Section 115JB book profit adjustments are confined to the Explanation, with the Revenue appeal admitted on limited issues.

For computation of book profit under Section 115JB, additions made by the Assessing Officer are confined to items expressly covered by the Explanation, and the net profit shown in the profit and loss account cannot otherwise be disturbed. The Bombay HC recorded this limited principle while identifying issues on sales tax subsidy, provision for bad and doubtful debts, trial run production revenue, and foreign exchange gain, capital subsidy and state capital investment receipts. It admitted the Revenue appeal only on these reframed questions for hearing, and declined to admit other proposed questions as substantial questions of law.

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Issues: (i) Whether the Tribunal was right in upholding deletion of disallowance of sales tax subsidy in computation of book profit under Section 115JB; (ii) Whether the Tribunal was right in deleting the addition of provision for bad and doubtful debts in computing book profit under Section 115JB; (iii) Whether the Tribunal was right in deleting the addition of revenue from trial run production in computing book profit under Section 115JB; (iv) Whether the Tribunal was right in deleting the addition of foreign exchange gain, capital subsidy and state capital investment received for computation of book profit under Section 115JB.

Issue (i): Whether sales tax subsidy received should be disallowed and added back in computing book profit under Section 115JB.

Analysis: The Court examined the orders of the CIT(A) and Tribunal which relied on precedent and the appellant's own earlier decisions. The Court noted prior admissions in the appellant's own case and relevant authorities interpreting inclusion under the Explanation to Section 115JB, and reframed the question to focus on exclusion of sales tax subsidy in computation of book profit.

Conclusion: The appeal is admitted on this reframed question and will proceed for hearing (issue admitted for determination).

Issue (ii): Whether provisions for bad and doubtful debts must be added to book profit under Section 115JB.

Analysis: The Court noted the concurrent orders of the CIT(A) and Tribunal deleting the addition, the similarity with the appellant's own earlier years where this question was admitted, and relevant authorities on the scope of Explanation to Section 115JB concerning provisions for liabilities.

Conclusion: The appeal is admitted on this question and will proceed for hearing (issue admitted for determination).

Issue (iii): Whether revenue from trial run production should be included in book profit under Section 115JB.

Analysis: The Court recorded that the CIT(A) and Tribunal treated the trial run receipts following the Guidance Note on Treatment of Expenditure during Construction Period and authoritative decisions distinguishing commercial profit from assessable income; the issue had been admitted in the appellant's own earlier matter.

Conclusion: The appeal is admitted on this question and will proceed for hearing (issue admitted for determination).

Issue (iv): Whether foreign exchange gain, capital subsidy and state capital investment receipts are to be added back in computing book profit under Section 115JB.

Analysis: The Court noted the CIT(A) and Tribunal findings that foreign exchange gains and capital subsidies had been adjusted to asset cost under Section 43A and Explanation 10 to Section 43(1) and that state capital investment subsidies constituted capital receipts; it also linked the sales tax subsidy admission and treated the question as admitted for determination.

Conclusion: The appeal is admitted on this question and will proceed for hearing (issue admitted for determination).

Final Conclusion: The High Court has admitted the Revenue appeal only on the limited questions (reframed question on sales tax subsidy in computation of book profit under Section 115JB; inclusion of provision for bad and doubtful debts; inclusion of trial run production revenue; and inclusion of foreign exchange gains, capital subsidy and state capital investment receipts) and declined to admit other questions for substantial question of law; the admitted issues will be heard together with connected Income Tax Appeal No.1658 of 2016 (Assessment Year 2002-03).

Ratio Decidendi: For the purposes of Section 115JB of the Income-tax Act, 1961, additions to book profit by the Assessing Officer are confined to items specified in the Explanation to the section and the Assessing Officer cannot go behind the net profit as shown in the profit and loss account except to the limited extent provided in that Explanation.

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