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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Per Shamim Yahya (AM) :
This appeal by the assessee is directed against the order of learned CIT(A) dated 2.9.2014 pertains to A.Y. 2011-12.
The grounds of appeal read as under :- A. Regarding levy of MAT 1. The learned (Id) CIT(A) erred in confirming the order of the Assessing Officer (AO) levying minimum alternate tax (MAT) under section 115JB of the Income-Tax Act, 1961 (the Act) for the AY 2011-12, to the extent of Rs.9,35,53,237/-. 2. The Id CIT(A) erred in not correctly appreciating the provisions of section 115JB(5), according to which, save as otherwise provided in that section, all other provisions of the Act, shall apply to every assessee, being a company and accordingly, the amount of Rs.51,98,90,207/-, being deduction allowable under section 80-16(10) of the Act, was required to be reduced from the net profit for the purpose of computation of book profit. 3. The Id AO also failed to correctly appreciate the judgement of the Apex Court, in the case of JCIT Vs Rolta India Ltd [2011] 330 ITR 470 (SC), wherein it has been clearly held that all other provisions of the Act, shall
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apply to MAT company, in view of the provisions of sections 115JA(4) and 115JB(5) of the Act. 4. The Id CIT(A) also failed to appreciate that even as per Circular No.13 of 2001, dt.9.11.2001, it has been clearly pointed out that in view of section 115JB(5), all the provisions of the Act, including the provision relating to charge, definitions, recoveries, payment, assessment, etc, would apply in respect of the provisions of section 115JB of the Act. B. Regarding charge of interest under sections 234B and 234C 5. The CFT(A) erred in confirming the order of the AO, levying interest under sections 234B and 234C of the Act, to the extent of Rs,2,72,19,415/- and Rs.52,28,525/-, respectively. 6. The Id CIT(A) failed to appreciate the fact that during the financial year (FY) 2010-11, relevant to AY 2011-12, the aforesaid judgement of the Supreme Court, in the case of Kwality Biscuits Ltd prevailed and therefore, the appellant Company was not required to pay MAT in advance.
At the outset it is noted that the appeal was disposed of by the Tribunal vide order dated 1.1.2016. Subsequently vide M.A. order dated 21.16.2019 in M.A. No. 644/Mum/2018 this order was recalled to adjudicate upon ground No. A in the grounds of appeal which had remained unadjudicated. Pursuant to the recall we have heard both the parties and perused the records.
Brief facts on the impugned issue are as under :-
The Assessee has undertaken housing project known as Gundecha Symphony at Andheri West, which 'B' wing was completed in AY 2010-11 and occupation certificate was obtained on 9.2010 whereas 'A' wing was completed in subsequent year as occupation certificate was obtained 31.3.2011. The assessee explained that it was entitled for 100% reduction of the profit i.e. Rs.51,97,40,207/- u/s. 80IB(10), hence while computing the book profit u/s. 115JB appellant had reduced it from book profit and claimed that it was not liable for tax under, this Section. Assessing Officer has considered the issue and found that assessee is not entitled to reduce the book profit by claiming such deduction. According to him, an assessee becomes liable to pay tax u/s.115JB, if the income tax payable in respect of total income computed under the Act is less than 15% of its book profit. Here in this case
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as mentioned by the Assessing Officer, assessee was carrying the opinion that its income was exempt from tax whereas there was difference between exemption of income and allowability of deduction. Such income from housing project is entitled for deduction and not for exemption, thus, the claim of the appellant of deduction u/s.80IB(10) against the book profit is disallowable, hence, Assessing Officer has disallowed the claim and assess the book profit as shown in profit and loss account as per Company Act.
