TaxTMI 
TaxTMI 
2025 (6) TMI 383
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....ance of a sum of Rs. 125,29,80,000/- out of expenditure incurred on interest by applying an adhoc rate of interest on the advances to wholly owned subsidiaries and group companies outstanding at the end of financial year 2017-18 relevant to assessment year 2018-19 u/s 36(1)(iii) of the Act. 1.1. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that once identical claim of deduction stood allowed in preceding years, the disallowance so made and, upheld was contrary to principles of consistency and thus untenable. 1.2. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that total borrowings from banks and other financial institutions at the close of instant year had fallen from Rs. 992.03 crores to Rs. 879.42 crores and, thus once interest on such borrowings had been allowed in previous financial year then no disallowance could be upheld on account of interest u/s 36(1)(iii) of the Act even in instant year. 1.3. That while upholding the aforesaid disallowance the learned Commissioner of Income Tax (Appeals) has failed to appreciate that once interest free funds were available with the appellant compa....
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....the contrary is based on pure surmises, conjectures and suspicion, therefore is otherwise erroneous untenable and unwarranted. 1.9. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the board of directors and assume the said role to decide that manner and mode of business. 1.10. That learned Commissioner of Income Tax (Appeals) even otherwise failed to establish in absence of any nexus during the year that advances to wholly owned subsidiaries and group companies are out of interest bearing funds by any positive material much less any evidence, disallowance upheld is otherwise not in accordance with law. 1.11. That learned Commissioner of Income Tax (Appeals) has failed to appreciate that once in the year of advance, it has been accepted that advance was on account of commercial expediency then revenue cannot take a somersault and adopt an inconsistent stand in the instant year so as to uphold the instant arbitrary unjustified disallowance out of interest eligible as expenses u/s 36(1)(iii) of the Act. 1.12. That....
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....y. It is therefore, prayed that, that disallowances sustained by the learned Commissioner of Income Tax (Appeals) is not tenable and therefore be deleted and appeal of the appellant company may kindly be allowed." 3. The Grounds of Appeal raised by the Revenue in the cross-appeal read as under:- 1. "Whether the Ld. CIT(A) is right in restricting the addition of Rs. 179,53,12,500/- made by the AO on account of disallowance of interest u/s 36(1)(iii) of the Act to the extent of Rs. 125,29,80,000/- without giving any cogent reason for holding that the assessee has used interest bearing funds to the extent of Rs. 835.32 Crores only for the purpose of giving interest free advances to its subsidiaries/group concerns? 2. Whether the Ld. CIT(A) is right in restricting the addition of Rs. 179,53,12,500/- made by the AO on account of disallowance of interest u/s 36(1)(iii) of the Act to the extent of Rs. 125,29,80,000/- by applying rate of interest @ 15% instead of 18.75% without giving any concrete reasoning? 3. Whether the Ld. CIT(A) is right in deleting addition of Rs. 155,71,00,407/- u/s 115JB of the Act on account of impairment of goodwill by not c....
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....oodwill, while computing the book profit u/s 115JB of the Act 155,71,00,407 iii) Disallowance on adhoc basis representing 50% of expenditure incurred on foreign travelling by the appellant company 1,16,20,916 iv) Disallowance representing cost debited and claimed as expenditure while computing income under percentage of completion method of accounting adopted by the appellant company; and accepted in the impugned order of assessment by the learned Assessing Officer. 1,01,12,775 v) Addition representing alleged on money received on booking of flats/units by appellant company 50,00,000 vi) Disallowance representing expenditure on account of construction of road on the property owned by M/s Mikado Realtors Ltd. eligible for deduction while computing income of appellant for instant year. 1,40,00,000 5. Aggrieved by such additions/disallowances and adjustments in 'book profit' under s. 115JB etc., the assessee preferred appeal before the CIT(A). 5.1. In the first appeal, detailed submissions were placed before the CIT(A) by the assessee to defend its stance taken in the Return of Income. Oral and written submissions made in the course of appe....
