TaxTMI 
TaxTMI 
2010 (11) TMI 392
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.... However, assessment was completed at an income of Rs.1,52,27,80,870/-. The assessee went in appeal before the CIT (A) who deleted certain additions but did not allow provision of Rs.51,25,00,000/- for debenture redemption reserve for computing book profit u/s 115JA of the Act. Subsequently, the Assessing Officer levied the penalty u/s 271(1)(c) of the Act. 4. The assessee carried the matter to the learned CIT (A) who confirmed the penalty by observing that the assessee's claim for Debenture Redemption Reserve amounting to Rs.51,25,00,000/- was disallowed and added by the Assessing Officer and subsequently confirmed in appeal by the CIT (A). now the assessee is in appeal. 5. The learned counsel for the assessee, at the very outset, stated that the addition on the basis of which penalty was levied by the Assessing Officer had been deleted by the ITAT, Lucknow Bench 'B', Lucknow vide order dated 21/09/2010 in I.T.A. No.749/Luc/04. The copy of the said order was furnished. 6. The learned CIT, D. R. in his rival submissions although supported the order of learned CIT (A) however, could not controvert the aforesaid contention of the learned counsel for the ....
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....uthorities below. The only issue before us is as to whether the debenture redemption reserve is a reserve within the meaning of cl. (b) or it is an unascertained liability within the meaning of cl. (c) of the Explanation to s. 115J of the Act or not. Therefore, we agree with learned authorized representative of the assessee that the additional grounds raised before us relate to the question of law arising from the facts which were available also before the authorities below and it has a bearing on the tax liability of the assessee and as per the ratio laid down by the decision of the Apex Court in the case of National Thermal Power Co. Ltd. (supra). We, admit the additional grounds raised before us for adjudication as it is a pure legal one and does not involve investigation of facts irrespective of the fact that this question is raised by the assessee for the first time before us. 10. Now coming to the question as to whether the amount of Rs.50 lakhs transferred by the assessee from the P and L a/c to the debenture redemption reserve is to be allowed as a deduction while computing the book profit for the purpose of s. 115J of the Act, the term 'book profit' as per Explan....
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.... fortified by the decision of the Bombay High Court in the case of Petrosil Oil Co. Ltd. (supra) wherein it was held that for the purpose of construing the provisions of IT Act, dealing with the assessment of companies, undefined words used in the said provision may be interpreted by importing the definition recorded to them in the Companies Act. 10.5 The terms 'provision' and 'reserve' have been defined in cl. 7(1) of Part III of Sch. VI as under: "The said terms 'provision' and 'reserve' have been defined in cl. 7(1) of Part III of the Sch. VI to the Companies Act in the following manner: (a) The term 'provision' has been defined to mean, subject to sub-cl. (2) of the said clause, any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy. (b) The term 'reserve' has been defined in a negative way so as not to include any amount written off or retained by way of providing for depreciation, renewals or diminution in the value of assets or retained by way of providin....
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....hs as appropriated by the assessee in the P and L a/c of the relevant previous year cannot be held to be a reserve within the meaning of cl. (b) or the amount set apart to meet unascertained liabilities within the meaning of cl. (c) of the Explanation to s. 115J(1) of the Act and as such, the said amount was not to be added to the net profit as computed by the assessee to arrive at the 'book profit' for the purpose of s. 115J. Incidentally, we may state that none of the other clauses viz;, cl. (a) and cls. (d) to (f) or the Explanation to s. 115J(1) or the Act are relevant to consider the addition of Rs.50 lakhs. 10.8 In view of the above, we agree with the learned authorised representative of the assessee that the amount of Rs.50 lakh transferred to debenture redemption reserve from the P and L alc as prepared for the assessment year under appeal is to be allowed as deduction while computing the 'book profit' for the purpose of s. 115J of the Act. Accordingly, the additional grounds are decided in favour of the assessee." 27.1 Similarly in the case of M/s Raymond Ltd. vs. Addl. CIT (supra), the ITAT 'G' Bench Mumbai vide order dated 25/02/2009 observed as under....
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....scertained liability. Following the said judgment, the Tribunal held that no adjustment could be made by the authorities on account of debenture redemption reserves. Facts this year are identical. Therefore, respectfully following the decision of the Tribunal (supra) we set aside the order of CIT(A) and delete the addition made." 27.2 In another case of Manglore Refinery and Petrochemicals Ltd. vs. Addl. CIT in ITA No.5189/Mum/2001 for the assessment year 1998-99, the ITAT 'B' Bench Mumbai, vide order dated 1st October 2007, has held as under: "4. The issue whether a sum appropriated by the assessee in the profit and loss account towards debenture redemption reserve, could be held to be reserve within the meaning of clause (b) be set apart unascertained liability within the meaning of clause (c) of Explanation to section 115J(1) while computing book profit u/s 115J has been considered by the Calcutta Bench of the Tribunal in the case of IOL Ltd vs. DCIT reported in 81 IT J 525 (Cal). The Bench had applied the decision of the Hon'ble Supreme Court in the case of National Rayon Corporation Ltd. vs. CIT (1997) 142 CITR (SC) 202 and held that such an amount was not to be a....