2016 (5) TMI 1032
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....cts and the factual matrix that both these grounds were raised by the assessee before the Ld. CIT(A), arguments advanced from both sides, both these grounds are sent to the file of the Commissioner of Income Tax (Appeal) for fresh adjudication on merit in accordance with law. The assessee be given opportunity of being heard with further liberty to furnish evidence, if any, in support of its claim, thus, both these grounds are allowed for statistical purposes only. 4. The only ground remained for adjudication by this Tribunal and agitated/argued by the assessee is ground number 2, which is with respect to allowability of loss on demerger in the computation of book profit u/s 115JB of the Act. The crux of arguments advanced on behalf of the assessee is that there are various divisions and one of them is the resorts division having asset and liabilities. By virtue of demerger, all the asset and liabilities were transferred and shares of Khatau resort were issued as per scheme and since the asset and liabilities were transferred loss resulted into of Rs. 145.23 crores, which was debited to profit and loss account as extra ordinary item. The contention of the Ld. Assessing Officer that....
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....t and liabilities except remaining business. As part of remaining business, in interalia retained certain investments in shares of companies and borrowings from financial institution (remaining business is defined in clause 1.9 of the scheme)(pages 37-38 of the paper book). The scheme is approved also mandated the fact to be given in the account of both the demerge company and resultant company to the terms of the scheme. As per paragraph 7 of the scheme, the assessee reduced the book value of all the asset and liabilities relating to the hospitality undertaking from its books of accounts. The difference being the excess of the book value of the assets transferred over the book value of the liabilities transferred was to be adjusted by the assessee in its profit & loss account (page 44, para 7 of the paper book). The Hon'ble High Court while approving the scheme has observed (para-5 & 6, page 33 of the paper book) as under:- "5. Upon perusal of the entire material placed on records, the Scheme appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to any public policy. None of the parties concerned has come forward to oppose the scheme.....
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....ogether with the notes thereon in Schedule 'U', give the information required by the Companies Act, 1956, in the manner so required and subject to comments made in paragraphs 1.4 & 1.5 above, give a true and fair view in conformity with the accounting principles generally accepted in India." The auditors have accepted the book treatment in respect of loss arising on account of demerger. Though the auditors have qualified the annual accounts in respect of another issue, where according to them, a lesser loss has been booked on account of sale of investment to the extent of Rs. 38.75 crores but there is no qualification/reservation with respect to the issue under consideration. 4.5. The Ld. Assessing Officer while framing the assessment u/s 143(3) on 28/12/2011, accepted the income at nil, as per regular computation of income, however, on computation of book profit u/s 115JB of the Act, the Ld. Assessing Officer started with the net profit as reflected in the profit & loss account of Rs. 78,37,68,201/- i.e. such profit before provisions of fringe benefit tax, prior period adjustment and extraordinary adjustment. However, the claim of the assessee is that such computation should st....
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.... the companies and it share holders. 4.8. Now, we shall analyze section 115JB(2) of the Act along with explanation-1. 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, shall, for the purposes of this section, prepare i....
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....016 : (fa) the amount or amounts of expenditure relatable to, income, being share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86; or (fb) the amount or amounts of expenditure relatable to income accruing or arising to an assessee, being a foreign company, from,- (A) the capital gains arising on transactions in securities; or (B) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII, if the income-tax payable thereon in accordance with the provisions of this Act, other than the provisions of this Chapter, it is a rate less than the rate specified in sub-section (1); or (fc) the amount representing notional loss on transfer of a capital asset, being share or a special purpose vehicle to a business trust in exchange of units allotted by the trust referred to in clause (xvii) of section 47 or the amount representing notional loss resulting from any change in carrying amount of said units or the amount of loss on transfer of units referred to in clause (xvii) ofsection 47; or (g) the amount of dep....
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....ollowing clauses (iic), (iid), (iie) and (iif) shall be inserted after clause (iib) in Explanation 1 below sub-section (2) of section 115JB by the Finance Act, 2015, w.e.f. 1-4-2016 : (iic) the amount of income, being the share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions ofsection 86, if any, such amount is credited to the profit and loss account; or (iid) the amount of income accruing or arising to assessee, being a foreign company, from,- (A) the capital gains arising on transactions in securities; or (B) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII, if such income is credited to the profit and loss account and the income-tax payable thereon in accordance with the provisions of this Act, other than the provisions of this Chapter, is at a rate less than the rate specified in subsection (1); or (iie) the amount representing,- (A) notional gain on transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in c....
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....this section, the assessee, being a company to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company. Following Explanation 4 shall be inserted after Explanation 3 to subsection (2) of section 115JB by the Finance Act, 2015, w.e.f. 1-4-2016 : Explanation 4.-For the purposes of sub-section (2), the expression "securities" shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). (3) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section....
