TaxTMI 
TaxTMI 
2012 (5) TMI 4
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.... under consideration two companies viz., M/s United Real Estates and Buildings Pvt. Ltd. and M/s. Sukhsagar Developers Pvt. Ltd. [wholly owned subsidiaries of the assessee-company] have been amalgamated under the scheme of amalgamation vide order of the Hon'ble Bombay High Court dated 27-4-2007. These companies were amalgamated into M/s. United Estates Pvt. Ltd., i.e. the assessee company and as per the order of the High Court the effective date of amalgamation was 1-1-2007. The AO verified the profit & loss account and balance sheet of the assessee-company and noted that in the balance sheet a reserve of Rs. 39,79,89,292/- was credited by transfer the same from profit & loss account. The assessee was asked to explain as to why the same should not be added to the book profits as per the provisions of sec.115JB. In response to this show-cause notice it was mainly pleaded that the assessee-company prepared the accounts in accordance with Part II & Part III of Schedule VI of the Companies Act, 1956 and none of the provisions of sec.115JB have been violated while preparing the profit & loss account. The break-up of the general reserve is as under: (i) Share premium account 1,40,0....
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....ame from profit & loss account. Further a sum of Rs. 47,39,19,646/- has been debited to profit & loss account. Out of the above a sum of Rs. 39,79,89,282/- has been credited as reserve. The AO also observed that the decisions of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra), and also of Bombay High Court in the case of Kinetic Motor Co. Ltd. (supra), were of no relevance because he has not altered or disturbed the profit & loss account given by the company. Thereafter he computed the book profits u/s.115JB as under: Computation of income u/s 115JB Net profit as per P&L A/c 43,883/- Add:- Amount referred to in clauses (a) to (f) - of the Explanation of Sub-section (2) of this section (i) Provision for Tax 56,000/- (ii) Amount carried to general reserve 39,79,89282/- Book Profit Rs 398,089,165/- 10% of the Book Profit 398,08,917/- 3. Before the CIT(A) it was mainly contended that the amalgamation was approved by the High Court of Bombay and as per the requirements of amalgamation, assets and liabilities have to be valued at fair market value and the same were valued on the basis of the report of a valuer a....
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.... of reserve. He also observed that as per sec.43C cost of acquisition in case of amalgamation shall be the cost of asset to the amalgamating company and, therefore, any increase in the cost of assets due to amalgamation would be ignored. He also observed that one cannot make profit merely on revaluation of assets, therefore, same could not be considered for the purpose of sec.115JB and there cannot be any dichotomy between the provisions of sec.115JB and sec. 43C(1). The ld. CIT(A) thereafter relied on the decisions of the Hon'ble Madras High Court in the case of CIT v. M. CT. M. Corpn. (P.) Ltd. [1996] 221 ITR 524 and Hon'ble Supreme Court in the case of National Hydroelectric Power Corpn. Ltd. v. CIT [2010] 320 ITR 374/187 Taxman 193, and held that additions on account of notional reserve to book profits were not maintainable and accordingly deleted the same. 5. Before us, Ld. DR submitted that the AO has not rescrutinised/recast accounts, therefore, the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) has no relevance on the issue before us. He carried us through Explanation 1(b) to sec.115JB and pointed out that any amount carried to any reserve by ....
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....cision of the Hon'ble Madras High Court in the case of M. CT. M. Corpn. (P.) Ltd. (supra) wherein it was clearly held that any transfer made during the amalgamation cannot give rise to any capital gain. 7. The Ld. Counsel of the assessee also submitted that clause (b) of Explanation 1 to sec.115JB was not applicable in the case before us because no amount has been debited to the profit & loss account. He submitted that the Hon'ble Supreme Court has clearly decided this issue by making similar observations in the case of National Hydroelectric Power Corpn. Ltd. (supra). Alternatively he submitted that addition by the AO on account of reserve also contains a sum of Rs. 1.40 crores on account of share premium account and Rs. 7,80,348/- on account of credit balance in the profit & loss account which was merely a transfer entry and cannot be called a debit to the profit & loss account, because such amount already stood on the credit side of amalgamating company and therefore there is no justification for taking these amounts also into reserve account. 8. We have considered the rival submissions carefully. We agree with the submissions of the Ld. DR that the decision of Hon'ble Sup....
