TaxTMI 
TaxTMI 
2011 (12) TMI 222
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....ccordance with the provisions of section 115JB. 2. The Ld. CIT(A) has erred in law and on facts in failing to consider the fact that the deduction of Rs. 33,11,687/- credited in profit & loss account is the difference of term loan payable as per books and the amount restated and calculated at the market rate of dollars as on 31/3/2005 which was neither a capital receipt nor any real income that was calculated due to Accounting Standard 11 and accounted for in the books of account should not be taxed u/s 115JB being notional receipt. 2. The assessee-company is in the business of running a multiplex theatre. Return of income was filed at a loss of Rs. (-) 58,92,889/-. The "book profit" was disclosed at Rs. 1,58,06,285/- u/s 115JB of the I.T. Act. With this background, while computing Minimum Alternate Tax, the Assessing Officer vide impugned order passed u/s 143(3) dated 28/03/2007 has noticed that as per the working of the book profit given by the assessee a sum of Rs. 33,11,687/- was reduced from the book profit which pertained to "Foreign exchange fluctuation due to restated of term loan at the year end". The Assessing Officer has mentioned that under Explanatio....
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....ed out the "book profit" u/s.115JB at Rs. 1,91,17,972/-. Being aggrieved the matter was carried before the first appellate authority. 4. The Learned CIT (Appeals) has discussed the purpose of introduction of Minimum Alternate Tax and the definition of "book profit" prescribed u/s 115JB of the I.T. Act. The Learned CIT (Appeals) has also discussed Accounting Standard-11 (AS-11) in the context of the accounts finalized by the assessee under the provisions of section 210 of Companies Act, 1956. Thereafter, he has affirmed the working of the "book profit" computed by the Assessing Officer for the purpose of tax u/s.115JB of the I.T. Act. Now the assessee is further in appeal. 5. From the side of the appellant, ld. AR Mr. Dhiren Shah appeared. His main plank of argument is that only a notional income was credited in the Profit & Loss account, following Accounting Standard-11 (AS-11). Since it was a notional income, therefore, neither in the normal computation of tax under IT Act nor under the special provision of tax u/s 115JB of the I.T. Act it could be subject to tax. Though he has also argued that till 31.3.2004 the repayments of loan was part and parcel of the capital asset an....
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....what are stated in the said explanation are allowable. He has explained that in the said precedent capital gain was claimed to be exempt u/s 54E of the I.T. Act, however, the Hon'ble Court has held that the assessee was not entitled to the said exemption while computing "book profit". From the side of the Revenue, it has also been argued that provisions of section 115JB are a separate code in itself therefore it was wrongly argued by the assessee's counsel that 115JB(5) provides the application of all other provisions of this Act. The ld. DR has explained that the existence of sub-section (5) has duly been explained by the Hon'ble Courts and held that the purpose of the said sub-section is to apply the provisions of levy of interest on the tax calculated u/s.115JB of the I.T. Act. In this connection, he has cited the decision of CIT v. Kotak Mahindra Finance Ltd. [2004] 265 ITR 119/[2003] 130 Taxman 730 (Mum.) and CIT v. Kwality Biscuits Ltd. [2006] 284 ITR 434 (SC). 7. We have heard both the sides at some length. We have carefully perused the compilation filed before us in the light of the orders of the authorities below and the case laws cited. Undisputedly, while working the ....
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.... has been explained that the loan was raised in Foreign Exchange for the purpose of setting up of the machinery in multiplex theatre business. With this factual background and the accounts maintained by the assessee now we have to examine the relevant provisions of the Act. 8. At the outset, it is worth to mention that the assessee has placed on record the 'statement of account' and the duly 'audited balance-sheet' of the company, which was duly approved through Annual General Meeting (AGM). Once it is an accepted factual position, then it can be safely held that sub-section (2) of section 115JB of the I.T. Act should be applicable on the assessee; reproduced below:- Section 115JB "(2) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956): Provided that while preparing the annual accounts including profit and loss account,- (i) the accounting policies; (ii) the accounting standards followed for preparing such accounts including profit and loss acco....
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....has finalized the books of account in accordance with the Schedule-VI and that account has been laid before the AGM and duly approved and also that those accounts correspond with the accounting policies, then no adjustment is permissible as per the provisions of this section. At this juncture, it is worth to mention that permissible adjustments are provided in Explanation-1 to this section. Through this explanation, the term "book profit" has been defined which means the net profit as shown in the Profit & Loss account. For this legal proposition, we draw support from an order of Hon'ble Karnataka High Court pronounced in the case of N.J. Jose & Co. (supra), wherein the Hon'ble Court has said that for the purpose of computation of "book profit" permissible adjustments in the form of additions and deductions are provided under Explanation and no more deductions or allowances other than what are stated in the said explanation are available. 9. The next contention of the ld. AR is that in view of the sub-clause (5) of section 115JB all other provisions of this Act should apply to the assessee and, therefore, an income which was not real income, therefore, not to be added in the "bo....
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....aised an issue that the impugned amount was not the real income of the assessee. Though in the light of the above discussion, it is no more relevant whether it was real or unreal because it had been included in the "book profit" of the assessee-company for the purpose of MAT provisions as per the Companies Act, but still we have noticed that the liability as per the bank accounts was lower than the liability in Indian Rupees as per the books of the assessee. Relevant calculation have already been reproduced supra. Meaning thereby, if in the books of account a liability has been accounted for towards higher side then the actual liability as ascertained by the third party, i.e. the bank, then the difference between the two is nothing but in the nature of savings, tantamount to profits of the business concerned. As far as the "AS-11" is concerned, in simple language, it is expected from a business enterprise to adjust the interest difference, so that the amounts outstanding in Indian Rupees in the books of account of the assessee should match with the corresponding amount shown as outstanding by a bank or any third party in Foreign Exchange by applying the current Foreign Exchange Rat....