the prof its, what should be the implication for the purpose of computing taxable income under a scheme of MAT. 11. In this context, particularly in the matter of income by way of capital gains, the Bombay High Court has held in the case of Veekaylal Investment Co. (P.) Ltd. (supra) that clause 3 (xii)( b) of Part II of Schedule VI to the Companies Act, requires disclosure of profits or losses from transactions of an exceptional nature. In the light of the said disclosure and accounting requirement mandated by Schedule VI to the Companies Act, the Hon'ble Bombay High Court has held that the capital gains arising to a company should form part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point for computing 'Book Profit' u/s. 115JB. iv. Lastly, in the case of the assessee also, it is not the case of assessee that an adjustment should be done while arriving at the 'Book profit' as provided under the Act in Explanation 1 to sub-section (2) to Section 115JB. What the assessee's case is, first determine the correct amount of 'Net Profit' as per Profit and Loss account which is the starting point for computation u/s. 115JB and then tax the book profit. Whence as per our discussion above the receipts in question itself is not part of net profit, then there is no question of bringing it to tax under MAT. c) Hindustan Shipyard Ltd. vs. DCIT (2010) 130 TTJ 213 (Vizag): Relevant facts were that, during the year under consideration, the Government of India had waived loan (a portion by way of conversion of loan into equity) and interest thereon due from the assessee. The assessee did not credit, both, the principal and interest waiver in the Profit and Loss account though the details of waiver disclosed in notes to accounts. Such accounting treatment was qualified by auditor. The assessing officer accepted that waiver of principal amount of loan not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of loan (being a capital receipt) nor the interest (not claimed as a deduction in earlier years) is taxable under any provisions of the Act. iv. In this case also, the Assessing Officer has adjusted the net profit as per Profit and Loss account which is the starting point of calculation under section 115JB, i.e., before one enters the computation of 'Book Profit' under the Explanation to sub-section (2) of Section 115JB. In other words, the Hon'ble Tribunal after considering the Hon'ble Supreme Court decision in the case of Apollo Tyres Ltd. has allowed tinkering to the 'Net Profit' which is the starting point for computing 'Book Profit' u/s. 115JB. d) Duke Offshore Ltd. vs. DCIT (2011) 45 SOT 399 (Mum):- In this case, the assessee had a settlement with the bank as a result of which there was a waiver/reduction of loan. The assessee had shown the same amount as extraordinary item in the Profit and Loss account. While computing book profits for the purpose of section 115JB, the assessee did not consider the said waiver. However, the assessing officer included such waiver of loan and interest thereon for the purpose of computing book profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tra-ordinary item in the Profit and Loss account was to be considered while computing Book profits u/s. 115JB. The premise on which adjustment was sought was that the item under consideration was 'revenue in nature' per se. However, in the case of Duke Offshore Ltd. (supra), the Tribunal was dealing with an item of receipt which is capital in nature and not 'income' per se. Further, from the perusal of the decisions of the Hon'ble Bombay High Court and Hyderabad Special Bench stated at point no. (b) & (c) above, it is seen that both the decisions deal with the issue of taxability of capital gains in computing Book Profit u/s. 115JB of the Act. These capital gains were otherwise income u/s. 2(24) of the Act and exclusion was claimed by the assessee while computing Book Profit u/s. 115JB on the ground that the said capital gains were exempt either u/s. 47(iv) or not constitute commercial profits. However, in the case of Duke shore before the Tribunal, the waiver was not capital gains but pure capital receipts which does not even have any 'income', 'profits', 'gains' embedded therein. Accordingly, all the above decisions relied upon by the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it nor the assessee is permitted to claim exclusion or inclusion of any item of income or expenditure as the case may be, for the purpose of computing book profits u/s 115JB except the permissible adjustment provided under the Explanation to sec.115JB of the Act itself. It is not disputed that this amount does not fall in the ambit of any of the clauses of Explanation to 115JB. Therefore, once