Book profit reduction under Section 115JB allowed only if withdrawn reserves were credited to P&L; remand for verification.

Disallowance of delayed employee provident fund contributions was partly upheld for a small confirmed amount while the larger pension-related PF claim was allowed after documentary substantiation; reduction from book profit under Explanation 1 to sub-section (2) of section 115JB for amounts withdrawn from reserves was not accepted on present evidence and an addition was confirmed for present purposes with a direction to the Assessing Officer to verify whether such withdrawals were credited to profit and loss and included in net profit; the direction to verify and allow eligible brought forward business losses and unabsorbed depreciation (including pre-demerger amounts) is sustained; deletion of the disallowance of extraordinary loss was upheld.

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Issues: (i) Whether disallowance of employees' provident fund contribution for delayed deposits should be sustained; (ii) Whether the claimed reduction from book profit under clause (i) of Explanation 1 to sub-section (2) of section 115JB (amounts withdrawn from reserves) is allowable or requires remand for verification; (iii) Whether the CIT(A) was justified in directing the Assessing Officer to verify and give credit for unabsorbed brought forward business losses and unabsorbed depreciation, including pre-demerger amounts; (iv) Whether the deletion of disallowance of extraordinary items (loss due to flood/cyclone/fire) amounting to Rs. 3,53,90,000/- was lawful.

Issue (i): Disallowance of employees' provident fund contribution for delayed deposits (amount confirmed Rs. 76,114/-; deletion of Rs. 36,55,406/- claimed).

Analysis: The CIT(A) examined documentary evidence including PF payment records and found that the major amount claimed related to pension contribution and that the assessee substantiated timely payment for June 2005 while contributions for other months were deposited beyond statutory due dates. The CIT(A) applied the legal principle on late deposit of employees' contribution and relied on relevant Supreme Court precedent concerning consequences of delayed PF remittance and shifted burden to the AO where the assessee produced supporting records.

Conclusion: The confirmed disallowance of Rs. 76,114/- is upheld and deletion of Rs. 36,55,406/- is allowed in favour of the assessee.

Issue (ii): Enhancement of book profit under section 115JB by disallowing reduction claimed on account of amounts withdrawn from reserves (Rs. 88,90,87,000/-).

Analysis: The Tribunal in the first round remanded the issue to the AO to verify whether the amounts withdrawn from reserves were credited to the Profit & Loss account and included in net profit. In the second-round proceedings the assessee failed to produce conclusive evidence showing such credit in the year under consideration before the CIT(A). The CIT(A) considered the statutory scheme for computing book profit under section 115JB and the explanatory clause permitting reduction only where the withdrawn amounts are credited to P&L and included in net profit, and accordingly confirmed the addition while directing verification by AO of the assessee's computation.

Conclusion: Addition of Rs. 88,90,87,000/- is confirmed for present purposes and the AO is directed to verify the computation and evidence; the appeal on this ground is allowed for statistical purposes pending verification.

Issue (iii): Direction to the AO to verify and allow unabsorbed brought forward business losses and unabsorbed depreciation including pre-demerger amounts.

Analysis: Although this issue was not part of the earlier set-aside proceedings, the CIT(A) in the interest of justice directed the AO to verify claims of unabsorbed losses and depreciation and grant credit as per law. The Tribunal found this approach fair and consistent with judicial principles regarding allowability of carried forward losses and depreciation and that no prejudice was caused to the assessee.

Conclusion: The direction to the AO to verify and allow eligible brought forward business losses and unabsorbed depreciation (including pre-demerger amounts) is upheld; the assessee's ground is dismissed but the direction stands.

Issue (iv): Deletion of disallowance of extraordinary items amounting to Rs. 3,53,90,000/- by the CIT(A).

Analysis: The CIT(A) considered the combined Tribunal order for AY 2006-07 and 2007-08, the notices issued by the AO, and the detailed submissions filed by the assessee on 22/07/2016. The CIT(A) concluded that the assessee had furnished requisite details and that the AO had not provided reasonable opportunity nor properly considered the submissions; the Tribunal found no infirmity in this conclusion on merits and procedure.

Conclusion: Deletion of the disallowance of Rs. 3,53,90,000/- is upheld in favour of the assessee.

Final Conclusion: The appeals result in overall relief to the assessee: the CIT(A)'s deletions of specified additions are sustained, a small PF disallowance is confirmed, the large enhancement under section 115JB remains subject to verification by the Assessing Officer, and the CIT(A)'s direction to verify and allow unabsorbed losses and depreciation is validated; accordingly the assessee's appeal is partly allowed for statistical purposes and the revenue's appeal is dismissed.

Ratio Decidendi: Where an assessee produces documentary evidence showing that amounts withdrawn from reserves were credited to the profit and loss account and included in net profit, such amounts are eligible to be reduced from book profit under Explanation 1 to sub-section (2) of section 115JB; where documentary proof is absent the AO/CIT(A) may verify and determine eligibility, and once the assessee furnishes requisite documents the burden shifts to the revenue to disprove the claim.

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