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....l and Ground 1 to 2 of Revenue's appeal relates to issue of proportionate disallowance of interest of INR 179,53,12,500/- made by AO with reference to s. 36(i)(iii) on aggregate advances of INR 957.50 crore made to (a) wholly owned subsidiaries and (b) Group Companies. The CIT(A) in first appeal has upheld the disallowance to the extent of Rs. 125,29,80,000/-. The assessee as well as Revenue have agitated the action of CIT(A) granting part relief. 9.1. The relevant facts necessary for adjudicating the issue as emerging from the case records and adverted in the course of hearing are capsuled here under. 9.2. During the FY 2017-18 relevant to AY 2018-19 under consideration, the assessee incurred interest expenditure of INR 403.24 crore on borrowings received in the shape of overdraft facilities/cash credit limits from bank and financial institutions. Out of aforesaid interest expenses of INR 403.24 crore, the assessee claimed interest expenditure of INR 361.31 crore in the Profit & Loss Account. The assessee claimed to have attributed INR 47.07 crore to construction work in progress ("WIP") and taken into account while computing the income under PoCM. In essence, the assessee c....
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....es have primarily agreed to transfer the development rights of the land which it possesses or comes into possession in future and also share the Revenue generated in appropriate cases. 9.4. The CIT(A) however did not assign much weight to the plea of business expediency claimed to be ingrained while providing interest free funds to wholly owned subsidiaries and group companies. The CIT(A) however simultaneously adopted the average of interest free advances to various subsidiary and group companies computed at INR 835.32 crore (being average of INR 957.54 crore as on 31.03.2018 & INR 713.14 crore as on 31.03.2017). The CIT(A) thus took average of the opening balance and the closing balance of money advanced being INR 835.32 as the base for estimation of proportionate interest disallowance. The CIT(A) also accepted the effective weighted interest rate 11.67% demonstrated by the Assessee rather than 18.75% adopted by AO. The CIT(A) thus re-estimated interest disallowance on average advances to subsidiary/group companies by applying interest rate of 15% after taking cognizance of associated costs for procurement of borrowings. The CIT(A) thus computed the disallowance @ 15% of the a....
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.... As on 31.03.2017 (Rs.) As on 31.03.2018 (Rs.) i) Consolidated Realtors(P) Ltd. During FY 11-12 12,00,000 12,00,000 ii) Olive Realcon (P) Ltd. During FY 14-15 to FY 17-18 12,00,00,000 18,34,00,000 iii) M3M Homes (P) Ltd. During FY 17-18 1,90,000 2,71,00,000 iv) Lavish Buildmart (P) Ltd. Prior to FY 11-12 to FY 17-18 24,81,20,978 25,06,53,478 v) Gentle Propbuild (P) Ltd. During FY 17-18 57,00,000 69,23,78,555 vi) Blossom Propbuild (P) Ltd. During FY 13-14 7,00,00,000 7,00,00,000 vii) Roshni Builders (P) Ltd. During FY 16-17 18,39,00,000 18,39,00,000 viii) Generous Realtors (P) Ltd. During FY 12-13, & FY 14-15 14,55,00,000 14,55,00,000 ix) Bonus Builder (P) Ltd. Prior to FY 10-11 7,10,00,000 7,10,00,000 x) Gama Buildwel (P) Ltd. Prior to FY 10-11 10,67,00,000 10,72,00,000 xi) Zenith Realtech (P) Ltd. Prior to FY 10-11 10,66,00,000 10,66,00,000 xii) Morgan Propbuild (P) Ltd. During FY 15-16 & FY 16-17 79,65,00,000 79,65,00,000 xiii) Garden Realtech (P) Ltd. During FY 16-17 7,97,00,000 7,....
