TaxTMI 
TaxTMI 
2019 (5) TMI 1757
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....he action of the AO in holding that there is no brought forward unabsorbed loss or unabsorbed depreciation and thereby concluding that the appellant is chargeable to tax u/s 1 15JB of the Act. 3. The learned Commissioner of Income Tax (Appeals) - IV, Baroda erred in fact and in law in confirming the action of the AO in not allowing the benefit of brought forward unabsorbed depreciation of Rs. 1,65,15,0937- as per section 115JB(1)(iii). 4. The learned Commissioner of Income Tax (Appeals) - IV, Baroda erred in fact and in law in confirming the action of the AO in holding that there is no brought forward unabsorbed depreciation / unabsorbed business loss for the purpose of set off as per section 1 15JB(l)(iii). 5. The learned Commissioner of Income Tax (Appeals) - IV, Baroda erred in fact and in law in confirming the action of the AO in charging interest u/s 234B of the Income Tax Act, 1961. 6. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal. The only effective issue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by not allowing the benefit of brought ....
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....the reduction in the share capital. As such the impugned adjustment is representing the accounting entry and an adjustment in the books of accounts in pursuance to a scheme approved by the Hon'ble Gujarat High Court vide order dated 2nd December 2004. Accordingly, the assessee contended that it has not utilized/setoff such brought forward law and unabsorbed depreciation against the profit of the company. Therefore such accounting/ book adjustment for the brought forward loss and unabsorbed depreciation would not affect its claim under section 32(2) and 115JB of the Act. However, the learned CIT (A) rejected the claim of the assessee by observing that the provision of section 115JB of the Act requires to work out book profit as shown in the audited profit and loss account for the relevant AY. Therefore any past event of the assessee where it has adjusted the brought forward losses and unabsorbed depreciation against the reduction of share capital will have the bearing on the working of book profit under section 115JB of the Act. Accordingly, the learned CIT (A) confirmed the order of the AO. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us. 4....
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....avour of the assessee. The relevant extract of the order is reproduced as under: "10. We have duly considered rival contentions and gone through the record carefully. In our opinion, the controversy required to be silenced at the end of the Tribunal, is whether restricting credits credited to the profit & loss account against accumulated profit & loss debit balance would mean that the alleged accumulated loss have been absorbed, and not available to the assessee for claiming deduction under clause (iii) of Explanation to section 115JB(2). Section 115JB has a direct bearing on the controversy, therefore, it is imperative upon us to take note of the relevant part of this section, which reads as under: "Section 115JB Special provision for payment of tax by certain companies. (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)** ** ** Explanation [1]. - For the purposes of this section, "book profit" means the net profit a....
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....009-10, the assessee has reduced the book profit by making an adjustment under section 115JB of the Act at Rs. 6,92,38,861/-. Similar adjustments have been accepted by the AO in an assessment order passed under section 143(3) of the Act. 12. Parties are not disputed about the applicability of Section 115JB. There dispute is only qua quantification of book profit for the purpose of section 115JB. A bare perusal of clause (iii) of Explanation to section 115JB (2) would indicate that this clause authorises an assessee to reduce the amount of book profit by the amount of brought forward loss or depreciation whichever is lower. There is no dispute between the parties qua this interpretation also. Clause (a) of sub-section (2) of section 115JB contemplates that every assessee being a company, other than referred to clause (b) shall for the purpose of this section, prepare its profit & loss account in accordance with the provisions of Part-II and Part-III of Schedule-VI of the Companies Act, 1956. The area of dispute between the parties lies here. In other words, the controversy boils down to the issue whether the restructuring credits are required to be credited to the profit & loss ....
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....s in respect of transactions of a kind, not usually undertaken by the company or undertaken in circumstances of an exceptional or non-recurring nature, if material in amount." 14. Apart from the above, we have perused the guidance note issued by the Institute of Chartered Accountants of India on the revised Schedule-VI to the Companies Act, 1956. It has been laid down in the guidance note at serial no. 9, page no. 56 that while preparing the statement of profit & loss account, under Part-II of the Schedule VI, company has to disclose the items of revenue expenses, other details and profit & loss etc. There is a list of different heads from I to XVI under which details are to be disclosed. It provides that the expression "income" or "revenue" is to be considered as increase in economic benefit during the accounting period in the form of inflows or encashment of assets or decrease of liabilities that result in increase in equities, other than relating to contributions from equity participants. Similarly, expression "expenses" has been defined to mean decrease in economic benefits during the accounting period in the form of outflows, the depletion of assets or increase of liabilitie....
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....recorded on transaction of exceptional nature is to be debited or credited to the profit & loss account. In order to buttress this standpoint, Shri J.P. Shah, ld. counsel for the assessee drew our attention towards AS-9 which provides the method of revenue recognition. 16. We have made analysis of Guidance Note issued by Institute of Chartered Accountants of India on Schedule-VI, provisions of Part-II of Schedule-VI and AS-9. At the cost of repetition, we would refer clause (3) of Part-II. "3. The profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads ; and in particular, shall disclose the following information in respect of the period covered by the account." This clause contemplates that the profit & loss would show various items, relating to income and expenditure, as also appended in the Guidance Note. These items were to be arranged in seriatim against whom information should be disclosed in particular. Thus profit & loss account is to contain the income and expenditure of a company in respect of accounting period covered. There cannot be any question for including capital su....
