TaxTMI 
TaxTMI 
2011 (1) TMI 289
X X X X Extracts X X X X
X X X X Extracts X X X X
....resent case the Assessee had an OTS with GT Bank as a result of which there was a waiver/reduction of the liability to bank to the extent of Rs. 44,513,406. This was shown as an extraordinary item, 'below the Line'. The Assessee took the P&L figure of Rs. 1,08,48,955 appearing before the extraordinary items and offered it as book profits and contended that the extraordinary item of Rs. 44,513,406 cannot be added in computing the Book profits. The AO on the other hand took P&L as Rs. 54,168,537 appearing after the extraordinary items and appropriations as the starting point for computation of Book Profits u/s 115JB and held that the extraordinary item of Rs. 44,513,406 cannot be reduced in computing the Book profits. 4. Before the Learned CIT(A) the assessee submitted that the provisions of section 115JB do not empower the A.O. to recast the account for the purposes of determining the book, profit as determined on the basis of part II and III of Schedule VI of the Companies Act, 1956. It was further submitted that as per the Companies Act, the book profit comes to Rs. 1,08,48,955 Reliance was placed upon the decision of the Supreme Court in Apollo Tyres Ltd. 255 ITR 273 and CIT v. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed. The explanation of the assessee that Rs. 109.96 lakhs was its expenditure and hence, the book profits had to be determined after reducing all the expenditure. However, the A.O. did not agree with the assessee's contention and held that the assessee was not entitled to reduce Rs. 109.96 lakhs. Considering the above facts, the Tribunal held: Sub section (2) of section 115JB provides that every assessee company shall prepare its profit and loss account in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956. The said Schedule VI does not make any distinction between profit and loss account and profit and loss appropriation account. In fact, the Schedule does not speak of the appropriation account at all. It is only as a matter of presentation that most of the companies segregate to reflect as to what has been appropriated where out of the profits earned by them. Otherwise, sub-clauses (a) and (b) of clause (viii) of Note II in para 3 of part II of Schedule VI specifically provide that the aggregate amounts set aside or proposed to be set aside to reserves should be distinctly shown in the profit and loss account. Similarly, sub-clause ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of section 115JE. 1.6 Keeping in view the ratio of the above decision, I find that the assessing officer has rightly taken starting point for computing the book profits u/s. 115JB at Rs. 5,41,68,537. Hence, I find no reason to interfere with the order of the A.O on this ground". 6. Aggrieved the assessee is in appeal before us. In our opinion, the issue regarding computation of Book profits consists of two part (a) whether u/s 115JB, the starting point in computing the Book Profits should be the Profits as computed 'above the line' before extraordinary items and appropriations or 'below the line' after the extraordinary items and appropriations. In this case whether in computing book profit the starting point is the figure of Rs. 1,08,48,955 being net profit figure (above the line) or should it start with the final figure in the profit and loss account of Rs. 5,41,68,537 after the appropriation and (b) assuming the starting point for computation of profit is final figure of Rs. 5,41,68,537whether the sum of principal loan waived included in the sum of Rs. 44,513,406 credited to the profit and loss account should be excluded on the ground that they constitute capital benefit accru....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a) the amount of income tax paid or payable and the provisions therefor; or (b) the amount carried to any reserves by whatever name called (other than a reserve specified under section 33AC) ; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed ; or (f) the amount or amounts of expenditure relatable to any income to which (section 10 other than the provisions contained in clause (38) thereof) or (section 11 or section 12 apply; or) (g) the amount of depreciation (h) the amount o deferred tax and the provisions therefore (i) the amount or amounts set aside as provisions for dimunition in the value of any asset. If any amount referred to in clauses (a) to (i) is debited to the profit and loss account, and as reduced by - (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account) if any such amount is credited to the pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction (1) of section 17 of the Sick Industrial Companies (Special provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation - for the purposes of this clause "net worth" shall have the meaning assigned to it in the clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special provisions) Act, 1985 (1 of 1986); or (viii) the amount of deferred tax, if any such amount is credited to the profit and loss account [Explanation 2 - for the purposes of clause (a) of Explanation 1, the amount of income-tax shall include - (i) any tax on distributed profits under section 115O or on distributed income under section 115R (ii) any interest charged under this Act; (iii) surcharge, if any as levied by the Central Acts from time to time (iv) Education Cess on income-tax, if any as levied by the Central Acts from time to time; and (v) Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time]". 