Exempt agricultural-land profit must be excluded from book profit when credited to the profit and loss account under MAT rules.

Profit from sale of agricultural land located beyond municipal limits was exempt under section 10, and because that exempt income had been credited to the profit and loss account, section 115JB(2)(k)(ii) required its exclusion from book profit. The Revenue was bound to correct the mistaken inclusion and reduce the amount from book profit. The direction to compute tax after excluding the exempt agricultural-land profit was upheld, and the Revenue's challenge failed.

---

---

Issues: Whether profits arising from sale of agricultural land, being income exempt under section 10, were required to be reduced from book profit while computing liability under section 115JB when such amount had been credited to the profit and loss account.

Analysis: The sold land was accepted to be situated beyond municipal limits and, therefore, the profit from its transfer was exempt under section 10. Section 115JB(2)(k)(ii) mandates reduction from book profit of the amount of income to which section 10 applies, if such amount is credited to the statement of profit and loss. Since the assessee had credited the sale consideration to the profit and loss account and offered it to tax by mistake, the revenue authorities were bound to correct the error and apply the statutory reduction.

Conclusion: The reduction from book profit was in law and the Revenue's challenge failed.

Final Conclusion: The direction to compute tax by excluding the exempt agricultural-land profit from book profits under section 115JB was upheld, and the Revenue's appeal was rejected.

Ratio Decidendi: Where income exempt under section 10 is credited to the profit and loss account, section 115JB(2)(k)(ii) requires its exclusion from book profit computation.

---