THE INDIA CEMENTS LTD.,CHENNAI vs. DCIT, CORPORATE CIRCLE-1(1), CHENNAI

आदेश /O R D E R

PER S. R. RAGHUNATHA, AM :

This appeal by the assessee is filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2017-18, dated 11.04.2025.

:-2-: ITA. No:1708/Chny/2025 and subsequently re-assessment proceedings were initiated vide notice u/s.148 dt 31.03.2021. The AO accepted the assessee contention on various issues raised under re-assessment proceedings but differed with certain issues which are under present appeal and presented hereunder. The re-assessment order u/s.143(3) r.w.s 147 of the Act dt 31.03.2022 was passed assessing the MAT income at Rs.235,43,38,842/- as against the returned MAT income of Rs.205,33,76,642/-.

"The accounting policies that an entity uses in its opening Ind AS Balance Sheet may differ from those that it used for the same date using its previous GAAP.

:-3-: ITA. No:1708/Chny/2025 The resulting adjustments arise from events and transactions before the date of transition to Ind ASs. Therefore, an entity shall recognise those adjustments directly in retained earnings (or, if appropriate, another category of equity) at the date of transition to Ind ASs.” 6. Accordingly, the assessee recognised an “Ind AS Transition Reserve” amounting to Rs.150.48 crores. The reserve consisted of the following components:

• Provision towards mine-restoration expenses - Rs.95,00,00,000/- • Provision for diminution in value of investments – Rs.19,40,85,000/- • Adjustment for long-term foreign-currency borrowings – Rs.7,86,48,000/- • Provision for TTPS fly-ash claim – Rs.19,26,00,000/- • Foreign-currency translation adjustments – Rs.8,94,78,000/- • Total Ind AS Transition Reserve: Rs.150,48,11,000/- • 1/5th allowable deduction u/s 115JB(2C): Rs.30,09,62,200/-.

“S.115JB – Special provision for payment of tax by certain companies: … (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—

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(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. ….. (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 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

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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.“ (emphasis supplied) 9. Further, the ld.AR contended that in full conformity with this statutory mandate and CBDT Circular No.24/2017 dated 25.07.2017, which lays down the mechanism for giving effect to section 115JB(2C), the assessee deducted one-fifth of the transition amount i.e., Rs.30.09 crores while computing book profits.

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1) That the foreign-currency translation differences included in the transition reserve represented “foreign operations” and therefore did not qualify for transition relief [Addition of Rs.178.95 lakhs and Rs.157.30 lakhs being 1/5th of Rs.893.78 lakhs and 786.48 lakhs].

10.1 With respect to this ground the assessee had claimed adjustments of Rs.894.78 lakhs and Rs.786.48 lakhs representing foreign-currency translation losses. Rs.894.78 lakhs pertain to exchange losses from normal foreign- currency transactions arising in the course of domestic business operations and Rs.786.48 lakhs pertain to exchange loss on long-term foreign-currency loans, eligible to be amortised under paragraph 46A of AS-11.

10.2 The AO disagreed with the assessee’s claims and held as follows:

“As per clause F of the Explanation to the sub-sec 2C of 115JB, the cumulative translation reserve of foreign exchange differences on account of foreign exchange fluctuation is not to be considered for transition reserve. Hence the amount of Rs.894.78 lakh and 786.48lakh being the translation difference of foreign currency are to be excluded from transition amount and the provision of 1/5th of the amount being Rs. 178.95 lakh and 157.30 lakh is not applicable and therefore the deduction made in computation of book profit is to be reversed. It is also to be noted that as per the para 48 of IndAs 21 the gain/loss on foreign currency translation are to be classified under Items that will be reclassified to profit or loss and hence as per the proviso 2 to 115JB(2A) the amount would be considered for MAT only at the time of actual disposal or realisation of the asset. (Add: Rs. 178.95 +157.30 lakh)” (Refer Pg. No. 3 of AO’s order dated 31.03.2022) 10.3 The ld.CIT(A) upheld the AO’s view holding as follows:

“As per clause F of the Explanation to the sub-sec 2C of 115JB, the cumulative translation reserve of foreign exchange differences on account of foreign exchange fluctuation is not to be considered for transition reserve. Hence the amount of Rs.894.78 lakh and 786.48lakh being the translation difference of foreign currency are to be excluded from transition amount and the provision of 1/5th of the amount being Rs. 178.95 lakh and 157.30 lakh is not applicable and