Upon assessee’s appeal learned CIT(A) confirmed the same holding as under :-
3.3 I have considered the facts and circumstances of the case, finding of the Assessing Officer and rival submission of the appellant, carefully. I find that Ld. Assessing Officer has rightly disallow the claim of the appellant that book profit is to be reduced by claim of deduction u/s. 80IB(l0). The law u/s. 115JB is very clear that where in the case of an assessee being a company, the income tax payable on total income as computed under this Act in respect of any previous year relevant to assessment year is less than 15% of its book profit, such "book profit" shall be deemed to be total income of the assessee and the tax payable by such assessee on such total income shall be the amount of income tax @15%. Sub-Section 2 of Section 115JB provides that every assessee, being a Company, shall, for the purpose of section 115JB, prepares its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and HI of Schedule VI to the Companies Act 1956. Thus, it is very obvious that book profit has to be ascertained as per the Companies Act and thereafter certain modification is to be made as per explanation I to this Section. Thus, it is very obvious that taxation u/s.115JB is as per the book profit. The accounts of the appellant shows the book profit of Rs. 51,97,40,207/-, hence same is to be taxed u/s.115JB. Assessing Officer has rightly done so. Here, it is relevant to mention that there is no dispute regarding such book profit. The only contention of the appellant is that because of subsection 5, appellant is entitled for deduction from the book profit because, according to the appellant, under subsection 5, there is law that all other provisions of the I.T. Act shall apply to such company, means such deduction under 80IBQO) is to be reduced from the book profit. This argument is not tenable because of the fact that deduction allowed under income tax Act is altogether separate to ascertainment of book profit and further, book profit computed as per Schedule VI, Part II and III of the Companies Act, with certain medication as per the I.T. Act provided in explanation relating to this, is subjected for taxation. Therefore, such vague and general arguments is not having any foundation.
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3.4 It is wrong to presume that because of sub section (5) of Section 115JB, minimum alternative tax (MAT) u/s.115JB is not applicable because u/s.80IB(10) there is a specific provision that amount of deduction in the case of an undertaking developing and building housing project shall be 100% of the "profit derived" in the previous year. It means only deduction is available from the profit under that Section whereas u/s.115JB, book profit as computed under Companies Act, 1956 is to be subjected to MAT. Therefore, the arguments of the Ld. A.R. is legally not enable. The ratio of DCW Ltd. vs. DCIT 12(5 TTJ (Mumbai) 416 is having different contexts. Here in this case there is taxable income as mentioned earlier as per book profit, hence provision of law U/S.115JB is applicable. Further, the fact of the case of ITO vs, Frigsales (India) 4 SOT 376 (Mumbai) is altogether different as in that case issue was that capital gains arising on depreciable assets exempt u/s.15 was to be taken as part and parcel of the book profit or not. In that case it was held by Hon'ble Tribunal that receipt which is not in the nature of income cannot be taxed as income u/s 115JA. Here, is not the case alike. Therefore, this decision is misplaced by Ld. A.R. Similarly, the fact of ITO vs. Suraj Jewellery India) Ltd. 21 SOT 79 (Mum) is altogether different. The issue was whether capital receipts which do not constitute income under the I.T.Act can be brought to tax u/s.H5JB. Here in this case there is revenue receipt duly taxable and such income under reference is only entitle for some deduction. Hence such cases are having different context. Similarly, the ratio of Sutlaj Cotton Mills Ltd. vs. ACIT 45 ITD 22 (Cal) (SB) is having different context and set of facts. In that case book profit was not to be increased by capital gains exempt u/s.54E. Similarly, the decision of Hon'ble Supreme Court in the case of CIT vs. D.P. Sandhu Brothers 273 ITR 1 (SC) is not applicable to the facts of the case. Further, the decision of the Hon'ble Supreme Court in the case of JCIT vs. Rolta India Ltd. (2011) 330 ITR 470 (SC), is in respect of charge of interest u/s.234B and 234C and Hon'ble Supreme Court has held that interest under these sections shall be payable on failure to pay advance tax u/s. 115JB Thus, these case laws does not help appellant to presume that because of subsection (5) of Section 115JB, it is not liable for tax on book profit.