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....erent Fys; Sr.No. Particulars As on 31.03.2014 As on 31.03.2015 As on 31.03.2016 As on 31.03.2017 As on 31.03.2018 i) Share capital 44.61 44.61 44.61 44.61 44.61 ii) Share premium 2674.98 2674.98 2674.98 2674.98 2674.98 iii) Reserve & Surplus 250.15 192.20 78.87 (395.47) (882.78) iv) Total(Rs.) 2969.74 2717.66 2727.47 2324.11 1836.81 v) Advance from customers 1812.82 2175.44 2328.46 1279.35 1199.95 Total- 3036.76 10.4. Year-wise details of loans and advances outstanding: Sr.No. Particulars As on 31.03.2014 As on 31.03.2015 As on 31.03.2016 As on 31.03.2017 As on 31.03.2018 No.of Cos. Amount (Rs.) No.of Cos. Amount (Rs.) No.of Cos. Amount (Rs.) No. of Cos. Amount (Rs.) No.of Cos. Amount (Rs) i) Wholly owned subsidiary companies 17 191.70 18 210.01 20 320 19 394.24 22 528.87 ii) Group Companies 2 99.93 6 359.94 27 1363.55 15 420.33 15 516.21 Total(C)=(A+B) 19 291,63 24 569.55 47 1665.55....
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....ning to such expression cannot be given. Significantly, there is no adverse finding recorded by the AO or the CIT(A) that advances given to the subsidiary companies have been used for any personal benefit of the directors or the shareholders nor such finding could be given. The amount advanced to the subsidiary companies are meant for development of the projects undertaken by such subsidiaries from time to time, the benefit of which would be eventually reaped by the holding company. The business purposes in the money advanced to subsidiary companies are thus both explicit and implicit. 11.1. A reference was made to the judgment rendered in the case of S.A. Builders Ltd. Vs. CIT 288 ITR 1 (SC) and large number of other judicial pronouncements squarely covering the issue. 11.2 The assessee thus contends that in view of the fact that amount advanced to subsidiary companies are for the purposes of utilization in real estate business through such subsidiary companies, the nexus between the use of funds advanced and purpose of business is clearly established. As contended, the 'purpose of business' as emphasized by the Hon'ble Supreme Court in the case of S.A. Builders, need not ne....
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....atively as well as independently even in the group co. advances. 15. The core of the arguments advanced on behalf of the assessee are; (a) interest free advances have been lent to wholly owned subsidiary companies which are engaged in similar business of real estate for utilization and furtherance of such business. The profits arising from such wholly and subsidiary companies belong to the assessee and nobody else. Thus the commercial motives in such advances cannot be brushed aside; (b) interest free advances lent to group concerns are backed by MoUs which demonstrate the intent of the assessee to derive commercial benefits in the subsequent years. The expression 'purpose of business' is comprehensive enough to include achieving commercial intent over a period of time, user of borrowed money need not result in any income in the relevant year; (c) near majority of the advance to subsidiary companies and group companies have been made in the earlier years and no adverse finding has been recorded by the Revenue in earlier years; and (d) the interest free funds available at the disposal of the assessee far exceeds and surpasses interest free adva....
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....funds available and capable of being used for advancements to the group companies and subsidiaries companies engaged in the development of projects as RERA Regulations did not come into play at the relevant time. The overall funds position even according to the Revenue would thus as under:- Sr.No. Particulars Amount (Rs. In crores) i) Balance of retained earning as on 31.03.2018 2,162.58 ii) Add: Share capital 44.61 Total 2,207.19 iii) Less: Securities premium (though disputed) 2,674.98 iv) Balance (467.98) v) Add: Impairment of goodwill debited to retained earnings from financial year 2013- 14 to 2017-18 1072.87 vi) Total 604.89 vii) Advance from Customers 1268.95 viii) Total 1804.84 18. The expressions 'for the purpose of business' occurring in s. 36(1)(iii) of the Act is wider in scope than expression 'for the purpose of earning income, profits or gains' as held in Madhav Jatia vs CIT [1979] 118 ITR 200 (SC). Availing loan facilities and interest incurred on loans taken has been and are the normal commercial practices of business world. Under s. 36(1)(iii) of the Act, any amount p....