:-7-: ITA. No:1708/Chny/2025 therefore the deduction made in computation of book profit is to be reversed. It is also to be noted that as per the para 48 of IndAs 21 the gain/loss on foreign currency translation are to be classified under Items that will be reclassified to profit or loss and hence as per the proviso 2 to 115JB(2A) the amount would be considered for MAT only at the time of actual disposal or realisation of the asset. The addition of Rs.178.95 lakhs and 157.30 lakhs are confirmed.” (Refer Pg. No. 2 of CIT (A) Order dated 11.04.2025) 10.4 The AO and ld.CIT(A), proceeded that these losses represented cumulative translation differences (“CTR”) of foreign branches or subsidiaries - i.e., foreign operations - which are excluded under clause (f) of the Explanation to section 115JB(2C).

10.5 The ld.AR argued that the above assumption is factually incorrect and unsupported by any material.

a) Ind AS 21 draws a clear and critical distinction [Refer Pg.No.7 of Paper Book II]:

- A foreign operation is an entity (subsidiary, associate, joint venture, or branch) whose activities are based or conducted in a foreign country.

- A foreign-currency transaction, in contrast, is a domestic transaction denominated in a foreign currency—such as import payables, foreign- currency loans, supplier credits, etc.

10.6 The exchange differences in issue arise exclusively from the latter category. They do not relate to any branch, subsidiary, or other foreign operation. Indeed, nowhere in the accounts is there any reference to a foreign operation requiring consolidation or translation. The assessee’s transactions arise wholly from domestic operations involving payables, receivables, and borrowings denominated in foreign currency - all of which, upon transition to Ind AS, were restated through retained earnings under Ind AS 21.

10.7 Thus, the ld.AR submitted that the revenue authorities have impermissibly conflated “foreign operations” with ordinary foreign-currency denominated transactions. This misunderstanding vitiates their conclusion. The

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adjustments are legitimate components of the transition amount and fully eligible for the 1/5th deduction u/s.115JB(2C) of the Act.

10.8 Accordingly, the ld.AR prays that deduction of Rs.178.95 lakhs and Rs.157.30 lakhs represent foreign-currency translation losses and ought to be allowed.

2) That fair-value adjustments relating to FVTPL investments could not be treated as transition adjustments. [Addition of Rs.388.17 lakhs]

11.1 The AO disagreed with Appellant and held as follows:

“As per the answer to the questions no. 1 and 6 of the FAQs issued by the CBDT in its circular no. 24/2017 dt 25. 7.2017., Provision for the diminution in the value of investments through FVTPL shall not be considered for the purpose of the transition amount and hence the amount of Rs. 388.17 lakh considered for MAT computation has to be reversed. (Add: 388.17 lakh)” (Refer Pg. No. 4 of AO’s order dated 31.03.2022) 11.2 The CIT(A) merely upheld the AO’s order by holding as follows:

“As per the answer to the question no. 1 and 6 of the FAQs issued by the CBDT in its circular no. 24/2017 dt. 25. 7.2017., Provision for the diminution in the value of investments through FVTPL shall not be considered for the purpose of the transition amount and hence the amount of Rs. 388.17 lakh considered for MAT

:-9-: ITA. No:1708/Chny/2025 computation has to be reversed. The addition of Investment through FVTPL of Rs.388.17 lakhs is confirmed.” (Refer Pg. No. 4 of CIT (A) Order dated 11.04.2025) 11.3 The ld.AR submitted that the ld.CIT(A) has treated the assessee’s adjustment as a “provision for diminution in the value of FVTPL investments,” relying on CBDT Circular No.24/2017 Questions 1 and 6. This is again a misapplication of the circular.

11.4 The ld.AR submitted that the assessee has not claimed any deduction for current-year diminution. Rather, the adjustment pertains solely to the opening fair-value difference as of 1st April 2016 - a mandatory adjustment under Ind AS 109 read with Ind AS 101. This adjustment restates the carrying amount of investments - not a year-specific provision - and must be routed through retained earnings.

11.5 The CBDT Circular No.24/2017 merely clarifies that subsequent year-on- year MTM losses do not qualify as transition adjustments. It does not prohibit recognition of opening fair-value adjustments on the transition date.

11.6 The assessee’s equities were duly fair-valued based on valuation reports (e.g., Andhra Pradesh Gas Power Corp. Ltd., Jagati Publications Pvt. Ltd., Camel Asia Holdings Pvt. Ltd., Karur KCP Packaging Ltd). The fair-valued figures are reflected as the carrying amounts in the financial statements, not as provisions. The nomenclature “diminution in value” cannot override the substance of the accounting treatment.

