TMI Blog2014 (1) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has excluded this amount from the total profits as per books on the ground that it is not taxable u/s 86 - the so called line-by-line inclusion of the joint venture accounts into the books of the company has resulted in the net profit of Rs.11,09,10,108/- from Joint ventures which forms part of the profit & loss of Rs.13,74,21,107/- computed in the P&L account of the assessee company. Profits to be Excluded or not - Whether profits from the Joint Ventures should be excluded in computing the Book Profits for the purpose of sec 115JB – Held that:- The share of profits of the Assessee from the Joint venture AOPs have been included in the P&L account in the Books – Relying upon APOLLO TYRES Vs. CIT [2002 (5) TMI 5 - SUPREME Court] - the only adjustment that can be made to the profits as per the P&L account is as per explanation to sec 115JB - None of the explanations provided for exclusion of share of profits from AOP on which tax is not payable by the memebrs of AOP - The share of income from an AOP is includible in the hands of the members of the AOP for taxation u/s 67A of the Act - But as per sec 86 of the Act, if the conditions are satisfied, then income tax shall not be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in their case. It was also stated by the appellant that the financial statements were prepared combining the assets and liabilities, income and expenditure of jointly controlled entities of (1) BSE, RBM PATI Joint Venture and (2) M/s.BSE/C E Joint Venture on line-by-line basis which is in contravention of the provisions of Companies Act, 1956. Therefore, the provision of Sec.115JB are not applicable and the fact can be seen from the computation of income where the income from the said two joint ventures was claimed as non-taxable income in the hands of the company. Therefore, the question of preparing computation statement u/s.115JB does not arise. However, the explanation submitted by the assessee was not accepted by the AO. The AO was of the view that any domestic company is liable to pay tax u/s.115JB and the assessee company has deliberately not furnished the computation to avoid the penalty u/s.271(1)(c). The AO referred to the Director s Report and the Auditor s Report filed by the assessee and held that the assessee had followed the Companies Act and the financial statements were prepared according to the Companies Act and hence, assessee s contention that provision of Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO had raised the same issue and the assessee vide its letter dt.20.11.02 and contented and explained in regard to nonapplicability of MAT provisions as was explained for the AY 2000-01. The AO again completed the assessment u/s.143(3) without invoking the provision of sec.115JB vide order dated 27.2.2003. Even for the AY under appeal, the assessment was originally completed u/s.143(1) without any adjustment. And after a lapse of two years, the AO issued notice u/s.154 proposing therein certain disallowances including invocation of sec.115JB for which the assessee vide its letter dated 28.4.2005 filed on 2.5.05 objected to the proposal. Subsequently, the AO issued notice u/s.148 which has been contested by the assessee vide its letter dated 12.12.06. The appellant further contended that after duly considering the statutory provisions of the Act and the material evidences furnished by the assessee, relief u/s.115JB was granted. Although grant of excess relief could be ground for re-opening the assessment, unless the grant of excess relief is on account of failure on part of the assessee to disclose fully, all the material facts concluded assessments cannot be reopened as was held in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as gone through the orders of the authorities below. The main contention of the assessee before the lower authorities appears to be that the assessee company has been disclosing its share in joint ventures while preparing its annual accounts and the same is being mentioned in the annual accounts in the notes to the accounts. It is also stated by the assessee that financial statements were prepared combining the assets and liabilities income and expenses of jointly controlled entities (i) BSE, RTBM PATI Joint Venture and (2) M/s.BSE/C C Joint Venture on line-by-line basis which is contravention of the provision of Companies Act and therefore the provision of Sec.115 JB will not be applicable. For the earlier years, the Assessing officer has completed the assessment without invoking the provisions of sec 115JB. Therefore the provisions of sec 115JB is not applicable to them. 10. But we find that the CIT(A) has found that provisions fo sec 115JB are applicable to the Assessee, even though the assessee had submitted that the accounts they have prepared is not in accordance with Schedule VI. The Assessee have not come on appeal against the direction of CIT(A) that the book profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 82eighteen 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. (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 profit and loss account for the relevant previous year in accordance with the provisions of 85Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) being a company, to which the proviso to subsection (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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,if any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, 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 profit and loss account), if any such amount is credited to the profit and loss account: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluded or reduced as per any of the explanations contained u/s.115JB. Merely because a particular amount which is included in the profit loss account in the books is not taxable under the normal provision of the Income Tax Act, it would not entitle the assessee to exclude the same in computing the book profits. The Mumbai High Court in the case of M/s. Eschjay Forgings ( 251 ITR 50) have held that loss on foreign exchange arising from foreign currency liability utilized for purchase of plant and machinery, even though should be capitalized u/s.43A as per the normal provisions of the Income Tax Act, should be allowed as a revenue deduction for the purpose of computing book profits as that amount has been debited to the profit and Loss accounts of the Assessee. Similarly, the Bombay High Court in that case also held that provision for wealth tax which was not specifically excluded under the explanation to sec.115JB should also be reduced from the book profits. Thus it is settled proposition that for the purpose of sec 115JB, the profits as computed as per provisions of Sch VI to the Companies Act 1956 should be determined and the same should be increased or reduced as per explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ype of income is exempt or non-taxable in the normal provisions of Income Tax Act would still be taxable as book profits u/s.115JB as long as the amount has been credited to the profit loss and cannot be reduced or excluded in any of the explanations container us/115JB. Therefore if as a legal proposition the income exempt under the normal provisions of income tax will not form part of the Book profits is to be accepted, the explanation (ii) to sec 115JB referred to above is redundant. It therefore follows that all amounts credited to the P L account of the company should be considered for the purpose of computing Book profits u/s 115JB, unless specifically excluded by any of the explanations under that section. 18. As held by the Apex Court in the case of CIT Vs. HCL COMNEK 305 ITR 409 the provision of diminution of value of assets even though would be allowable under the normal provisions of Income Tax Act has to be reduced in computing the book profit (this of course was nullified by the retrospective amendment brought in by the Finance No.2 Act 2009 with retrospective effect from 1.4.2001). Thus, taxability of an amount under the normal provisions of the Income Tax Act has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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