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....bout the eligibility of interest expenditure. It held that if there are funds available, both interest free and interest bearing (overdraft, loans etc.), then a presumption would arise that funds deployed in corresponding non earning investments/ advances is out of interest free funds available. Similar view has been expressed in large number of judgments. The Hon'ble Supreme court has also endorsed such principle in Reliance Industries Ltd. (2019) 410 ITR 466(SC). 21. Similar view has been taken by the Hon'ble Gujarat High Court in the case of CIT vs Raghuvir Synthetics Ltd. 354 ITR 222 (Gujarat) wherein the Hon'ble High Court observed as follows:- "As can be noted from the order of the Tribunal, the Assessing Officer disallowed the interest solely on the ground that the assessee had given interest free loans to the associate concerns, viz., R.R. Family Trust and Sagar Textile Mills and this disallowance, in appeal the CIT (Appeals) deleted by holding that the amount advanced to both R.R. Family Trust and Sagar Textiles Mils were not given during the year under consideration, but the same was given in the earlier years. CIT (Appeals) had also taken note of the fact tha....
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....er to the observations made by the Hon'ble Supreme Court in the case of S.A. Builders Ltd. (supra) which clinches the issue. The Hon'ble Supreme Court observed that where the question was that whether interest on funds borrowed by the assessee to give interest free loans to sister concern should be allowed as deduction, the Hon'ble Supreme Court observed that in a case where the assessee borrowed interest bearing funds and lent some of it to its subsidiary/sister concern as interest free advance, the real test in such a case is whether this was done as a measure of 'commercial expediency'. As noted in earlier paragraph, the expression 'commercial expediency' is an expression of wide import and includes such expenditure as prudent business incurs for the purpose of business. The expenditure might not have been incurred under any legal obligation but yet it is allowable as a business expenditure if it was incurred on the grounds of 'commercial expediency'. 23. Once a broad nexus between expenditure and the purpose of business (which need not necessarily be the business of the assessee itself) is established, the Revenue cannot justifiably claim to put itself in the arm chair of th....
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....deduction. If the borrowed funds have been utilized for activities closely related to carrying on of the business, the interest expenditure has to be regarded as admissible expenditure on the touchstone of s.36(1)(iii) of the Act. In the instant case, the funds deployed without interest to subsidiary co. and group cos. stands in the vicinity of Rs. 957.54 crore. The corresponding interest free funds available are nearly 3036.76 crore. Thus, in the light of ratio of judicial precedents noted above, the presumption of utilisation of interest free funds for advances to group concerns would be required to be entertained. Hence no proportionate disallowance in the circumstances would be permissible. Besides, the advance to subsidiary does not call for such nexus as the purpose of lending money to subsidiary would automatically promote the business interests of the holding co. The commercial expediency is also established in the wake of profits arising in subsequent years by virtue of such advance to group cos. 25. When all the aspects are seen individually and cumulatively, the approach of the Revenue to reject the claim of interest expenditure incurred appears fallacious on the face....
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....-. 28.3. Before the Tribunal also, the assessee could not substantiate that the expenditure incurred towards visits of family members is for the purpose of business. 28.4. We thus decline to interfere with the findings of the CIT(A). 28.5. Consequently, the Ground No.2 raised by the assessee as well as Ground No.5 raised by the Revenue is dismissed. 29. Ground No.3 of the appeal of the assessee is in respect of disallowance of INR 1,01,12,775/- representing cost debited and claimed as expenditure while computing the income under PoCM method of Accounting adopted by the assessee company which method was accepted in the order of assessment by the AO. 29.1 The AO made the impugned addition on the basis that the assessee has failed to file the details in respect of claims towards cost of project not materialized amounting to INR 1,01,12,775/-. The CIT(A) however declined any relief to the assessee. 29.2 Before the Tribunal, the assessee contested the addition before the CIT(A) and submitted that such expenditure represents cost incurred on some projects which did not take off and details thereof are not traceable owing to long time gap. It was submitted that these are....