3.5 Thus, in the background of above discussion, applicability of law and non-relevance of various case laws relied upon by the Ld. A.R., I reach to the conclusion that appellant is liable for tax u/s.115JB on its books profit which is of Rs.51,97,40,207/-, hence, the assessment so made by the Assessing Officer by computing book profit is sustained.”
Against the above order assessee is in appeal before us.
We have heard both the parties and perused the records. At the outset learned Counsel of the assessee submitted that decision of Reliance Industries Ltd. (ITA no. 7299 & 136/Mum/2017 is not applicable in assessee’s case. In as much as in the said case subsidy received by the company was not allowed to be deducted from book profit rather remanded back to the Assessing Officer as
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per various case laws cited by either parties. That present case is not for the claim of any notional sales tax incentive or capital receipt to be reduced from book profit but the claim is for reduction from book profit for deduction under section 80IB(10) of the Act. It has been further submitted that in the same decision of Reliance Industries Ltd. (supra) deal with exclusion of exempt income under section 10(15)(iv)(h) of the Act from the book profits for the purpose of MAT. That the ITAT in that case had followed its own order in earlier years. It has been submitted that this portion of the order in Reliance Industries Ltd. (supra) case covers assessee’s case also wherein section 80IB(1) is sought to be reduced from book profit. It has been further submitted that the ITAT Mumbai on identical case Neha Home Builders Pvt. Ltd. [(2018)(4) TMI 860 ITAT Mum] has given decision in favour of the assessee. It has been pleaded that sub-section 5 of section 115JB actually covers the issue in favour of the assessee. It has been further pleaded that even if two views are possible one in favour of the assessee must be adopted in the light of decision of Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. (88 ITR 192). It has been further submitted that Hon'ble Madras High Court in the case of Metal and Chromium Plater (P) Ltd. (415 ITR 123) and Hon'ble Gujarat High Court in the case of Sureshchandra kantilal Acharya [2018 (11) TMI 599] the principle given by these cases should prevail over the judgement in case of assessee for A.Y. 2012-13. Learned counsel further submitted citation of Hon'ble Supreme Court in the case of Brij Lal lohia & Mahabir Prasad Khemka (1974 CTR 167) for the proposition that decision in earlier years does not operate as res judicata. Furthermore Hon'ble Apex Court in the case of Hotel Blue Moon (321 ITR 362) has been cited for the following proposition :-
"17) Section 158 BH provides for application of the other provisions of the Act. It reads: "Save as otherwise provided in this Chapter, all the other provisions of this Act shall apply to assessment made under this Chapter." This is an enabling provision, which makes all the provisions of the Act, save as otherwise provided, applicable for proceedings for block assessment.”
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Further it has been submitted that Hon'ble Apex Court in the case of Rolta India Ltd. [2011 (1) TMI 5] had occasion to interpret the same phrase like 115JB(5) and held it to be enabling provision, which makes all the provisions of the Act, save as otherwise provided applicable. In respect of section 115JB(5) thus captures the claim u/s. 80IB(10) as nothing otherwise is provided u/s. 115JB with respect to claim u/s. 80IB. Further it has been claimed that the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (122 Taxman 562) and Hon'ble Bombay High Court decision in Veekaylal Investment Co.(P) Ltd. [249 ITR 597) are not applicable to the facts of the present case. It has been submitted that the above decisions in the context of sub-section 115J and did not have any provisions corresponding to the present subsection (5) of section 115JB of the Act.
Per contra, learned CIT-DR relied upon the decision of learned CIT(A) and submitted that as per scheme of the Act in section 115JB no adjustment in book profit is to be permitted except as provides in the Act itself by way of Explanation 1. He further submitted that section 115JB(5) starts with “save as otherwise provided in this section” and thereafter it mention that all other provisions of the Act are applicable. He submitted that section 115JB, Explanation 1 clearly saves any tinkering of book profit otherwise than provided in the Explanation. Hence, any tinkering/adjustment of book profit otherwise than provided in Explanation (1) is duly saved and subsequent words in sub-section (5) cannot render the saving of Explanation (1) as otiose. He submitted that the decision of Hon'ble Supreme Court in Rolta India Ltd. (supra) does not deal with adjustment in book profit. Hence, the said case law is not at all applicable.