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....om the decision in CIT vs Kehtan Chemicals and Fertilizers Ltd. 307 ITR 150 (Del.) and Tamilnadu Cements Corporation Ltd. vs JCIT 349 ITR 58 (Madr.). It is also observed that such treatment (given by the assessee) was approved by Hon'ble jurisdictional High Court and the Revenue has not challenged the approval. The accounting treatment in the books of KIL is reproduced hereunder (page 44 of the paper book) for ready reference and analysis:- "7. Accounting Treatment in the Books of KIL 7.1. On the Effective Date, KIL shall reduce the book value of all the assets and liabilities relating or pertaining to the Hospitality Undertaking. 7.2. The difference, being the excess of the book value of assets transferred over the book value of liabilities transferred, or vice versa, as the case may be, shall be adjusted by KIL in its Profit & Loss Account." The above arrangement/accounting treatment has been approved by Hon'ble jurisdictional High Court vide order dated 19/09/2008. As per clause 2(b) of part II to schedule VI of the Companies Act, 1956, the profit & loss account should disclose every material features/fact including credits or receipt and debit and expenses in respect to ....
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.... the net profit determined as per profit and loss account of the assessee prepared under the Companies Act. As per the audited accounts of the assessee, the statutory auditors have reported that amongst others, that in their opinion, the profit and loss account and the balance sheet are in compliance with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, and further reported that the balance sheet and profit and loss account read together with the notes thereon, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted. As per audited profit and loss account, the assessee has included long term capital gain. In the notes on accounts, it is nowhere mentioned and clarified that though the long term capital gain is included in the profit and loss account but it is not to be includible in the net profit in terms of provisions of Part II and Part III of Schedule VI to the Companies Act or the accounting principles accepted under the Companies Act..... 25. It is to be noted that the assessee has not made any claim of deductio....
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....as approved by the Hon'ble High Court of Bombay vide its order dated 19/09/2008.The Scheme amongst others, provided demerger of Resort Undertaking of the Company located at Ramnagar, Delhi and Mumbai (hereinafter referred to as Demerged Undertaking) on a going concern basis with all its assets and liabilities as defined in the Scheme. The said Scheme of demerger has become effective with effect from l5th July 2008 and accordingly, the assets and liabilities of Demerged Undertaking stands transferred to and vest in as a going concern to Khatau Resorts Private Limited at its book values. Excess of assets transferred over liabilities amounting toRs.145.23 Crores have been transferred to Profit & Loss Account as per provisions of the Scheme. Carrying amounts of Assets and Liabilities attributable to Resort Division which were transferred to Resulting Company as on the effective date were as follows. In accordance with the scheme of demerger, the Shareholders of Varun Corporation Limited (formerly known as Khatau International Ltd.) have been allotted one share of Khatau Resorts Pvt. Ltd., for every twenty nine shares held by them in Varun Corporation Ltd. on 15th July 2008. The....
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....1.5. "Hospitality Undertaking" means the hospitality business carried on by KIL under the name and style of 'Infinity Resorts', more specifically stated in Annexure A and shall include the following: 1.5.1 (i) all assets and properties of KIL pertaining or relating to the Hospitality Undertaking (whether movable or immovable, corporeal or incorporeal, present, future or contingent) as on the Appointed Date; (ii) all immoveable property, including land' and building at Uttaranchal, livestock, plant, investment in companies engaged / to be engaged in Hospitality Undertaking, current assets, funds, capital work in progress, furniture, fixtures office equipment, appliances, accessories as on the Appointed Date; . (iii) all permits, rights, entitlements, industrial and other licenses, bids, tenders, letters of intent, expressions of interest, permissions if any municipal gram panchayat, taluka and other statutory authority, approvals, consents, licenses, registration, subsidies, concessions, 'exemptions, .remissions, tax deferrals, tenancies in relation to office, bank accounts, lease rights, licenses, powers and facilities' of every kind, nature and description ....
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....book) "With effect from the Appointed Date, the Hospitality Undertaking shall, pursue' to the provisions of Sections 391 to 394 and other applicable provisions, if any of the Act,' stand transferred to KRPL without' any further act or deed, at book values in accordance with Section 2(19AA) of the Income-tax Act, 1961, and the Hospitality Undertaking shall consequently vest in KRPL with effect from the Appointed Date for all the estate and interest of KIL therein, subject however, to all charges, liens, mortge.ges and encumbrances, If any, affecting the same or any part thereof and arising- out .of the liabilities which shall also stand transferred to KRPL. The transfer and vesting of the Hospitality Undertaking to KRPL shall be effected in the manner as provided hereinbelow." 4.14. Thus, if the totality of facts and the judicial pronouncements discussed hereinabove, if kept in juxtaposition with the facts of the present appeal, we note that the claimed loss was disclosed by the assessee in the profit & loss account as an extraordinary item and such loss was arrived at by reducing the same from the book value of the asset transferred and further the treatment as given ....