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.... per share transfer agreement. Details of the same are as under:- Sr.No. Particulars Assessment Year 2017-18 2018-19 i) Date of sale (A) 31.03.2017 31.03.2018 31.03.2017 07.09.2018 ii) Sale price (B) 348,32,50,000 8,43,20,000 iii) Transfer Expenses (C) ----- 1,40,77,000 iv) Net sale price (D)=(B-C) 348,32,50,000 82,91,23,000 v) Purchase date (E) 31.03.2012 31.03.2012 vi) Purchase cost (F) 92,56,57,250 8,10,30,000 vii) Index cost (G) 127,39,96,877 11,97,83,478 viii) Capital gain (H)=(D-G) 220,92,53,123 70,93,39,522 24.5. The claim is supported by the following evidences:- Sr. No. Particulars Page No(s) of Paper Book i) Copy of sale purchase agreement dated 27.5.2016 amongst; i) Assessee company ii) Tata Realty and Infrastructure Ltd. iii) Standard Chartered Real Estate Investment (Singapore) VII (P) Ltd. iv) Mikado Realtors (P) Ltd. 845-924 ii) Copy of agreement dated 8.5.2017 between Executive Engineer, Mewat Water Services Division, NUH for M/s Mikado Rea....
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....land was owned by M/s Mikado Realtors (P) Ltd. and therefore both legally and logically that agreement was entered between M/s Mikado Realtors (P) Ltd. and Government of Haryana namely HUDA. The relevant agreement is placed at pages 925-929 of paper Book which reads as under(page 926 of Paper Book): "AND WHEREAS before signing this agreement, the licensee has deposited with the Engineer-in-charge. A cum of Rs. 5.00 lakhs (five lacs only) as a caution deposit as stipulated for the due compliance and satisfactory performance by the LICENSEE of all the terms and conditions of this agreement hereinafter set out so far they are to be observed and performed y the LICENSEE and a sum of Rs. 140.77 Lakhs (One crore forty lacs seventy seven thousand only) list attached) towards the other stipulated charges including the cost of land." The details of expenditure were also placed at page 933 of Paper Book. 30.6 The Assessee thus submits that it has not incurred expenses on the construction of road itself. 30.7. On perusal of the facts presented, it appears that the assessee held shares of M/s. Mikado Realtors Ltd. which were sold to Tata Realty Infrastructure Ltd. and derived....
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....lgamation has not taken place. As per proviso to Section 32(1), the depreciation in the hands of the assessee is allowable only to the extent if such amalgamation has not taken place. Therefore, the assessee being amalgamated company cannot claim or be allowed depreciation on the assets acquired in the scheme of amalgamation more than the depreciation which is allowable to the amalgamating company. Therefore, the following amounts are required to be disallowed while computing the tax liability u/s 115JB of the Act. Assessment Year Amount offered in the computation of income (under normal provisions of Act) Amount which needs to be disallowed for computation of book profit u/ s 115JB of the Act 2014-15 30.02 cr 30.02 cr 2015-16 274.25 cr 274.25 cr 2016-17 21.24 cr 21.24 cr 2017-18 591.47 cr 591.47 cr 2018-19 155.71 cr 155.71 cr The assessee could not furnish any plausible explanation for non-addition of impairment of goodwill at Rs. 155,71,00,407/- in computation of book profit under MAT provision. Vide submission dated 25.09.2021 it was merely submitted that with respect to point no. 13 of the questionnaire dt.....
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....ld charge impairment of goodwill as per Accounting Standard 28. As per the scheme of amalgamation, assets and liability of the transferor company were to be recorded at the book value in the books of transferee company and no revaluation of existing assets of the transferor /transferee company was to be carried out. 9.2 As per AO, the appellant company failed to follow the scheme of amalgamation as it has made revaluation of the inventory at Rs. 3,37.90 crores as against book value of inventory at Rs. 576.62 crores. But it has not shown goodwill of Rs. 2560.47 crores separately on the asset side, rather the same has been subsumed under the head inventories. Corresponding to the increase in inventory by Rs. 2560 crores, the appellant has created share premium account of Rs. 2674 crores on the liability side. As per the AO, it was not permitted as per the scheme. As per AS-2, inventories are to be valued at cost or market value whichever is lower whereas the appellant did not follow AS-2 and provision of section 145A of the Income Tax Act. The revaluation of the inventory of the transferor company resulted into excess valuation of inventory by Rs. 2560.47 crores (against boo....