Upon careful consideration, we note that it is settled law that section 115JB is self content code. It reads as under :- Special provision for payment of tax by certain companies. 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total
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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, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. Following proviso shall be inserted in sub-section (1) of section 115JB by the Taxation Laws (Amendment) Act, w.e.f. 1-4-2020: Provided that for the previous year relevant to the assessment year commencing on or after the 1st day of April, 2020, the provisions of this sub-section shall have effect as if for the words "eighteen and one-half per cent", occurring at both the places, the words "fifteen per cent" had been substituted. (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 statement of profit and loss for the relevant previous year in accordance with the provisions of Schedule III to the Companies Act, 2013 (18 of 2013); or (b) being a company, to which the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable, shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of the Act governing such company: Provided that while preparing the annual accounts including statement of profit and loss,— (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including statement of profit and loss; (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 statement of profit and loss and laid before the company at its annual general meeting in accordance with the provisions of section 129 of the Companies Act, 2013 (18 of 2013) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 2013 (18 of 2013), which is different from the previous year under this Act,— (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including statement of profit and loss; (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 statement of profit and loss for such financial year or part of such financial year falling within the relevant previous year.
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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— (a) the amount of income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves, by whatever name called, other than a reserve specified under section 33AC; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision 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 (38) thereof) or section 11 or section 12 apply; or (fa) the amount or amounts of expenditure relatable to income, being share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86; or (fb) the amount or amounts of expenditure relatable to income accruing or arising to an assessee, being a foreign company, from,— (A) the capital gains arising on transactions in securities; or (B) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII, if the income-tax payable thereon in accordance with the provisions of this Act, other than the provisions of this Chapter, is at a rate less than the rate specified in sub-section (1); or (fc) the amount representing notional loss on transfer of a capital asset, being share of a special purpose vehicle, to a business trust in exchange of units allotted by the trust referred to in clause (xvii) of section 47 or the amount representing notional loss resulting from any change in carrying amount of said units or the amount of loss on transfer of units referred to in clause (xvii) of section 47; or (fd) the amount or amounts of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF; or (g) the amount of depreciation, (h) the amount of deferred tax and the provision therefor, (i) the amount or amounts set aside as provision for diminution in the value of any asset, (j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset, (k) the amount of gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through statement of profit and loss, as the case may be;
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if any amount referred to in clauses (a) to (i) is debited to the statement of profit and loss or if any amount referred to in clause (j) is not credited to the statement of profit and loss, 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 statement of profit and loss), if any such amount is credited to the statement of profit and loss: 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 amount was withdrawn) under this Explanation or Explanation below the second proviso to section 115JA, as the case may be; or (ii) the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the statement of profit and loss; or (iia) the amount of depreciation debited to the statement of profit and loss (excluding the depreciation on account of revaluation of assets); or (iib) the amount withdrawn from revaluation reserve and credited to the statement of profit and loss, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia); or (iic) the amount of income, being the share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86, if any, such amount is credited to the statement of profit and loss; or (iid) the amount of income accruing or arising to an assessee, being a foreign company, from,— (A) the capital gains arising on transactions in securities; or (B) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII, if such income is credited to the statement of profit and loss and the income-tax payable thereon in accordance with the provisions of this Act, other than the provisions of this Chapter, is at a rate less than the rate specified in sub-section (1); or (iie) the amount representing,— (A) notional gain on transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47; or (B) notional gain resulting from any change in carrying amount of said units; or (C) gain on transfer of units referred to in clause (xvii) of section 47, if any, credited to the statement of profit and loss; or (iif) the amount of loss on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred
