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TaxTMI 
TaxTMI 
TaxTMI 
2026 (4) TMI 128
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....d on 29.08.2011. On completion of enquiry, it was found that the Assessee Company had sold its fixed asset and derived a capital profit of Rs. 32,11,24,002/-, as detailed below:- Property Amount of profit on sale of properties 100 ft. Road, Saligramam, Vadapalani 30,18,74,253 KRM Centre, No.2, Harrington Road, Chetpet 1,92,49,749 Total Profit 32,11,24,002 3. The capital profit has been directly absorbed in its balance sheet without routing it through the Profit and Loss Account. Therefore, alleging that the book profit of the company has been under stated by direct absorption in the balance sheet and has not been routed through the Profit and Loss Account, the Assessing Officer passed an order on 29.03.2013, assessing the Income Tax, after completing the rework of the book profits under Section 115JB of the Income Tax Act, 1961 and the capital loss under normal computation as below:- I. Consideration received for Vadapalani Property Rs.140,00,00,000 Cost excluding unproved additional construction Rs.100,62,26,490 Rs.39,37,73,510 Less:Consideration towards furniture & fittings, electrical fitting and plant & machinery Rs. 6,4....
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.... Section 250(6) of the Income Tax Act, 1961, came to be dismissed confirming the order of the First Appellate Authority and confirming the Assessment Order passed by the Assessing Officer. 6. This Court has admitted the appeal for hearing on framing the following Substantial Question of Law:- (1) Whether on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that the capital profit on the sale of the Fixed Assets of the Company cannot be taken directly to the Reserves & Surplus in the Balance Sheet and the same has to be routed through the Profit & Loss Account to arrive at the correct book profits u/s 115 JB of the Act? (2) Whether on the facts and circumstances of the case, the Appellate Tribunal was right in law in reworking the profits u/s 115 JB as Rs. 34,11,36,517/- on the ground that the profit on the sale of Fixed Assets credited to the capital reserves by the Appellant are to be treated as normal profit for arriving at book profits u/s 115 JB? 7. The learned counsel for the appellant, as a preliminary ground, at the outset, claimed that the order of Tribunal suffers lack of reasoning. The grounds of appeal rai....
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.... policy. This is in violation of Accounting Standard (AS) 10 mandated by Institute of Chartered Accountants of India (ICAI). To arrive at the correct book profits under Section 115JB, the sale of fixed assets has to be necessarily routed through profit and loss account. The explanation to Section 115JA defines the word, "book profits" which means "net profit" as shown in the Profit and Loss Account of the previous year. Explanation to Section 115 JB makes it clear that unless the profit made on sale of the land and building is brought into the Profit and Loss Account, the net profit cannot be arrived at. By including the profit of sale of fixed asset directly in Reserves & Surplus in the Balance Sheet, the assessee had understated the profit of that year. 10. The learned Senior Standing Counsel for the Income Tax Department further submitted that the dictum of Appollo Tyres Ltd., v. CIT reported in [2002 (255) ITR 273] and The Commissioner of Income Tax, Delhi v. HCL Comnet Systems & Services Ltd., reported in [(2008 (305) ITR 409 (SC)], on facts, are distinguishable from the facts of the case in hand. Section 115 J considered in the Apollo Tyres case (cited supra), was later by....
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....e submissions and records perused. 13. The cardinal knot in this case is the mechanism adopted by the Assessee/Appellant in computing its book profits. The Assessee company had sold two of the assets during the month of May 2009 and March 2010 which falls in the Assessment Year 2010-2011. The first property consists of 90 grounds along with building, equipments, fixtures, plant and machineries for a consideration of Rs. 140,04,00,000/-(Rupees one hundred forty crores and four lakhs only) on 19.05.2009. The second property consists of 8000 sq.ft., of built up area together with 1437.31 sq.ft of undivided share of land, 4 numbers of car park space, 3 numbers of open to sky car park and other amenities for Rs. 4,00,00,000/- on 31.03.2010. These two properties of the Assessing company engaged in leasing and renting were its assets, earning rental income. On the perusal of the balance sheet of the assessee company for the relevant year ending 31st March 2010, we find, the total sale consideration of the fixed asset is shown as cash from investment activities. In their notes on account they have declared that the profit/loss on sale of fixed asset are included in Reserves & Surplus in....
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....n or after the 1st day of April, 1997 but before the 1st day of April, 2001 (hereafter in this section referred to as the relevant previous year) is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. (2) Every assessee, being a company, shall, for the purposes of this section prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956): Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section-210 of the Companies Act, 1956 (1 of 1956) : Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the me....
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....d depreciation is nil; or] (iv) the amount of profits derived by an industrial undertaking from the business of generation or generation and distribution of power; or (v) the amount of profits derived by an industrial undertaking located in an industrially backward State or district as referred to in 34[subsection (4) and sub-section (5) of section 80-IB], for the assessment years such industrial undertaking is eligible to claim a deduction of hundred per cent of the 35[profits and gains under sub-section (4) or sub-section (5) of section 80- IB]; or (vi) the amount of profits derived by an industrial undertaking from the business of developing, maintaining and operating any infrastructure facility 36[as defined in the Explanation to sub-section (4) of section 80-IA and subject to fulfilling the conditions laid down in that subsection]; or (vii) the amount of profits of sick industrial company for the assessment year commencing from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 o....
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.... (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. Explanation-1.-F....
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....) the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia); or (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation.-For the purposes of this clause,- (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or (iv) to (vi) -omitted by Finance Act 2011 (vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.-For the purposes of this clause, "net worth" shall have the meanin....
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...., 1956, lays down the requirement for profit and loss account and in clause (2) it mandates the assessee to disclose every material feature including credits or receipts and debits of expenses in respect of non recurring transactions or transaction of an exceptional nature. Clause xi (a) mandates the amount of income from investments, distinguishing between trade investments and other investments must be disclosed. In the financial statement of the assessee, we find in the cash flow statement the receipt of sale of fixed asset is shown under cash from investment activities however had not brought it in the profit and loss account as it is required under part II of the Schedule VI to the Income Tax Act. The deviation from the accounting policy for under statement of profit is noted and recorded by the Statutory Auditor however, no justifiable reasoning placed by assessee for the said deviation. 18. The decision of the Hon'ble Supreme Court in M/s Dynamics Orthopaedics (P) Ltd. Case (cited supra) has clearly held that Assessee Companies has to necessarily prepare its profit and loss Account only in terms of Part II and Part III of Schedule VI in the Companies Act and being a d....