8. From a reading of the section, it is apparent that the net pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... back to arrive at the book profit for purposes of section 115J. The explanation to section 115J deals with certain specific adjustments. Some of the items mentioned therein can be viewed as forming part of the income or the expenditure of the year under review, as for example, the adjustment mentioned in cl. (f) an (f)(ii), which deal with income and the expenditure which are not subjected to central income tax though the same are found in the profit and loss account before the ascertainment of profit. Past losses to the extent of depreciation provided in the accounts in the earlier years for which adjustment is stipulated in cl (f)(iii) of the explanation will not figure anywhere in the profits and loss account of the relevant previous years. There are also adjustments envisaged in section 115J for certain items which can be viewed only as appropriation of profits and such items are specifically mentioned in cls. (a) to (e) of the explanation cited supra. In addition there is an item of adjustment as provided in cl. (f)(i) which deals with withdrawal of reserves representing profits taken to the reserves in the earlier years. So also adjustment is provided for in respect of exces....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n this regard. What is capital or revenue for the purpose of computation of taxable income under the normal provisions may not be the capital or revenue while computing book profit. In fact there appears to be no distinction between the capital profit and revenue profit while computing the book profit as per the provisions of Schedule VI of the Companies Act. Profit on sale of capital assets as well as profit on sale of stock in trade form part of same profit and loss and taken into account while determining the book profit. The Supreme court in the cases of Apollo Tyres Ltd. 255 ITR 273 and HCL Comnet Systems & Services Ltd. 305 ITR 409, has clearly laid down that the assessing officer has no right to tinker the audited account presented before the shareholders and submitted before the ROC. It is not the case of the assessee that the profit and loss account prepared by them is not in accordance with Schedule VI of the Companies Act. As pointed out earlier, any receipt even if it is a capital receipt, which may or may not be taxable under the normal provisions of the Income tax Act, if it is credited to the profit and loss account cannot be excluded in computing the book profit, un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....termining the book profit under section 115JB is Rs. 5,41,68,537 and in computing the book profits under section 115JB no part of the liability of Rs. 4,45,13,406 that has ceased on account of settlement of loan liability of global trust bank can be excluded even though part of the liability may represent waiver of principal amount of loan. 20. The Assessee' appeal on this issue is dismissed. 21. The next ground of appeal is against the confirmation by the Commissioner of Income Tax (Appeals) of disallowance of Rs. 11,93,824 as prior period expenses. The AO has disallowed a sum of Rs. 11,93,824 being previous year expenses on the grounds that they do not relate to the previous year relevant to the assessment year, Before the CIT(A) the Assessee furnished details of the expenses claimed and submitted that the liability accrued during the year under appeal. 22. The CIT(A) dismissed the appeal as under : "From the above facts, I am unable to come to any conclusion as to the previous year during which these expenses have accrued. In column 22(b) of the Tax Audit Report it has been mentioned that debit of Rs. 11,93,824 is on account of prior period expenses. I am therefore, left wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appeal filed during the course of appellate proceedings. "(The appellant craves leave to the following additional grounds of appeal. It is submitted that the additional grounds raised are strictly on legal issues and do not require any additional investigation of facts. The additional grounds arise from the orders passed by the AO. And are interrelated to the grounds of appeal raised in the original memorandum of appeal filed by the appellant. It is submitted that the appellant due to lack of knowledge and proper advice did not raise the additional grounds of appeal in the original memorandum of appeal filed. In view of the decisions of the Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. 187 ITR 688 and National Thermal Power Corpn. Ltd. 229 ITR 383 it is prayed that the additional grounds of appeal be admitted). a. The learned Deputy Commissioner of Income Tax erred in including the entire Amount of benefit of Rs. 4,45,13,405 arising on settlement with Global Trust Bank Ltd., in the gross total income of the appellant and while doing so he amongst others failed to appreciate that the said amount was not entirely assessable u/s 41(1) as deemed income of ....