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to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through statement of profit and loss, as the case may be; or (iig) the amount of income by way of royalty in respect of patent chargeable to tax under section 115BBF; or [(iih) the aggregate amount of unabsorbed depreciation and loss brought forward in case of a company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under section 7 or section 9 or section 10 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016). Explanation.—For the purposes of this clause, the expression "Adjudicating Authority" shall have the meaning assigned to it in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and the loss shall not include depreciation; or] Following clause (iih) shall be substituted for the existing clause (iih) of Explanation 1 to sub-section (2) of section 115JB by the Finance (No. 2) Act, 2019, w.e.f. 1-4-2020 : (iih) the aggregate amount of unabsorbed depreciation and loss brought forward in case of a— (A) company, and its subsidiary and the subsidiary of such subsidiary, where, the Tribunal, on an application moved by the Central Government under section 241 of the Companies Act, 2013 (18 of 2013) has suspended the Board of Directors of such company and has appointed new directors who are nominated by the Central Government under section 242 of the said Act; (B) company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under section 7 or section 9 or section 10 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016). Explanation.—For the purposes of this clause,— (i) "Adjudicating Authority" shall have the meaning assigned to it in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016); (ii) "Tribunal" shall have the meaning assigned to it in clause (90) of section 2 of the Companies Act, 2013 (18 of 2013); (iii) a company shall be a subsidiary of another company, if such other company holds more than half in the nominal value of equity share capital of the company; (iv) "loss" shall not include depreciation; or (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account in case of a company other than the company referred to in clause (iih). 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) [***]
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(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 meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or (viii) the amount of deferred tax, if any such amount is credited to the statement of profit and loss. Explanation 2.—For the purposes of clause (a) of Explanation 1, the amount of income- tax shall include— (i) any tax on distributed profits under section 115-O or on distributed income under section 115R; (ii) any interest charged under this Act; (iii) surcharge, if any, as levied by the Central Acts from time to time; (iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and (v) Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time. Explanation 3.—For the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its statement of profit and loss for the relevant previous year either in accordance with the provisions of Schedule III to the Companies Act, 2013 (18 of 2013) or in accordance with the provisions of the Act governing such company. Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, if— (i) the assessee is a resident of a country or a specified territory with which India has an agreement referred to in sub-section (1) of section 90 or the Central Government has adopted any agreement under sub-section (1) of section 90A and the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement; or (ii) the assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (i) and the assessee is not required to seek registration under any law for the time being in force relating to companies. Explanation 4A.—For the removal of doubts, it is hereby clarified that the provisions of this section shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, where its total income comprises solely of profits and gains from business referred to in section 44B or section 44BB or section
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44BBA or section 44BBB and such income has been offered to tax at the rates specified in those sections. Explanation 5.—For the purposes of sub-section (2), the expression "securities" shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). (2A) For a company whose financial statements are drawn up in compliance to the Indian Accounting Standards specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015, the book profit as computed in accordance with Explanation 1 to sub-section (2) shall be further— (a) increased by all amounts credited to other comprehensive income in the statement of profit and loss under the head "Items that will not be re-classified to profit or loss"; (b) decreased by all amounts debited to other comprehensive income in the statement of profit and loss under the head "Items that will not be re-classified to profit or loss"; (c) increased by amounts or aggregate of the amounts debited to the statement of profit and loss on distribution of non-cash assets to shareholders in a demerger in accordance with Appendix A of the Indian Accounting Standards 10; (d) decreased by all amounts or aggregate of the amounts credited to the statement of profit and loss on distribution of non-cash assets to shareholders in a demerger in accordance with Appendix A of the Indian Accounting Standards 10: Provided that nothing contained