this amount has been disclosed in the P&L A/c prepared strictly as per provisions of Schedule VI of the Companies Act, the same cannot be excluded for the purpose of computing book profits u/s 115JB. We find that the CIT(A) has rejected the claim of the assessee by following the judgment of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) as well as the Hon'ble Supreme Court in the case of CIT v. HCL Comnet Systems & Services Ltd. [2008] 305 ITR 4091174 Taxman 118 (SC). Accordingly, in the facts and circumstances of the case as well as above discussion, we do not find any error or illegality in the impugned order of the CIT (A)." This decision is again against the assessee, however at the outset, it is seen that the Tribunal has not at all adjudicated on the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll under the definition of "income" at all and since it does not enter into the computation provisions at all, there is no question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to exclude the above said profit from the computation of "Book Profit" for the reasons discussed above." b) ACIT vs. Shree Cement Ltd. (ITA Nos.614, 615 & 635/JP/2010) following Shree Cement Ltd. vs. ACIT (2015) 152 ITD 561 (Jaipur) wherein it was held that: "13.4. From perusal of the decisions of Rain Commodities (supra) and Growth Avenues (supra), we notice that both the decision dealt with the issue of taxability of capital gains in computing Book Profit u/s 115JB of the Act. These capital gains were otherwise income u/s 2(24) of the Act and exclusion was claimed in computing Book Profit u/s 115JB on the ground that the said capital gains was exempt either u/s 47(iv) or u/s 54EC of the Act, which the Tribunal did not agree. In the present case, however, we are dealing not with capital gains but with pure capital receipt, which does not even have anti 'inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was noted by the Tribunal in this case that as per the decision of Special Bench of the Tribunal rendered in the case of Rain Commodities Ltd. Vs. DCIT, 41 DTR 449, if profit and loss account is not in accordance with Part II & Part III of Schedule VI to the Companies Act, 1956 because it is prerequisite for Section 115JB of the Act. The Tribunal in this case also considered two another Tribunal's orders rendered in the case of DCIT Vs. Bombay Diamond Company Ltd-33 DTR 59 and Syndicate Bank Vs. ACIT, 7 SOT 51 Bangalore where it was held by the Tribunal after considering the decision of Hon'ble Apex Court rendered in the case of Apollo Tyres Ltd. (Supra), and after 28 explaining the same that adjustment to profit and loss account is possible to make it compliant with Schedule VI Part II and Part III of the Companies Act, 1956 which is prerequisite of Section 115JB of the Act. On this basis, the Tribunal in the case of Shree Cement Ltd. (Supra) decided this issue in favour of the assessee and it was held that capital receipt in the form of sales tax subsidy needs to be excluded from profit as per P&L account for the purpose of computing book profit u/s 115JB of the Act. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusal of aforesaid decisions, at the outset, it may appear that on similar nature of issues there are divergent views of various benches of the Tribunal, however, one common point/ratio permeating through all the decisions, which can be deduced by us is that, if an assessee company is in receipt of a 'capital receipt' which is not chargeable to tax at all, that is, it does not fall within any of the charging section or can be classified under any heads of income under the Income Tax Act, then same cannot be treated as part of net profit as per Profit & Loss account or reckoned as 'working result' of the company of the relevant previous year and consequently, cannot be held to be taxable as 'book profit' under MAT in terms of section 115JB. Accordingly, our conclusion remains the same that, the capital surplus on account of waiver of dues neither is nether taxable nor can be included in computation of book profit u/s 115JB. 24. Other grounds raised by the assessee on chargeability of interest have not been argued before us and moreover they are consequential in nature, therefore, they are treated as dismissed. 25. Accordingly, assessee's appeal is treated as partly allowed. 26. