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Facts
The assessee, a Private Limited Company, filed a NIL return for AY 2021-22 using the cash system of accounting for income tax, but prepared its Profit & Loss Account on an accrual basis as per the Companies Act, 2013, showing a significant loss. While the CPC accepted the income tax loss, it computed book profits under Section 115JB by adopting the profit/loss from the cash system, leading to a demand. The Ld. CIT(A) directed the Assessing Officer to adopt the loss as per the accrual-based Profit & Loss Account prepared under Schedule III of the Companies Act for MAT calculation, which the Revenue appealed.
Held
The Tribunal held that Section 115JB(2) mandates that for computing book profits for MAT, a company's Profit & Loss Account must be prepared in accordance with Schedule III to the Companies Act, 2013. Therefore, the CIT(A)'s direction to use the loss declared in the audited Profit & Loss Account prepared under the Companies Act for MAT calculation was correct and upheld.
Key Issues
Whether book profits under Section 115JB of the Income Tax Act must be computed based on the Profit & Loss Account prepared as per Schedule III to the Companies Act, 2013, or as per the cash system of accounting followed for income tax purposes.
Sections Cited
115JB, 143(1), 129
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Income Tax Appellate Tribunal, DELHI BENCH “B” NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI AVDHESH KUMAR MISHRA
Act. Against this order the Revenue is in appeal before us.
The Ld. DR strongly placed reliance on the computation made by the CPC, Bangaluru and on the other hand, the Ld. Counsel for the assessee strongly supported the orders of the Ld. CIT(A). The Ld. Counsel for the assessee further referring to page 71 of the Paper Book submits that the Tribunal in its own case for the AY 2011-12 approved the cash system of accounting for the purpose of Income tax computation. It is submitted that the assessee has been filing Income tax returns regularly from the Financial Year 2010-11 relevant to the Assessment Year 2011-12 on the basis of cash system
I.T.A.No.328/Del/2024 of accounting which was also accepted by the Department including for the assessment year under consideration.
However, coming to the computation u/s 115JB of the Act, the Ld. Counsel for the assessee submits that provisions u/s 115JB(2) of the Act require every assessee being a company 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 and accordingly, the assessee prepared its Profit & Loss Account as per the Companies Act, 2013 for the AY 2021-22 according to which there is a loss of Rs.7,07,13,188/-. The Ld. Counsel for the assessee submits that for the purpose of computation of book profit u/s 115JB of the Act the loss arrived at on the basis of the profit and loss account prepared under Companies Act should be considered for computing MAT payable u/s 115JB of the Act but not the profit/loss prepared for the purpose of Income tax. The Ld. Counsel for the assessee therefore submits that the loss of Rs.1,18,45,229/- arrived at by the assessee by following cash system of accounting for the purpose of Income tax cannot be the basis for computing the book profits u/s 115JB of the Act. Thus, the Ld. Counsel for the assessee submits that the Ld.CIT(A) has rightly directed the Assessing Officer to adopt the loss
I.T.A.No.328/Del/2024 declared in the audited Profit & Loss Account on the basis of accrual accounting system prepared under Companies Act, 2013 for the purpose of calculation of MAT payable u/s 115JB of the Act.
Heard rival submissions, perused the orders of the authorities below. We find considerable force in the submissions of the Ld. Counsel for the assessee. For ready reference the provisions of Section 115JB(2) is reproduced as under:
“(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 5
I.T.A.No.328/Del/2024 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)” 7. A plain reading of the above provision of Section 115JB(2) of the Act provides that every assessee being a company other than a company u/s 129(1) shall for the purpose of Section 115JB of the Act prepare its statement of Profit & Loss Account for the relevant previous year in accordance with the provisions of Schedule III to the Companies Act, 2013 (18 of 2013). Thus, for the purpose of Section 115JB of the Act the book profit shall be computed by taking the profit as per Profit & Loss Account prepared in accordance with the provision of Schedule III to the Companies Act, 2013. In the assessee’s case the profit as per Profit & Loss Account prepared in accordance with the provisions of Schedule III to the Companies Act, 2013 is (-) Rs.7,07,13,188/-. However, the CPC while computing the book profit u/s 115JB of the Act adopted the profit/loss of (-) Rs.1,18,45,229/- as prepared by the assessee in its Profit & Loss Account for the purpose of Income tax, while arriving at the book profits u/s 115JB of the Act which is not permissible under law. In the circumstances, we hold that the direction given by the Ld.CIT(A) to adopt loss of Rs.7,07,13,188/- as per Profit & loss Account prepared under the Schedule III of Companies Act for I.T.A.No.328/Del/2024 the purpose of MAT calculation u/s 115JB of the Act is in accordance with the provisions of 115JB(2) of the Act. The same is sustained. Grounds raised by the Revenue are rejected.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 26/06/2024