TMI Blog2008 (2) TMI 815X X X X Extracts X X X X X X X X Extracts X X X X ..... rising on a transaction, even though of an exceptional nature, may be credited to the profit and loss account and thereby transferred to the general reserve account of the assessee, if there is excess. That is the amount may pass through the profit and loss account by the credit side. The other option available is that the transaction being of an exceptional nature, the profit arising therefrom may directly be credited to the capital reserve account, without being reflected in the profit and loss account. In the case of CIT v. Veekaylal Investment Co. P. Ltd.[ 2001 (2) TMI 117 - BOMBAY HIGH COURT] held that the capital gains arising to a company should form part of the book profit for the purpose of section 115J. As far as this issue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal is directed against the order of the Commissioner of Income-tax (Appeals), Central-IV at Mumbai, dated January 10, 2005. The appeal arises out of the assessment completed under section 143(3) of the Income-tax Act, 1961. 2. The assessee had filed a return of income for the impugned assessment year declaring a total income of Rs. 26,43,060 after adjusting the brought forward losses under the normal provisions of the Income-tax Act, 1961. So also, the assessee returned an income of Rs. 1,41,55,773 under section 115JB of the Act. Initially, the return was processed under section 143(1). Thereafter, the assessment was completed under section 143(3). 3. The assessee had sold during the relevant previous year, a factory gala at Sak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epared as per Schedule VI to the Companies Act, 1956, and the reasons assigned for doing so are wrong and contrary to the provisions of the Income-tax Act, 1961 and the rules made thereunder. (B) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in holding that the appellant has not followed the standard accounting proce dure in preparing its profit and loss account in disclosing its income even though the Accounting Standards also accept the option of the appellant to take the capital profit to the balance-sheet without passing it through the profit and loss account. (C) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the Institute of Chartered Accountants of India, in preparing its final accounts. It is necessary for the assessee-company for the purpose of disclosure to distinguish the profits of exceptional nature from the regular profits arising out of business operations. It is in the light of the above compulsion and in accordance with the accepted accounting practices that the assessee-company has transferred the said amount directly to the capital reserve account. This is because the said amount of surplus does not have any connection with the operating results of the assessee-company for the impugned previous year. 7. The learned chartered accountant further argued that what is brought to tax under the minimum alternate tax (MAT) sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand, relied on the decision of the Bombay High Court in the case of CIT v. Veekaylal Investment Co. P. Ltd. [2001] 249 ITR 597 in which case, the court has held that while computing the total income under the Income-tax Act, the assessee is required to take into account income by way of capital gains, and therefore, in computing the book profit, the assessee cannot exclude any capital gains. The court has held that Schedule VI to the Companies Act requires disclosure of credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature. It is also necessary to disclose the profits or losses arising from such transactions. The court held, therefore, that the income from capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins, the Bombay High Court has held in the case of CIT v. Veekaylal Investment Co. P. Ltd. [2001] 249 ITR 597 that clause 3(xii)(b) of Part II of Schedule VI to the Companies Act, requires disclosure of profits or losses from transactions of an exceptional nature. In the light of the said disclosure and accounting requirement mandated by Schedule VI to the Companies Act, the hon'ble Bombay High Court has held that the capital gains arising to a company should form part of the book profit for the purpose of section 115J. As far as this issue is concerned, there is no functional distinction between section 115J and section 115JB. Therefore, we find that the specific issue of capital gains, vis-a-vis minimum alternate tax profit has been d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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