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....Rs. Credit Rs. To Stock of Ready Premises Flat at Jogeshwari project By Sale of Flat By Other income 16,15,000 2,046 12,40,000 1,24,000 To Work in Progress of Amalgamated Companies By Closing Work in Prog. Project 1-Aqua Marine I 24,00,00,000 Project 1-Aqua 24,08,06,324 Project 2-Aqua Marine III 23,00,00,000 Marine I Project 2-Aqua Marine III 23,08,26,441 Project 3-United Tower Phase II 13,12,355 Project 3 -United Tower Phase II 13,52,860 Project-4 Kurla 26,07,291 47,39,19,646 Project 4-Kurla 26,13,069 47,55,98,694 To Direct Expenses Project 1-Aqua Marine I 85,087 Project 2-Aqua Marine III 73,727 Project 3-United Tower Phase II 10,101 1,68,915 To Maint. Exp. of Flat in stock 2,77,163 To Finance Exp....
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....ble Supreme Court in para-8 are as under: "According to the Authority for Advance Rulings (AAR), the assessee supplied electricity at the tariff rate notified by CERC and recovered the sale price, which became its income; that, in future the said sale price was neither refundable nor adjustable against the future bills; that, the sale price (which includes AAD) was shown as "sales" in the P&L a/c; that, it was received in terms of the invoice raised by the assessee and, therefore, it was "income" in the year, of receipt. However, according to AAR, when it came to computation of book profit, assessee deducted the AAD component from total sale price and only the balance amount net of AAD was taken into P&L a/c and book profit. Consequently, AAR ruled (which is challenged herein) that reduction of AAD from the "sales" was nothing but a reserve which has to be added back on the basis of cl. (b) of Expln. 1 to s. 115JB of the IT Act, 1961 ("1961 Act", for short)." After quoting the provisions of clause (b) of Explanation 1 to sec.115JB the Hon'ble Supreme Court observed that there was no debit in the profit & loss account and the amount did not enter into the stream of income for ....
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....bsp; Investments - Eq Share - United R E & B P. To Ltd. A/C 2,503: To Pref. Share Capital A/C 200, To Profit & Loss Account 874, To ICICI Loan (Car Skoda) 834, To Unsecured Loan United Estate P. Ltd. 14,080, To United Builders 27,646, To Kashmira M U Kaiser 1240, To Abdul N Karedia 100, To Akberali N Maknojia 1,600,C To Amina A Merchant 150,C To Amin A Merchant 150,C To Aziz Merchant 100,C To Hafiza U Shama 200,C To Imran N Maknojia 179,C To Makson Realtors P. Ltd. 75,C To Makson Trading & Invest P. Ltd. 75,C To Mrs. Mumtaz N Masani 280,C To Saizad N Maknojia 530,5 To Shamim Merchant 100,0 To Unimax Realtors P. Ltd 75,0 To Uni....
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....Fees Payable TDS Payables 101,360 To Interest Payable - 938,159 To Telephone Exp. Payable 750 To Security Exp. 13,194 To Electricity Exp. Payable 450 To BMC Assessment Tax 788 To M/s United Builders 433,330 To Depreciation on Computers 9,030 To General Reserve 204,656,262 TOTAL 240,374,079 240,374,078 The Hon'ble Supreme Court clearly observed in the case of National Hydroelectric Power Corpn. Ltd. (supra) that for making an addition under clause (b) of Explanation 1 to sec.115JB two conditions must be satisfied jointly. (1)(a) There must be a debit of the amount to the profit & loss account, (clause (b) of Explanation 1 to sec.115JB) the amount so debited must be carried to the reserve. Further, the reserve contemplated by clause (b) of Explanation 1 to sec.115JB is required to be carried through the profit & loss account. The Hon'ble court also observed that there can be two types of reserves, namely, those that are routed through the profit....