11.7 Thus, the ld.AR submitted that the fair-valuation adjustment of Rs.19.40 crores forms part of the transition reserve and qualifies for the 1/5th deduction u/s.115JB(2C) of the Act.

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3) That the provisions for TTPS fly-ash liability and mine-restoration obligations were “current liabilities” and therefore could not form part of retained earnings [Addition of Rs.385.20 lakhs and Rs.1900.00 lakhs respectively]:

(a) TTPS fly-ash liability: The assessee purchases fly ash from TNEB for use in its cement-manufacturing operations. TNEB unilaterally doubled the price from Rs.350/MT to Rs.700/MT, which the assessee contested before the Hon’ble High Court. By the order dated 23.02.2017 (WP No. 5993 of 2011), the High Court fixed the rate at Rs.410/MT. The assessee accordingly quantified the additional liability for earlier years at Rs.19.26 crores and adjusted this amount through the transition reserve.

(b) Mine-restoration obligation: The assessee conducts limestone mining, a critical input for cement manufacturing. Following the notification of the Mineral (Conservation and Development) Rules, 2017, mine-closure obligations became mandatory. The Indian Bureau of Mines oversees compliance and requires entities to recognise closure and restoration costs. The assessee estimated mine-restoration obligations at Rs.90 crores and, as required by Ind AS 37 and Ind AS 101, recognised the liability and adjusted retained earnings on the transition date.

12.1 The AO disagreed with assessee’s claim and held as follows:

“Provision for TTPS fly ash claim and provision for restoration obligation of mines are the provisions for expenses and would never be exhibited in the Retained earnings and would be separately exhibited under current/non-current liabilities. Provision of 115JB (2C) is applicable only for those adjustments made to Retained earnings (Other equity) that would otherwise never subsequently be reclassified to profit or loss. As these items are never part of retained earning, transition would not be applicable for these items and hence the amount of Rs.385.20 lakh and Rs.1900.00 lakh considered for computation of profit under MAT is required to be reversed. (Add: Rs.385.20 + 1900.00 lakhs)”

(Refer Pg. No. 4 o of AO’s order dated 31.03.2022)

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12.2 The CIT(A) upheld the AO’s order by holding as follows:

“Provision for TTPS flyash claim and provision for restoration obligation of mines are the provisions for expenses and would never be exhibited in the Retained earnings and would be separately exhibited under current/non-current liabilities. Provision of 115JB (2C) is applicable only for those adjustments made to Retained earnings (Other equity) that would otherwise never subsequently be reclassified to profit or loss. As these items are never part of retained earning, transition would not be applicable for these items and hence the amount of Rs. 385.20 lakh and Rs.1900.00 lakh considered for computation of profit under MAT is required to be reversed. The addition of Rs.385.20 and 1900.00 lakhs are confirmed.” (Refer Pg. No. 4 of CIT (A) Order dated 11.04.2025)

12.3. The ld.AR submitted that the ld.CIT(A) has held that such liabilities are "provisions for expenses" that should appear under current or non-current liabilities and therefore can never form part of retained earnings. This reasoning mistakes the nature of first-time adoption accounting.

12.4 Ind AS 101 (Paragraph 11) is unequivocal:

“Adjustments arising from events and transactions before the date of transition shall be recognised directly in retained earnings.” a) Ind AS 37 (Paragraph 14) requires recognition of a provision where a past obligation exists, an outflow is probable, and the obligation can be reliably estimated— all of which apply here. b) The ld.CIT(A)’s reasoning incorrectly assumes that because the accounts use the word “provision,” the amounts must represent current-year expenses. This is incorrect. The term “provision” reflects the nature of the liability not its period of origin. For transition purposes, these liabilities represent prior-period adjustments that must be routed through retained earnings. c) Most importantly, the transitional reserve reflects the net effect of all prior-period adjustments as if Ind AS principles had always applied. Once recognised, these amounts do not flow into the profit and loss account in future years. They are therefore quintessential transition adjustments squarely covered by section 115JB(2C) of the Act.

12.5 Accordingly, the 1/5th deduction relating to both the TTPS fly-ash liability and mine-restoration obligation is fully allowable.

:-12-: ITA. No:1708/Chny/2025 12.6 Thus, the ld.AR stated that each of these findings of the ld.CIT(A) and AO are contrary to the governing accounting standards, the statutory scheme of section 115JB(2C) of the Act, and the binding CBDT circular.