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....tion on account of revaluation of assets was not to be allowed for the purpose of section 115JB of the Act. In the given facts of the case, the amount debited to the profit and loss account under the head impairment of goodwill was in the nature of provision for diminution in the value of inventories. In the absence of any satisfactory explanation, the AO after giving show cause to the appellant during assessment proceedings added the amount of Rs. 155.71 crores on account of impairment of goodwill for the purpose of computation of tax liability u/s 115JB of the Act. 9.4 During the appellate proceedings, it was explained through the written submission that the appellant company has debited sum of Rs. 155.71 crores under the head impairment of goodwill. As per the scheme of amalgamation, the difference between consideration discharged in the form of equity shares by the company and net assets in case of transferor company was attributable to the market value of land and has been classified as goodwill in the financial statements. Out of the same amount of Rs. 155.71 crore has been charged in the Profit and Loss account as Impairment of goodwill, computed as per Percentage o....
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.... 7 of the scheme, the difference between consideration discharged in the form of equity shares issued by the transferee company and value of net assets of transferor company was to be debited to the goodwill account. Such goodwill was attributable to the market value of land /development rights (based upon an independent valuation report) with the stipulation that transferee company would charge impairment of goodwill as per Accounting Standard 28. As per the scheme of amalgamation, assets and liability of the transferor company were to be recorded at the book value in the books of transferee company and no revaluation of existing assets of the transferor / transferee company was to be carried out. For reference relevant paras of the scheme of the amalgamation as approved by the Hon'ble High Court is reproduced as under:- In accordance with the same, the appellant has debited goodwill impairment in the profit and loss account for Rs. 155.71 crores for the year under consideration. The similar claims have been made for such impairment of goodwill in the previous AYs with the details as under:-(Rs. In crores) AY Goodwill impairment debited to the P&L Account 201....
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....e of assets i.e. goodwill. The appellant has charged impairment of goodwill in the books of account for Rs. 155.71 crores for the year under consideration by debiting the profit and loss account (cumulative amount of Rs. 1072.87 crores as on 31.03.2018) and thus has not made any provision for the same as alleged by the AO. 9.8 Further reliance is hereby placed upon the decision of Hon'ble Supreme Court in the case of M/s Apollo Tyers Ltd vs CIT (2002) 252 ITR 273 (SC). In the said decision it was held by Hon'ble Apex Court that once books of accounts are certified by the auditors under the Companies Act as having been properly maintained in accordance with Companies Act then there is limited power to make addition and deductions as provided for in the Explanation to the said section. The relevant part of the said decision is reproduced as under for reference :- "Therefore, we are of the opinion, the assessing officer while computing the income under Section 115-1 has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The a....
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....he purpose of computation of book profit u/s 115JB of the Act subject to further adjustments as provided under Explanation- 1 to the said section. As discussed above, no merit is found in the adjustments made by the AO under Explanation 1 for the computation of book profit under section 115JB of the Act. It is not the case of the AO that such books of account have not been prepared in accordance with Schedule -III to the companies Act, 2013. 9.9 Moreover, such transactions were accounted for in the books of account during assessment year 2012-13 after the approval of the scheme of amalgamation effective from 01.04.2011 by the Hon'ble High Court. Similar claims on account of impairment of goodwill have been made by the appellant from AY 2014-15 to 2017-18 by debiting the audited profit and loss account. Such claims made for the purpose of MAT liability u/s 115JB have been allowed in the case of the appellant by the Hon'ble Interim Board of Settlement-V, Mumbai vide order passed u/s 245D(4) dated 30.03.2023. The relevant part of the said order is reproduced as under for reference:- 9.10 Keeping in view above facts and discussion, it is found that th....