in clause (a) or clause (b) shall apply to the amount credited or debited to other comprehensive income under the head "Items that will not be re-classified to profit or loss" in respect of— (i) revaluation surplus for assets in accordance with the Indian Accounting Standards 16 and Indian Accounting Standards 38; or (ii) gains or losses from investments in equity instruments designated at fair value through other comprehensive income in accordance with the Indian Accounting Standards 109: Provided further that the book profit of the previous year in which the asset or investment referred to in the first proviso is retired, disposed, realised or otherwise transferred shall be increased or decreased, as the case may be, by the amount or the aggregate of the amounts referred to in the first proviso for the previous year or any of the preceding previous years and relatable to such asset or investment. (2B) In the case of a resulting company, where the property and the liabilities of the undertaking or undertakings being received by it are recorded at values different from values appearing in the books of account of the demerged company immediately before the demerger, any change in such value shall be ignored for the purpose of computation of book profit of the resulting company under this section. (2C) For a company referred to in sub-section (2A), the book profit of the year of convergence and each of the following four previous years, shall be further increased or decreased, as the case may be, by one-fifth of the transition amount: Provided that the book profit of the previous year in which the asset or investment referred to in sub-clauses (B) to (E) of clause (iii) of the Explanation is retired, disposed, realised or otherwise transferred, shall be increased or decreased, as the case
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may be, by the amount or the aggregate of the amounts referred to in the said sub- clauses relatable to such asset or investment: Provided further that the book profit of the previous year in which the foreign operation referred to in sub-clause (F) of clause (iii) of the Explanation is disposed or otherwise transferred, shall be increased or decreased, as the case may be, by the amount or the aggregate of the amounts referred to in the said sub-clause relatable to such foreign operations. Explanation.—For the purposes of this sub-section, the expression— (i) "year of convergence" means the previous year within which the convergence date falls; (ii) "convergence date" means the first day of the first Indian Accounting Standards reporting period as defined in the Indian Accounting Standards 101; (iii) "transition amount" means the amount or the aggregate of the amounts adjusted in the other equity (excluding capital reserve and securities premium reserve) on the convergence date but not including the following:— (A) amount or aggregate of the amounts adjusted in the other comprehensive income on the convergence date which shall be subsequently re-classified to the profit or loss; (B) revaluation surplus for assets in accordance with the Indian Accounting Standards 16 and Indian Accounting Standards 38 adjusted on the convergence date; (C) gains or losses from investments in equity instruments designated at fair value through other comprehensive income in accordance with the Indian Accounting Standards 109 adjusted on the convergence date; (D) adjustments relating to items of property, plant and equipment and intangible assets recorded at fair value as deemed cost in accordance with paragraphs D5 and D7 of the Indian Accounting Standards 101 on the convergence date; (E) adjustments relating to investments in subsidiaries, joint ventures and associates recorded at fair value as deemed cost in accordance with paragraph D15 of the Indian Accounting Standards 101 on the convergence date; and (F) adjustments relating to cumulative translation differences of a foreign operation in accordance with paragraph D13 of the Indian Accounting Standards 101 on the convergence date. (3) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub- section (3) of section 74A. (4) Every company to 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.
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(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. Following sub-section (5A) shall be substituted for the existing sub-section (5A) of section 115JB by the Taxation Laws (Amendment) Act, w.e.f. 1-4-2020: (5A) The provisions of this section shall not apply to,— (i) any income accruing or arising to a company from life insurance business referred to in section 115B; (ii) a person who has exercised the option referred to under section 115BAA or section 115BAB. (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: Provided that the provisions of this sub-section shall cease to have effect in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012. (7) Notwithstanding anything contained in sub-section (1), where the assessee referred to therein, is a unit located in an International Financial Services Centre and derives its income solely in convertible foreign exchange, the provisions of sub-section (1) shall have the effect as if for the words "eighteen and one-half per cent" wherever occurring in that sub-section, the words "nine per cent" had been substituted. Explanation.—For the purposes of this sub-section,— (a) "International Financial Services Centre" shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005); (b) "unit" means a unit established in an International Financial Services Centre; (c) "convertible foreign exchange" means a foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999) and the rules made thereunder.
