2024 (8) TMI 278 - AT - Income Tax

Indexed cost benefit unavailable for book profit computation under section 115JB despite section 45 allowance

ITAT Kolkata dismissed the assessee's appeal regarding computation of book profit under section 115JB. The tribunal held that while section 45 read with ... Computation of book profit u/s 115JB - inclusion of capital gain from the sale of flats - HELD THAT:- We completely agree with the finding of the Hon’ble Court that section 45 read with section 112 of the Act, which is part of the Income Tax Act deals with the calculation of long-term capital gain and capital asset held for more than three years and the assessee is eligible for indexed cost benefit even if it is subjected to section 115JB of the Act. However, in the instant case, since the issue is only relating to computation of book profit under section 115JB of the Act and not the computation of income under section 45 of the Act, therefore, the judgment of Best Trading and Agencies Limited [2020 (9) TMI 94 - KARNATAKA HIGH COURT] will not be of any help to the assessee. Therefore, since the issue before us is only that whether the assessee is eligible to calculate book profit by including net gains from sale of capital assets, after claiming indexed cost of acquisition and the book profit is to be calculated in accordance with Part-II and Part- III of Schedule VI of Companies Act and subject to the adjustments provided under section 115JB of the Act and in absence of any specific clause under section 115JB of the Act, which could provide alleged benefit claimed by the assessee, we are inclined to hold against the assessee and confirm the view taken by the ld. CIT(Appeals). Appeal of the assessee is dismissed. Issues Involved:1. Inclusion of capital gain from the sale of flats in the book profit computed under section 115JB of the Income Tax Act.2. Permission to adduce additional evidence under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963.3. Benefit of indexation in the computation of book profit under section 115JB.Detailed Analysis:1. Inclusion of Capital Gain in Book Profit:The primary issue revolves around whether the capital gain earned from the sale of flats should be included in the book profit computed under section 115JB of the Income Tax Act. The assessee argued that the flats were held as a capital asset, and the income from their sale was not from regular operations. The gain was credited to a capital reserve account rather than the profit & loss account. The assessee relied on the Supreme Court's judgment in Apollo Tyres Limited vs. CIT, asserting that the Assessing Officer (AO) cannot alter the book profit determined by the auditors.The AO, however, contended that if the accounts are not prepared per the Companies Act, the AO has the right to adjust the book profit. The AO referenced multiple judgments, including the Bombay High Court's decision in Veekaylal Investment Company Pvt. Ltd., which held that capital gain must be included in the book profit under section 115J. The AO emphasized that the exclusion of capital receipts is not aligned with the principles laid down by the Supreme Court in Apollo Tyres.The Tribunal upheld the AO's view, stating that the capital gain from the sale of fixed assets is an integral part of the profit & loss account as per the Companies Act. The Tribunal concluded that the book profit under section 115JB should include the capital gain, and the AO's adjustment was justified.2. Permission to Adduce Additional Evidence:The assessee sought permission to adduce additional evidence under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963. However, the judgment does not provide a detailed analysis or a separate ruling on this specific request, implying that the primary focus remained on the inclusion of capital gain in the book profit.3. Benefit of Indexation in Computation of Book Profit:The assessee argued for the benefit of indexation while computing the book profit, citing the Karnataka High Court's judgment in M/s. Best Trading And Agencies Limited vs. DCIT. The assessee contended that the indexed cost should be considered for calculating the book profit.The Tribunal rejected this contention, stating that the concept of indexation is not applicable under the Companies Act for computing book profit. The Tribunal clarified that the benefit of indexation is relevant for computing capital gain under section 45 of the Income Tax Act, not for book profit under section 115JB. The Tribunal distinguished the fields of operation for section 45 and section 115JB, concluding that the judgment of the Karnataka High Court does not apply to the computation of book profit.Conclusion:The Tribunal dismissed the appeal of the assessee, confirming the AO's inclusion of capital gain in the book profit and rejecting the claim for indexation benefit. The Tribunal found no error in the revenue authorities' findings and upheld the adjustments made by the AO in compliance with the Companies Act and the Income Tax Act. The appeal was pronounced dismissed on 25/07/2024.