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the waiver of the loan went to reduce the cost of the asset purchased out of such losses and therefore, excess depreciation already allowed in the previous year amounting to Rs. 109.41 crores was held to be taxable under section 41(1). While doing so, the Assessing Officer relied upon the decision of Hon'ble Bombay High Court in the case of M/s. Nectar Beverages Pvt. Ltd. vs. DCIT reported in 267 ITR 385. In sum and substance the Assessing Officer's conclusion was as under: "(i) Depreciation is in the nature of expenditure and deductible from tax liability and therefore, any subsequent recovery of any amount which can be linked to the depreciation claim is taxable. (ii) Waiver of loan taken for purchase of Plant & Machinery was tantamount to deriving benefit from the articles that had enjoyed depreciation and hence was held to be falling within the purview of section 41(1)." 28. The Ld. CIT(A), after noting down the various decisions, observed that the decision of Hon'ble Bombay High Court has been reversed by the Hon'ble Supreme Court, since reported as Nectar Beverages Pvt. Ltd. vs. DCIT (2009) 314 ITR 314 and held as under: "On a careful consideration of the facts br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions made by the parties and also considered the relevant finding given in the impugned orders. First of all it is seen that Assessing Officer's case is that provisions of section 41(1) are applicable because the assessee has claimed depreciation in the earlier years on the loan taken for acquisition or capital asset and for coming to this conclusion he has heavily relied upon the decision of Hon'ble Bombay High Court in the case of Nectar Beverages vs. DCIT (supra). This observation and finding of the Assessing Officer now stands negated by the judgment of Hon'ble Supreme Court in the case of Nectar Beverages vs. DCIT (supra) wherein the Apex Court has reversed the said decision of the Hon'ble Bombay High Court and observed that depreciation is neither a trading liability as referred to in section 41(1) nor the principal component of the borrowings for acquisition of a capital asset has not been allowed as an allowance or deduction in the earlier years and hence, any waiver thereof, does not constitute income under section 41(1). In any event an allowance of depreciation can in no way be related to waiver of a loan taken to purchase of the asset in question, since the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r no circumstances it can be held to be a trading liability. Depreciation allowance has no connection with waiver of the capital loans in question and hence would not attract section 41(1). By way of additional grounds the Ld. D.R. has sought to contend that in view of the decision of Hon'ble Bombay High Court in the case of Solid Containers Ltd. 308 ITR 407 the waiver of a loan is to be reckoned as in the nature of trading liabilities and therefore, it is taxable under section 41(1). As discussed in detail in the earlier part of the order, here it is not the case of the Assessing Officer that the principal amount of loan taken by the assessee was for any trading account, albeit it was for the purchase of a capital asset which has never been allowed as a deduction. The loan taken for an acquisition of a capital asset does not constitute trading liabilities which has been allowed as a deduction in earlier years and any kind of waiver thereof would fall within the deeming fiction of section 41(1). We have already clarified that the amount which can be subjected to tax under section 41(1) can only be those amounts or receipts which have been allowed as deduction in the computation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same is rejected. 30. Before us one more argument was taken by the Ld. CIT D.R. that provision of section 28(iv) would get attracted because the waiver of loan amounts to value of any benefit or perquisite, whether convertible into money or not, arising from business. First of all it is seen that it is neither the case of the Assessing Officer nor the case of the Ld. CIT(A) that the amount of waiver of loan is to be taxed under section 28(iv). The Hon'ble Bombay High Court in the case of Mahindra & Mahindra vs. CIT 260 ITR 180 501 held that a loan which is originally taken for capital expenditure, if waived, will not give rise to taxable income either under section 41(1) or under section 28(iv). The relevant observation and finding of the Hon'ble Bombay High Court reads as under: "The income which can be taxed under Section 28(iv) must not only be referable to a benefit or perquisite, but it must be arising from business. Secondly, Section 28(iv) does not apply to benefits in cash or money. Secondly, in this case we are concerned with the purchase consideration relating to capital asset. The toolings were in the nature of dies. The assessee was a manufacturer of heavy vehicles an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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