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TMI Blog2022 (5) TMI 1275X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 1.2 The learned CIT(A) erred in not appreciating that section 115JB is a selfcontained code and hence only specified adjustments can be added or excluded from book profits. The learned CIT(A) ought to have appreciated that write off of investment does not fall within specified adjustments and consequently cannot be excluded in computing book profit. As evident, the sole subject matter of the appeal is computation of bookprofits u/s 115JB. 2. The Ld. AR advanced arguments to support the case of the assessee whereas Ld. CIT-DR submitted that the impugned order is in accordance with law. Reliance has been placed by Ld. AR on the decision of Chennai Tribunal in the case of M/s PVP Corporate Parks Private Ltd. V/s DCIT (ITA No.497/Mds/2016 dated 01.08.2016) to support the arguments. Having heard rival submissions and after due consideration of relevant material on record, our adjudication would be as given in succeeding paragraphs. Assessment Proceedings 3. The assessee being resident corporate assessee is stated to be engaged in providing financial services and making investment. An assessment was framed for the year u/s 143(3) on 20.03.2013. While computing Tax Payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Alternatively, it was ascertained liability. Reliance was placed on the decision of Apollo Tyres Ltd. (255 ITR 273) for the submissions that Ld. AO had no jurisdiction to go behind the Profit shown in the Profit & Loss Account except to the extent as provided in Explanation to Sec.115JB of the Act. 4.3 The Ld. CIT(A), relying on the decision of Special Bench Mumbai Tribunal in Bennett Coleman & Co. Ltd. V/s Addl. CIT (141 TTJ 777) held that loss on reduction of equity capital could at best be a notional loss. The shareholders' percentage of shareholding before and after the reduction of share capital remained the same and the loss was notional loss. Upon reduction of capital, nothing moves from the coffers of the company. Accordingly, the loss was held to be notional loss. Reliance was also placed on the decision of Mumbai Tribunal in Shivalik Venture Private Ltd V/s DCIT (173 TTJ 238) wherein it was held that the profit arising on transfer of capital asset by assessee to its wholly owned subsidiary company is liable to be excluded from the net profit. Since FTL was wholly owned subsidiary company of the assessee, assessee's shareholding immediately before the reduction of capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital by the company and immediately after such reduction having remained the same, the loss, if any, is a notional loss. It was further held that in the case of reduction of capital nothing moves from the coffers of the company and, therefore, it is a simple case of no consideration which cannot be substituted to zero and the socalled loss arising to the assessee who has not received any consideration reduction of share capital cannot be subjected to the provisions of Section 45 read with Section 48 and such loss is not allowable as capital loss. Following the judicial derision of Id. Mumbai Tribunal, I hold that the loss incurred by the appellant company by voluntary reduction of share capital by its subsidiary is nothing but a notional loss. 4.3.2 The moot issue is whether this notional loss can be considered for the purpose of computation of book profit as per the provisions of Section 115JB of the Act. In the case of Shivalik Venture Private Limited Vs. Deputy Commissioner of Income-tax reported in [2015] 173 TTJ 238 (Mumbai), the assessee company was engaged in the business of development and leasing of commercial complexes and rehabilitation of buildings under Slum Reha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as 'income' at all under the definition of income given in section 2(24). [Para 241]. * The provisions of section 10 list out various types of income, which do not form part of total income. All those items of receipts shall otherwise fall tinder the definition of the term 'transfer' as defined in section 2(24), but they are not included in total income in view of the provisions of section 10. Since they are considered as 'incomes not included in total income for some policy reasons, the legislature, in its wisdom has decided not to subject them to tax under section 115JB also, except otherwise specifically provided for. Clause (ii) of Explanation I to section 115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the. net profit, if they are credited to the profit and loss account. The logic of these provisions is that an item of receipt which falls under the definition of 'income', is excluded for the purpose of computing 'book profit', since the said receipts are exempted under section 10 while computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, The Id. Mumbai Tribunal in the Shivalik Venture case (supra) has categorically held that items falling outside the purview of the computation provisions of the Income-tax Act, cannot also be included in the 'book profit7 under Section 115JB of the Act Hence, in view of the fads, circumstances and judicial decisions discussed above. 1 am of the considered view that the notional loss arising out of the capital reduction of equity shares of wholly owned subsidiary company, is not to be factored for the purposes of computation of book profit under Section 115JB of the Act. nothing has been produced by the appellant to demonstrate that aforesaid notional loss were required to be debited to the final accounts in terms of the erstwhile Companies Act, 1956, Hence for these reasons, the action of the AO in disallowing the loss claimed by the appellant in computation of book profit, stands confirmed, These grounds are dismissed. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 5. Upon careful consideration, it could be gathered that FFL got merged with the assessee w.e.f. 01.04.2008 and the amalgamation was accounted for by the assessee on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the loss was notional loss. Upon reduction of capital, nothing moves from the coffers of the company. Accordingly, the loss was held to be notional loss. For the said very reason, the decision of Chennai Tribunal in M/s PVP Corporate Parks Private Ltd. V/s DCIT (ITA No.497/Mds/2016 dated 01.08.2016) would not be applicable since in that case, there was actual sale of fixed assets by the assessee and the capital profits were directly absorbed in the Balance Sheet without routing it through Profit & Loss Account. In the present case, the loss is not actual loss but the same is specifically to be added to Book Profits as per Explanation (1)(d) of Section 115JB(2) of the Act. 7. Proceeding further, we find that Mumbai Tribunal in Shivalik Venture Private Ltd V/s DCIT (173 TTJ 238) held that the profit arising on transfer of capital asset by assessee to its wholly owned subsidiary company is liable to be excluded from the net profit. It was held by the bench that for the purpose of Section 115JB, net profit shown in profit and loss account should be understood as net profit arrived at after giving effect of notes, if any, given in Notes to Accounts. Accordingly, if an item of rece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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