2015 (10) TMI 1463 - AT - Income Tax

Tribunal affirms CIT(A)'s decision on loan waiver treatment under Section 115JB

The tribunal upheld the CIT(A)'s decision in a revenue appeal regarding the treatment of a waiver of loan liability in computing book profits under ... MAT computation - Waiver of principal amount on one Time Settlement (OTS) of loan by Vijaya Bank added in computing Book Profit u/s 115JB - CIT(A) deleted the addition - Held that:- The provisions relating to book profit u/s 115JB are absolutely clear that same is to be computed on the basis of profit and loss account prepared in accordance with the provision of Part-II and Part-III of Schedule-VI of the Companies Act and to such profit only certain adjustments as provided in Explanation 1 can be made. The Assessing Officer does not have the power to tinker with such accounts prepared as per Schedule VI and certified by the Auditors. Assessing Officer has also not specified categorically that as to how the Part II & III of Schedule VI has not been followed or is against the prescribed accounting standard there is a requirement of law that waiver of loan taken for utilizing capital expansion is to be routed only through profit and loss account and cannot be credited to the 'General Reserve', i.e. directly in the Balance sheet. Thus, the finding of the CIT(A) is purely in accordance with the provisions of the law and the principle laid down by the Hon'ble Supreme Court in the case of Apollo Tyres (2002 (5) TMI 5 - SUPREME Court ). The Hon'ble Bombay High Court in the case of CIT vs Akshay Textiles Trading And Agencies (P) Ltd., [2007 (10) TMI 251 - BOMBAY HIGH COURT ] and in the case of CIT vs Adbhut Trading Co. Pvt Ltd, [2011 (7) TMI 716 - Bombay High Court ], following the aforesaid decision of the Hon'ble Supreme Court held that accounts prepared under the Companies Act and certified by the authorities under the said 'Act' have to be accepted. Thus, we do not find any merits in the grounds raised by the revenue and is accordingly dismissed. - Decided in favour of assessee. Issues involved:1. Adjustment/addition in computing Book Profit u/s 115JB of the IT Act for waiver of principal amount on one Time Settlement (OTS) of loan by a bank.2. Whether the waiver amount should have been routed through Profit & Loss Account or credited directly to General Reserve.3. Compliance with Schedule VI of the Companies Act, 1952 in the treatment of waiver of loan liability.4. Authority of Assessing Officer to make adjustments to book profits based on waiver of loan liability.Analysis:1. The appeal was filed by the revenue challenging the deletion of adjustment/addition in computing Book Profit u/s 115JB for a waiver of principal amount on a loan settlement. The Assessing Officer contended that the waiver amount should have been routed through the Profit & Loss Account. However, the CIT(A) held that the adjustment made by the Assessing Officer was not correct as the accounts were prepared in accordance with Schedule VI of the Companies Act, citing the decision in Apollo Tyres Ltd vs CIT.2. The assessee entered into a one-time settlement (OTS) with a bank regarding a loan liability, resulting in a waiver of a substantial amount. The Assessing Officer insisted that the waiver amount should have been credited to the Profit & Loss Account. The assessee argued that the waiver was on account of capital receipt and was correctly credited to the General Reserve as per Schedule VI of the Companies Act. The CIT(A) agreed with the assessee's contention, emphasizing compliance with accounting standards.3. The dispute centered on whether the Assessing Officer had the authority to adjust the book profits based on the waiver of the loan liability. The tribunal noted that the Assessing Officer cannot interfere with accounts prepared in accordance with Schedule VI of the Companies Act unless specific deviations are proven. Citing the decision in Apollo Tyres Ltd vs CIT and subsequent High Court cases, the tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.4. The tribunal's ruling emphasized the importance of adhering to accounting standards under the Companies Act and highlighted that the Assessing Officer cannot make arbitrary adjustments to book profits without valid reasons. The decision underscored the significance of following prescribed accounting practices and certified audits, as recognized by judicial precedents. Ultimately, the tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision regarding the treatment of the waiver of loan liability in the book profits computation.