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.... L Account showed the charge of depreciation at Rs. 1,27,57,06,000 which was reduced by transfer from revaluation reserve to the extent of Rs. 26,11,74,000 resulting in a net debit on account of depreciation of Rs. 1,01,45,32,000. The Assessing Officer, while computing the book profit under section 115JB of the Act. did not allow reduction of the afore-stated amount of Rs. 26.11.74.000 on the ground that the revaluation reserve stood created in the assessment year 2000-01 and had not been added back while computing the book profit in that year in terms of the proviso to clause (i) of Explanation to section 115JB. It is submitted that in the said case as it is apparent the assets was withdrawn from the revaluation reserve which was credited to the profit and loss account which is not the facts of the instant case there is no assets withdrawn from the revaluation reserve and hence the adjustment is misconceived. 29. It is submitted that the learned Assessing Officer has also supported the aforesaid adjustment by referring to Explanation to section 115JB of the Act he has held at page 37 of order of assessment as under: "A 5 Even otherwise bare perusal of the section....
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....egard to entries made to books of accounts of the company. The said sub section as a matter of fact, mandates is bodily lifted from the Companies Act into the Income Tax Act for the limited purpose of making the said accounts so maintained as basis of computing the company's income for levy of Income Tax. Beyond that the said sub section does not empower the authority under the income tax act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income computed on the basis of the profit & loss account prepared in accordance with the Companies Act shall be deemed income for the purpose of section 115J of the Act and, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of the Companies Act and, another for the purpose of Income Tax Act. If the legislature intended the Assessing Officer to reassess the company's income then it would have stated in the section that income of the company as accepted by the Assessing Officer. Therefore the Assessing Officer while computing the income under the section has only the power of examining whe....
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....crosanct for computing the book profit u/s. 115JB. Thus, once the accounts have been prepared in accordance with the Companies Act duly certified by statutory auditors and approved by Company AGM, then same cannot be disturbed as held by Hon'ble Supreme Court in the case of Apollo Tyres (supra). Here the Assessing Officer cannot tinker with such profit and loss account or treat the part of capital reserve by holding that it should have been routed through regular profit and loss account. The reasoning given by the Id. CIT (A) too cannot be upheld for the same reason." 33. It is also added here that submitted that identical claim has been made by the assessee in preceding year: Sr.No. Particulars Gross Amount (I) Less: Impairment of goodwill (II) Amount debited during the year (III) Balance (IV=I-III) (pages of Paper Book) i) As on 31.03.2018 2519.07 1,072.87 155.71 1446.19 (65) ii) As on 31.03.2017 2519.07 917.16 591.46 1601.90 (65) iii) As on 31.03.2016 2519.07 325.70 21.24 2193.37 iv) As on 31.03.2015 2519.07 304.46 274.24 2214.61 v) As on 31.03.2014 2519.07 30.22 ....
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....Loss Account on appropriate basis. Explanation (1) to s. 115JB enumerates specific situations where the 'books profit' declared in the audited financial accounts can be increased suitably. 31.8. The debits towards impairment of goodwill do not fall in any of the clauses. The impairment cost debited in the Profit & Loss Account is also not in the nature of provision for diminution in the value of any assets. The CIT(A) has discussed such facts in length and rightly applied the ratio of Apollo Tyres Ltd. (supra) in the facts of the case. The AO was thus not entitled to adjust the book profit without showing the debits towards impairment cost to be inconsistent with any clauses of Explanation (1) to s.115JB of the Act. 31.9. The view taken by the CIT(A) finds support from the decision of the Coordinate Bench of the Tribunal in the case of Priapus Developers P. Ltd. vs ACIT in ITA No.170/Del/2019 order dated 12.03.2019. Without reiterating the discussion carried out by the CIT(A), we fully endorse the process of reasoning adopted by the CIT(A). We thus decline to interfere. Ground Nos. 3 & 4 of the Revenue's appeal are dismissed. 32. Ground No.6 of the Revenue's appeal relates....