12.7 Without prejudice to our above submissions, the Ld.AR pointed out certain fundamental contradictions in the appellate order in that entire transition reserve of Rs.150.48 crores was:

• computed in accordance with Ind AS 101 and Ind AS 109/21/37, • audited by statutory auditors, • disclosed transparently in the financial statements, and • accepted by the Ministry of Corporate Affairs.

12.8 Thus, having accepted the correctness of the transition adjustments for corporate law purposes, the ld.CIT(A)’s selective rejection of certain components under the existing provision of law is inconsistent and arbitrary.

12.9 Further, while acknowledging that section 115JB(2C) applies symmetrically to increases and decreases, the CIT(A) denies the corresponding deduction when the transition amount yields a reduction in book profits - frustrating the legislative intent.

12.10 Further, it is submitted that the lower authorities have ignored the Legislative intent and binding effect of CBDT Circular No. 24/2017. Section 115JB(2C) was enacted to ensure that Ind AS adoption does not distort MAT liability. The provision is designed to neutralise all one-time Ind AS adjustments by permitting them to be spread evenly over five years. CBDT Circular 24/2017, issued under section 119, is binding on the Department and provides a clear methodology for identifying transition adjustments. The appellant has adhered strictly to this method. The CIT(A)’s attempt to create additional exclusions not

:-13-: ITA. No:1708/Chny/2025 found in either the statute or the circular amounts to rewriting the law - an exercise impermissible to tax authorities.

12.11 For the reasons elaborated above the ld.AR submitted that:

• the foreign-currency differences relate to domestic foreign-currency transactions, not foreign operations; • the fair-value adjustments reflect opening differences under Ind AS 109 and appropriately form part of the transition reserve. • the TTPS fly-ash liability and mine-restoration obligations are properly recognised transition adjustments in accordance with Ind AS 101 and Ind AS 37; and

12.12 Thus, the assessee’s deduction of Rs.30,09,62,200/-, being one-fifth of the duly computed transition reserve of Rs.150.48 crores is squarely in accordance with section 115JB(2C) and CBDT Circular 24/2017. Hence, the ld.AR prayed that the disallowance sustained by the ld.CIT(A) is untenable and liable to be deleted in full.

:-14-: ITA. No:1708/Chny/2025 15. It is an admitted and undisputed fact that the assessee, being a company mandatorily required to adopt Indian Accounting Standards, transitioned to Ind AS with effect from 1st April 2016 and prepared its financial statements for the year ended 31st March 2017 in accordance therewith. It is also undisputed that, in compliance with Ind AS 101, the cumulative effect of adjustments arising on first-time adoption was routed through “Other Equity” by way of an Ind AS Transition Reserve aggregating to Rs.150.48 crores, excluding capital reserve and securities premium reserve. The said transition reserve stands duly disclosed in the audited financial statements, certified by the statutory auditors, reported in Form 29B, and accepted by the Ministry of Corporate Affairs.

:-15-: ITA. No:1708/Chny/2025 therefore mandatorily excluded from the transition amount. This assumption, in our considered view, is fundamentally flawed both on facts and in law.

• a “foreign operation,” being a subsidiary, associate, joint venture, or branch whose activities are based or conducted in a foreign country; and • “foreign-currency transactions,” which are transactions denominated in a foreign currency undertaken by a domestic entity.

:-16-: ITA. No:1708/Chny/2025 govern the eligibility of opening transition adjustments recognised directly in retained earnings under Ind AS 101.

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• the TTPS fly-ash liability crystallised pursuant to the judgment of the Hon’ble High Court and related to consumption in earlier years; and

:-18-: ITA. No:1708/Chny/2025 • the mine-restoration obligation arose from statutory and regulatory requirements governing mining operations and existed as a present obligation as on the transition date.

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Order pronounced in the court on 03rd February, 2026 at Chennai.

Sd/- Sd/- (जॉज� जॉज� के) (एस. आर. रघुनाथा) (GEORGE GEORGE K) (S. R. RAGHUNATHA) उपा�य� /VICE PRESIDENT लेखा सद%य/ACCOUNTANT MEMBER

चे�नई/Chennai, 0दनांक/Dated, the 03rd February, 2026 SP आदेश क, *'त2ल3प अ4े3षत/Copy to: 1. अपीलाथ)/Appellant 2. *+यथ)/Respondent 3.आयकर आयु5त/CIT– Chennai/Coimbatore/Madurai/Salem 4. 3वभागीय *'त'न�ध/DR 5. गाड� फाईल/GF