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TMI Blog2017 (5) TMI 1819X X X X Extracts X X X X X X X X Extracts X X X X ..... the true sense or meaning of that concept. An amount which is retained by way of providing for a known liability is not a reserve. Consequently the Tribunal was correct in holding that the amount which was set apart as a Debenture Redemption Reserve is not a reserve within the meaning of Explanation (b) to Section 115JA In the similar case ITAT Ahmedabad Bench in the case of ACIT vs. Genus Electrotech Ltd [ 2016 (5) TMI 1136 - ITAT AHMEDABAD] has held that the adjustment claimed by the assessee for Debt Redemption Fund was declined with a short observation that Debt Redemption Fund was an appropriation for the purpose of creating a reserve and was a below line adjustment and it did not fall in any category of adjustments provided u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,403/- being the amount of Debt Redemption Reserve for computing the book profit under section 115JB of the I.T. Act, 1961. 3. Briefly stated facts are that the assessee filed original return on 28-09- 2012 declaring a total income at Rs. 4,07,950/- and book profit was declared under section 115JB of the Act at Rs. 54,40,223/-. Subsequently, the assessee revised its return of income on 24-11-2011 declaring the same as total income but the book profit was declared at Rs. 23,66,118/- under section 115JB of the Act and this reduction was on account of inadvertent mistake as the net profit was taken before considering the Debt Redemption Reserve. The AO during the course of assessment proceedings require the assessee to explain as to why ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Rs 1.47 lakhs. In FY 2010-11, it was only Ps 1.0 lakh. In contrast the profit in the current year is Rs. 58.7 lakhs. Thus, the unmistakable conclusion that can be drawn is that the reserve was created only to reduce the tax liability u/s 115JB in the current year. 4.6 Based on the facts that is narrated in the previous paragraphs, it is clear that there is no basis for the claim of debt redemption reserve claimed by the appellant. 4.7 As regards the case laws cited, it is noted that in those cases there were secured loans taken such as debenture and loan from government. In none of the cases, unsecured loans was involved. Further, in the present case basic details of the unsecured loans is not given, nor any contemporaneous re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing the ratio of the above decision, no adjustment is to be made while computing book profit u/s 115JB of the Act. 5. The learned Counsel for the assessee also taken us through the accounts of the assessee, wherein in the balance sheet non-current borrowings as on 31- 03-2011 is at Rs. 69.87 millions, whereas as on 31-03-2012 it is 81.34 millions. He further, drew our attention to P L Account for the year ended 31-03-2012, wherein in the Profit and Loss Account Debt Redemption Reserve is Rs. 7.81 millions as on 31-03-2012. Further, the learned Counsel for the assessee also assailed the order of CIT(A) on the ground that the CIT(A) has gone into the accounts of the assessee which is not within his purview while adjudicating the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any money set apart in the accounts of the company to redeem the debenture has to be treated as monies set apart to meet a known liability. Consequently, debentures have to be shown in the balance sheet of a company as a liability. Being monies set apart to meet a known liability, a Debenture Redemption Reserve cannot be regarded as a reserve for the purpose of Schedule VI to the Companies Act, 1956. In National Rayon Corpn. Ltd. (supra) the Supreme Court followed its earlier decision in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 /7 Taxman 28, in holding that since the concept of reserve and of a provision is well known in commercial accountancy and is used in the Companies Act, 1956, while dealing with the preparation of bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility is not a reserve. Consequently the Tribunal was correct in holding that the amount which was set apart as a Debenture Redemption Reserve is not a reserve within the meaning of Explanation (b) to Section 115JA of the Income Tax Act, 1961. No substantial question of law would, therefore, arise. 7. In the similar case ITAT Ahmedabad Bench in the case of ACIT vs. Genus Electrotech Ltd. (2016) (161 ITD 644 (Ahd Trib) has held that the adjustment claimed by the assessee for Debt Redemption Fund was declined with a short observation that Debt Redemption Fund was an appropriation for the purpose of creating a reserve and was a below line adjustment and it did not fall in any category of adjustments provided u/s 115JB of the Act. Respe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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