TaxTMI 
TaxTMI 
2016 (8) TMI 1468
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....k profits as per Companies Act." 2. By passing order u/s.154 the AO enhanced book profit computed u/s. 115JB by making addition on account of amortised amount of exchange differences arising out of foreign currency borrowings. By the impugned order, the CIT(A) deleted the same after observing as under :- 1.3.1 I have carefully considered the submissions and contention of the Ld. AR of the appellant and also carefully gone through the facts and explanation given by the Ld. AR of the appellant as well as the Ld. AO. The Ld. AO has made the addition to the book profit determined under section 115JB of the Act, In order to appreciate the nature of the addition made it is worthwhile to extract the provisions of section 115JB of the Act which reads as under:- 115JB. (1) Notwithstanding anything contained in any other precision 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, 2001, is less than seven and one-half per cent of its book profit, [such book profit shall be....
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....ovision 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 (23G) thereof] or, section 10A or section 10B or section 11 or section 12 apply, if any amount referred to in clauses (a) to (j) is debited to the profit and loss account, and as reduced by- [(i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account),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 tiny such amount is credited to the profit and loss account: Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said this Explanation or Explanation below the second proviso to section 115JA, a....
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....ction 74 or sub-section (3) of section 74A. (4) Even company law which this section applies, shall furnish a report in the prescribed form from an accountant as defined in the Explanation below sub*section (2) of section 288, certifying that the book profit has been computed in accordance with the provisions of this section along with the return of income filed under sub-section (1) of section 139 or along with the return of income furnished in response to a notice under clause (i) of sub-section (1) of section 142. (5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section.] [(6) The provisions of this section shall not apply to the income accrued or arising on or after the 1st day of April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be.] 1.3.2 The Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT (2002) 273 (SC), held that the assessing officer, while computing the book profits of a company under section 115J of the Inc....
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....t go beyond the net profit shown in the profit and loss account prepared in accordance with Parts II and III of Schedule VI to the Companies Act, except for the adjustments permissible under the Explanation . (i) The adjustments required to be made to the net profit as per section 349 of the Companies Act are quite different from the adjustments required to be made as per the Explanation." 1.3.4 Provisions of section 11SJB are self-contained code as held by the Hon'ble Supreme Court in the case of Ajanta Pharma Ltd. v. CIT-9, Mumbai (2010) 327 ITR 305(SC) while laying this proposition, the Hon'ble Supreme Court observed that in recent times, the number of zero-tax companies and companies paying marginal tax has grown, hence, vide the Finance (No.2) Act, 1996, levy of minimum tax on companies having "book profits" stood introduced. The-scheme envisaged payment of minimum tax by deeming 30% of the book profits computed under the Companies Act, as taxable income, in a case where the total income as computed under the provisions of the 1961 Act, is less than 30% of the book profit. The word "book profit" has been defined in section 115JA(2) read with the Expla....
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....amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities, therefore the question which arose for consideration is the amount in question be called as unascertained liability. I find that there are two requirements among others in col. No. 17 of Tax Audit Report. In the Col. No. 17(a), an Auditor has to report expenditure of capital nature, in the Col. 17(k) he has to report particulars of any liability contingent in nature. In the present case the Auditor in Col. No. 17(a) reported "amortization of foreign currency loan Rs. 10,47,08,044/-" as Capital Expenditure whereas in Col. No. 17(k) "provision for derivative Loss of Rs. 30,00,000/-" as contingent liability. Therefore what was reported as contingent was Rs. 30,00,000/* only and not Rs. 10,47,08,044/ -. Therefore, Ld. AO has erred in stating that sum of Rs. 10,47,08,04/ - was contingent liability while passing the order u/ s 154 of Income Tax Act. Further, the appellant is consistently following Mercantile system of Accounting and reinstatement of liability was made in accordance to AS-11. Further, vide order u/ s.143(3) dt. 30/11/2011 where Ld. AO has taken cognisance of revised....
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.... which has arisen in the accounting year. May be its actual quantification and discharge is deferred to a future date. Once an assessee is maintaining his accounts on the mercantile system, a liability accrued, though to be discharged at a future date, would be a proper deduction while working out* the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. 1.3.8 In the case of Rotork Controls India Pvt. Ltd vs. CIT (2009) 314 ITR 62(SC), the Hon'ble Supreme Court observed that a provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized Liability is defined as a present obligation arising from past events, the settlement 6f which is expected to result in an outflow from the enterprise of resources embodying economic benefits. A past event that....
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....trade at the beginning and at the end of the year should be entered at cost or market price, whichever is the lower. This is how business profits arising during the year needs to be computed. This is one more reason forgoing s. 37(1) with s. 145. Under s. 145(2), the Central. Government is empowered to notify from time to time the Accounting Standards to be followed by any class of assessees or in respect of any class of income. Accordingly. under s. 209 of the Companies Act, mercantile system of accounting is made mandatory for companies. In other words, Accounting Standard which is continuously adopted by an assessee can be superseded or modified by legislative intervention. However, but for such intervention or in cases falling "under s. 145(3), the method of accounting undertaken by the assessee continuously is supreme. In the present batch of cases, there is no finding given by the AO on the correctness or completeness of the accounts of the assessee. Equally, there is no finding given by the AO stating that the assessee has not complied with the Accounting Standards. For the reasons given hereinabove, the "loss" suffered by the assessee on account of the exchange difference&#....
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....ublic sector undertaking, engaged in exploration and prospecting oil. It largely depends on foreign loans to cover its capital and revenue expenses. Fluctuation in foreign currency rates results in loss and assessee claims deduction u/s 37(1) in the year of fluctuation apart from adjusting the actual cost of imported capital assets acquired in foreign currency on account of fluctuation at each balance-sheet date, pending actual payment of the varied liability. AO disallowed the claim and Ld. CIT(A) goes with the AO on the assessee's claim for foreign exchange loss in revenue account but accepts the assessee's stand relating to capital account. Tribunal disagrees with the AO but High Court reverses the Tribunal's order - held, in view of the Apex Court decision in the Woodward Governor case (supra) and the fact that this case pertains to the period prior to the amendment In Sec 43A,* both the Issues were settled in favour of the assessee. 1.3.12 In the case of DCIT vs. Bank of Bahrain & Kuwait (2010) 132 IT] (Mumbai)(SB) 50S, the Hon'ble Special Bench IT AT, Mumbai concluded that where a forward contract is entered into by the assessee to buy or sell the for....
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....nd undertaking of obligation to meet the liability, and only consequential effect of the same is to be determined, then, it cannot be said that it is in the nature of contingent liability. In case of loss/ expense, it is the concept of reasonable certainty to meet an existing obligation which comes into play which in legal terminology is said to be crystallisation of liability. When outflow of economic resources in settlement of present obligation can be anticipated with reasonable accuracy then it is to be recognised as crystallised liability. The revenue's main contention that liability can arise only when the contract matures is completely divorced of the principles of commercial accounting and, therefore, cannot be accepted. Both legal obligation and commercial principles have to be taken into consideration for deciding such issues. Anticipated losses on account of existing obligation as on 31st March, determinable with reasonable accuracy, being in the nature of expenditure/ accrued liability, have to be taken into account while preparing financial statements. In view of the foregoing, it can be concluded that it is not a contingent liability and thus cannot be added to determ....