A reading of the above shows that section talks about the book profit as disclosed in Company’s annual accounts. The section provides that book profit means profit as shown in the statement of profit and loss account for the relevant previous year prepared under the said section (2) as increased by various items mentioned therein Explanation (1). Further it mentions that book profit to be reduced by specific amounts mentioned therein Explanation (1). For claiming deduction u/s. 80IB(10) from book profit, no case has been made out that this adjustment to book profit under 115JB falls under any of the adjustments mandated in section 115JB Explanation (1). Only reason given by the assessee for the purpose is that sub-section (5) mentions, save as
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otherwise provided in this section, all other provisions of this act shall apply to every assessee being a company, mentioned in this section. A bare reading of the above clearly shows that sub-section (5) clearly provides that ‘save as otherwise provided’ in this section all the provisions of the I.T. Act will be applicable to the computation governed by section 115JB. Hence, this clearly means that what has been provided in this section shall prevail and thereafter all other provisions shall apply. Hence, explanation (1) to section 115JB clearly provides what can be adjusted from book profit. Hence, sub-section (5) duly saves the prescription of Explanation (1). Hence, this explanation (5) does not help the assessee to claim that section 80IB deduction permissible under the I.T. Act should be adjusted from book profit.
The decision of Rolta India Ltd.(supra) was in the context of provisions of section 234B & 234C in relationship to the book profit taxation. By no stretch of imagination it can be said that section 234B & 234C is saved by Explanation (1) thereof. Hence, decision of Rolta India Ltd. (supra) quoted is absolutely not applicable on the facts of the case. Further the decision of Hon'ble Supreme Court in K.P.M. Salim Vs. CIT (300 ITR 302)(SC) does not help the assessee, rather it supports the revenue’s plea. The Hon'ble Supreme Court in that case was dealing with the plea that provisions of section 127 cannot have any application on the basis of provisions of section 158 BH. The Hon'ble Apex Court noted as under :- “Section 1 58 BH of the Act reads as under: "158BH : Application of other provisions of this Act. Save as otherwise provided in this Chapter, all other provisions of this Act shall apply to assessment made under this Chapter." Chapter XIV-B only lays down special procedure for assessment but thereby the effect and purport for which the assessment of income tax is done does not stand obliterated.”
On the above notings Hon'ble Apex Court held that section 127 would apply. As noted above in the present case section 115JB by way of
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Explanation(1) itself provides the adjustment that can be made to book profit and section 115JB Explanation (5) saves the same.
We further note that the assessee has quoted following from Hon'ble Supreme Court decision in the case of Apollo Tyres Ltd. (supra) :- “Inspite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the assessing officer to re-scrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the Revenue on Sub-section (1A) of Section 115-J of the IT Act in support of the above contention is misplaced. Sub-section (1A) of Section 115-J does not empower the assessing officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub- section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers 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 prepared in accordance with the Companies Act shall be deemed income for the purpose of Section 115-J of the Act, 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 Companies Act and another for the purpose of income tax both maintained under the same Act. If the legislature intended the assessing officer to reassess the company's income, then it would have stated in Section 115-J that "income of the company as accepted by the assessing officer". In the absence of the same and on the language of Section 115-J, it will have to held that view taken by the tribunal is correct and the High Court has erred in reversing the said view of the tribunal.”
Now by referring to the above assessee claimed that reading of the above clearly shows that there is no bar on making adjustments to book profit as per law. The above pleading is absolutely not sustainable. Hon'ble Apex Court has clearly provided that except as provided in section 115J no adjustment to the book profit can be done. The said decision of Hon'ble Apex Court is clearly applicable as noted by us hereinabove. Insertion of sub-section (5) in section 115JB in no way dilutes prescription of Explanation (1) to section 115JB which clearly specifies adjustment being made in the book profit. We are conscious that other High Courts have taken different view in this context.