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.... with its order dated 22nd January, 2008 envisaging various relief and concessions ("Rehabilitation Scheme") Further, the sanctioned Rehabilitation Scheme inter alia provides for restructuring of debts through One Time Settlement (OTS) with the secured lenders, write down (reduction) of the existing equity capital u/s 18(2(f) of SICA, by 90%, issue of fresh equity share capital on a preferential basis in favour of the promoters and fresh infusion of funds by the promoters as "additional working capital and soft loan for revival of the Company. In accordance with the One Time Settlement (OTS) terms, the Company has paid off Rs. 40,83 crores to "the secured lenders towards the aggregate liability (principal and interest) amounting, to Rs. 81.77 crores. As per the approved Rehabilitation Scheme, the dues of secured creditors have been completely settled and the secured creditors have waived-off the aggregate: balance Rs. 40.94 crores on principal, interest, penal interest and other charges upon repayment bf OTS amount. The promoters have contributed Rs. 3.67 crores towards additional working capital. In accordance with the rehabilitation scheme the Company has issued 15,50,00,00....
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....-off of losses as deduction, while computing the book profit as per the clause (3) of Explanation to Section 115JB(2). The facts on the basis of which this claim was disallowed by the AO was that as per scheme of amalgamation approved by the shareholder and the Hon'ble Madras High Court, the company reduced the paid-up capital, which is not represented by the assets, because the company had incurred losses in earlier years. Accordingly, the company has transferred the entire balance of profit and loss account amounting to Rs. 3,58,75,731/- to paid-up equity capital account. The amount credited to profit & loss account is not income of the year and only represented reduction of paid-up capital. The ld. Revenue Authorities have rejected the claim of the assessee on the ground that since the assessee has set-off its debit balance against the alleged paid-up capital transferred to the profit & loss account. In subsequent years, it is not to be examined, the manner and purpose in which the said earlier business loss/depreciation had been adjusted by the assessee against its capital asset. When the dispute travelled to the Tribunal, the Tribunal has allowed the claim of the assessee,....
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....ion becomes evident when one looks into the example given by the CBDT in its Circular No. 495 dated 22.9.1987. A reading of para 36.3 and 36.5 thereof shows that by virtue of the said clause, "brought forward losses" or "unabsorbed depreciation", whichever is less, could be reduced in arriving at books profits. It requires working out separate amount of losses and unabsorbed depreciation in each year from the books of account and their set-off, if any, against subsequent year's book profit for determining the amount to be carried forward or the amount remaining unabsorbed. The loss or unabsorbed depreciation is to be determined with reference to books of account in contradistinction to the loss of unabsorbed depreciation arrived at from normal computation of total income under sections 72 to 74A of the Act or u/s 32 of the Act. Herein, it may be noted that phrase used is 'books of account' and not 'profit and loss account' or 'balance sheet'. 'Profit and loss account, balance sheet and books of account' are different and distinct terms and in a given circumstance, may not carry the same meaning. Though 'profit and loss account' and 'b....
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....et us deal with the reasoning given by the ld. CIT(A). The first reason assigned by the ld. CIT(A) is that the assessee has claimed maintenance of separate ledger for giving effect the credits in the rehabilitation scheme. But according to the ld. CIT(A) auditors have not given any such finding nor provided that two sets of profit & loss account are being maintained. Therefore, according to the ld. counsel for the assessee, once the assessee has accounted the alleged restructuring credits in the accounts and set-off the losses, then, in subsequent period, it cannot claim reduction of such loss under clause (iii) of Explanation to Section 115JB(2). With regard to this objection, we are of the view that SICA has no overriding effect on the Companies Act. The assessee in its computation of income has claimed reduction of unabsorbed depreciation from the book profit as per clause (iii) of Explanation to Section 115JB(2). The contention of the assessee, as discussed earlier was that accounts for the purpose of giving effect the scheme of BIFR were not required to be finalized in consonance with Parts-II and III of Schedule-VI. Therefore, even if the assessee has shown the alleged set-....
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....ting. As observed earlier, the object of levy of tax under section 115JB is that book profit ought to be computed as per Part-II and Part-III of the Schedule-VI. What other accounting treatment has been given by the assessee for the purpose of any other scheme is totally irrelevant, because SICA has no overriding effect on the Companies Act. It could be explained by simple example. Depreciation under the Companies Act can be claimed according to the straight-line method or as per WDV. But for the purpose of computation of income under the Income Tax Act, depreciation is to be worked out as per the WDV. The rate of depreciation under the Income Tax Act is higher than the one prescribed under the Companies Act. Can the ld. Commissioner allege that since you have claimed a lower depreciation, according to the straight-line method, while preparing the accounts under Part-II and Part-III of Schedule-6, therefore, you are not entitled for higher rate of depreciation as per WDV method while assessing the income of the assessee under regular provision? All these Acts operate independently in their field. As far as plea of the assessee that principle of consistency ought to be applied is ....