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....count of variations in the rate of bookings of flats/units. The CIT(A) took note of the arguments that in the absence of any enquiry made from the persons who have booked the space and in the absence of any corroborative evidence, the sale proceeds recorded in the books cannot be said to be suppressed. The CIT(A) has granted relief in the absence of any corroborative material adverse to the assessee. 32.3. There can be valid reasons for offering different discounts to different persons. Mere variation in the rate of bookings of different units cannot ipso facto give rise to assumption of existence of 'On Money'. The findings of the CIT(A) is based on sound principles and thus does not call for any interference. 32.4. Ground No.6 of the Revenue's appeal is accordingly dismissed. 33. In the result, the appeal of the assessee in ITA No.1190/Del/2024 [Assessment Year 2018-19] is partly allowed and the appeal of the Revenue in ITA No.2033/Del/2024 [Assessment Year 2018-19] is dismissed. Order pronounced in the open Court on 26^th March, 2025. ============= Document 1 ATTESTED -21, virtue of this Scheme. Without prejudice to the foregoing provisions, the Transferor....
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.... For M3M India Developers Limited Authorised Signatory(ies) Authorised Signatory Document 2 Appeal No. CITA-(3)/GGN/10518/2017-18 M3M India Pvt. Ltd. A.Y. 2018-19 ATTESTED .. -22- 24 the Transferor Company 1, holding equity shares In the Transferor Company 1, or their respectiva legal holrs, executors or administrators or, as the case may be, successors, as on the Effective date, In casa any such shareholder's holding of equity shares in Transferor Company 1 Is such that the shareholder becomes entitled, pursuant to this clause, to a fraction of the Equity shares of the Transforao Company, the Transferne Company shall round-off the said entitlement to tho nearest integer and allot equity shares accordingly. 5.1.2. The Equity Shares of the Transferee Company will be Issued in physical form to all the equity shareholders who hold shares of Transferor Company 1. One certificato shall be Issued by the Transferea Company to every such shareholder of the Transferor Company 1 in respect of all the Equity Shares allotted by the Transferee Company to each such shareholder. 5.1.3. The equity shares to be Issued and allotted in terms hereof wil be subject to t....
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....deemed that the sald members have also accorded their consent under relevant Articles of the Articles of Association of the Company and Section 94, 97 and other provisions of the Act as may be applicable for giving effect to the provisions contained in the Scheme. 7. ACCOUNTING TREATMENT IN THE BOOKS OF ACCOUNTS OF THE TRANSFEREE COMPANY 7.1. On the Scheme becoming effective, the Transferes Company shall account for the amalgamation in its books of accounts as under: 7.1.1. The face value of Equity Shares Issued pursuant to Clause 5.1.1 above will ba recorded as Equity Share Capital. 7.1.2. The premium on Equity Shares Issued pursuant to Clause 5.1.1 above will be recorded as Securities Premium. Inter-company balances if any, will stand cancelled. 7.1.4. Transfereo Company shall, record the assets and lablitles of Transferor Company 1 vested In It pursuant to this Scheme, at their respective book values and no revaluation of the existing essets of the Transferor Company 1 and Transfereo Company will be carried out under the present Scheme. 7.1.5. The difference between the consideration discharged In the form of equity shares Issued by the Transferee Company....
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....reserve account and had it been routed through the profit and loss account, then it should have been added back us. 115JB. In this regard the section 115JB relied upon by the Department states that- "Explanation 1 .- For the purposes of this section, "book profit" means the profit as shown in the statement of profit and loss for the relevant previous year prepared under sub-section (2), as increased by -- (b) the amounts carried to any reservas, by whatever namo called, other than a reserve specified under section 33AC; or ....* Argument of Department is based on a hypothetical event of the applicant accounting the value of assets acquired in profit and loss account and then taking & to reserve, thereby attracting the provisions of 115JB, which does not appear to be convincing. However, the Hon'ble IBS-V, Mumbai may decide on this issue. Decision 11.8 We have carefully considered the facts of the case and submissions of the parties. We have also heard both the parties and considered the report of the DIT(Inv.), IBS. It is clear from the report of the DIT (Inv.) that directions In the scheme of amalgamation have not been strictly adhered to. Although the scheme stipul....