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However, Hon'ble Bombay High Court in several decisions has followed the aforesaid decision of Hon'ble Apex Court and held that profit shown in book profit cannot be tinkered or adjusted in any manner otherwise than the manner which is mandated in the said section of the Act. Even in cases where the assessee has taken capital receipt directly to the capital reserve without routing it through profit and loss account, Hon'ble Bombay High Court has held that the Assessing Officer cannot tinker the book profit duly disclosed in the profit and loss account on the touchstone of Hon'ble Supreme Court decision in the case of Apollo Tyres Ltd. (supra). Considering similar case by the ITAT in the case of Alok Industries Ltd. (ITA. No. 900 to 906/Mum/2019 dated 16.7.2020 has held as under :-
“Upon careful consideration, we find ourselves in agreement with the submission of the learned Departmental Representative that the ITAT orders relied upon by the learned counsel of the assessee do not consider aforesaid Hon'ble Jurisdictional High Court decision. It is without any doubt that the decision of Hon'ble Jurisdictional High Court is exactly on the same subject as is being discussed hereunder. Furthermore, the proposition that book profit is not to be tinkered with is duly supported by Hon'ble Jurisdictional High Court decision in further following decisions: - 1. Pr. CIT vs. Bhagwan Industries Ltd in ITA No. 436 of 2015 vide order dated 18.07. 2017. 2. CIT vs. Akshay Textile Trading & Agencies Pvt Ltd 304 ITR 401 (Bom). 3. CIT vs. Adbhut Trading Co. Pvt. Ltd. (2011) 338 ITR 94 (Bom)"
Furthermore, we note that Hon'ble Supreme Court in the case of ACIT vs Saurashtra Kutch Stock Exchange Ltd., 305 ITR 227 (SC) has expounded that non- consideration of jurisdictional High Court decision can render a decision of the Tribunal suffering from mistake apparent from record.
Furthermore, we note that honourable Supreme Court in the case of Kapurchand Shrimal v CIT, 131 ITR 451 (SC) had expounded that it is the duty of the appellate authority to correct the errors in the orders of the authorities below and remit the matter, with or without directions for their consideration, unless prohibited by law.
Considering this present issue on the conspectus of aforesaid discussion and case laws, in our considered opinion, this issue needs to be remitted to the file of learned CIT(A). The learned CIT(A) is directed to consider this issue de novo after taking into account the aforesaid Hon'ble Jurisdictional High Court decisions. Needless to add, the assessee should be granted adequate opportunity of being heard.”
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The said decision was also followed in Reliance Industries Ltd. (supra) where despite the issue having been decided in favour of the assessee in assessee’s own case earlier the matter was remanded to the Assessing Officer to consider the same in the light of Hon'ble Bombay High Court decision as above since the authorities below had decided the issue in assessee’s favour considering earlier year order in that case. In the present case authorities below have decided the issue against the assessee. As noted by us above in light of the discussion the issue has rightly been decided against the assessee in view of the sanguine provisions of the Act and is supported by Hon'ble Jurisdictional High Court and Hon'ble Supreme Court decision referred above for the proposition that no tinkering to the book profit is permitted except as provided in Explanation (1) of Section 115JB of the Act. Various ITAT and other High Court decisions quoted by learned counsel cannot take precedence over Hon'ble Bombay High Court decision referred hereinabove. It is settled law that the decisions of other High Courts have persuasive value but decision of Hon'ble Jurisdictional High Court is binding upon all subordinate courts and Tribunals. In accordance with the discussion and precedent hereinabove we do not find any infirmity in the orders of authorities below. Hence, we uphold the same.
In the result, ground “A” raised in the appeal by the assessee stands dismissed.
Pronounced in the open court on 12.11.2021.
Sd/- Sd/- (PAVANKUMAR GADALE) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 12/11/2021 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A)
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CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai