TaxTMI 
TaxTMI 
2017 (5) TMI 1819
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....43(3)(ii) of the Income Tax Act, 1961 (hereinafter 'the Act').. 2. The only common issue in both the appeals of assessees' is as regards to the order of CIT(A) confirming addition made by AO of the amount of Debt Redemption Reserve while computing the book profit under section 115JB of the Act. The facts and circumstances are exactly identical in both the cases as admitted above and the grounds raised are identically worded accept the quantum. Hence, we will take the facts and grounds as raised in ITA No. 5187/Mum/2015 and will decide the issue. The relevant ground read as under: - "1. On the facts and circumstances of the case and in law the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the addition made of R....
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....tion reserve of Rs 78.1 lakhs is claimed. No such debt redemption reserve was created in earlier years. There are no term loans and secured loans. The unsecured loans is Rs 813.4 lakhs as against Rs 698.7 lakhs in the preceding year. The subsequent year audited accounts shows the unsecured loans at Rs 715.2 lakhs. There is addition to debt redemption reserve during FY 12-13 but no utilization for any repayments. The position of this debt redemption reserve remains the same in FY 2013-14 at Rs 75.10 lakhs also and there are no addition or withdrawal from the reserves and even though the unsecured loans is shown lower at Rs 717.46 lakhs showing repayments. It is also noted that the profits in FY 2012-13 was only Rs 9.28 lakhs and in FY 201314....
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....rofit u/s. 115JB of the Act as no adjustment is provided in the provision enumerated in the Explanation to this section. In this regard the learned counsel for the assessee placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT vs. Raymonds Ltd. (2012) 21 Taxman.com 60 (Bom). It was explained by the learned Counsel that the facts before Hon'ble Bombay High Court was that the company debited the amount under the head Debenture Redemption Reserve in the profit and loss account and no adjustment was made while computing the book profit. The Hon'ble High Court has accepted the contention of the assessee. It was claimed by the learned Counsel that the Debt Redemption Reserve is akin to the Debenture Redemption Reserv....
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....mond Ltd. (supra) wherein it is held as under: - "3. The nature of a Debenture Redemption Reserve (DRR) has been considered by the judgment of the Supreme Court in National Rayon Corpn. Ltd. v. CIT [1997] 227 ITR 764/ 93 Taxman 754 . The Supreme Court after adverting to the provisions of Clause 7 of Part III to Schedule VI of the Companies Act, 1956 held that "the basic principle is that an amount set apart to meet a known liability cannot be regarded as reserve". Where a company issues debentures, the liability to repay arises the moment the money is borrowed. By issuing debentures a company takes a loan against the security of its assets. Though the loan may not be repayable in the year of account, the obligation to repay is a pr....
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.... from subsidiaries, and (4) other loans and advances. The secured loans might not be immediately repayable, but the liability to repay these loans is an existing liability and has to be shown in the company's balance-sheet for the relevant year of account as a liability. Amounts set apart to pay these loans cannot be "reserve". The interpretation clause of the balance-sheet in Schedule VI of the Companies Act specifically lays down that reserves shall not include any amount written off or retained by way of providing for a known liability." 4. The mere fact that a Debenture Redemption Reserve is labeled as a reserve will not render it as a reserve in the true sense or meaning of that concept. An amount which is retained by way ....