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Dy. Commissioner of Income Tax, Range -8 (1) , Mumbai Versus M/s. Garware Polyester Ltd.

2015 (10) TMI 1463 - ITAT MUMBAI

MAT computation - Waiver of principal amount on one Time Settlement (OTS) of loan by Vijaya Bank added in computing Book Profit u/s 115JB - CIT(A) deleted the addition - Held that:- The provisions relating to book profit u/s 115JB are absolutely clear that same is to be computed on the basis of profit and loss account prepared in accordance with the provision of Part-II and Part-III of Schedule-VI of the Companies Act and to such profit only certain adjustments as provided in Explanation 1 can b .....

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rve', i.e. directly in the Balance sheet.

Thus, the finding of the CIT(A) is purely in accordance with the provisions of the law and the principle laid down by the Hon'ble Supreme Court in the case of Apollo Tyres (2002 (5) TMI 5 - SUPREME Court ). The Hon'ble Bombay High Court in the case of CIT vs Akshay Textiles Trading And Agencies (P) Ltd., [2007 (10) TMI 251 - BOMBAY HIGH COURT ] and in the case of CIT vs Adbhut Trading Co. Pvt Ltd, [2011 (7) TMI 716 - Bombay High Court ], foll .....

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Shukla, JM. The aforesaid appeal has been filed by the revenue against the impugned order dated 31.07.2013, passed by CIT(A)-16 Mumbai, for the quantum of assessment passed u/s 143(3) r.w.s. 147 for the assessment year 2007-08 on following grounds: "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the adjustment/addition in computing Book Profit u/s 115JB of the IT Act, of ₹ 3,52,78,000/- of waiver of principal amount on one Time Settle .....

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h Profit & Loss Account" 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the adjustment/addition in computing Book Profit u/s 115JB of the IT Act, of ₹ 3,52,78,000/- of waiver of principal amount on one Time Settlement (OTS) of loan by Vijaya Bank, without appreciating that the direct transfer of the amount to General Reserve without routing the same through Profit & Loss Account is not in accordance with Schedule VI of the Com .....

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uting Book Profit u/s 115JB". 2. The brief facts qua the issue involved is that, the assessee has filed its return of income for the assessment year 2007-08 on 25.10.2007 declaring "Nil" income under the normal provisions of the Act. However, the book profit u/s 115JB was shown at ₹ 2,49,44,465/-. Thereafter assessment was completed u/s 144C(4) r w s 143(3) on 22.12.2010 on a 'Nil' income, however, book profit u/s 115JB was assessed at ₹ 4,43,54,908/-. Later on .....

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) was entered into by the assessee with Vijaya Bank in respect of loan liability. The loan borrowed from Vijaya Bank in the earlier years was utilized for the capital expenditure and capital expansion. Under the OTS Agreement, lumpsum payment of ₹ 7 crores against total outstanding of ₹ 12,81,12,000/- was to be made. Thus, there was waiver of ₹ 5,81,12,000/-, which was bifurcated into principal amount of ₹ 3,52,78,000/- and waiver on account of interest amount of ₹ .....

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e credited the waiver of loan liability in the profit and loss account and accordingly, he made the adjustment in the book profit for the same amount. 4. Before the CIT(A), it was reiterated that the term loan was received in the year 1998, which was for 'capital expansion plan'. When the loan was waived off, the principal amount has been credited to 'General Reserve', because the waiver is on account of capital receipt. This accounting entry was reviewed and accepted by the Audi .....

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-VI of the Companies Act; duly certified by the Auditors; placed before the shareholders and adopted/approved by the AGM, then the Assessing Officer cannot make any adjustments to the company's book profit except to the extent provided in Explanation 1. The assessee here in this case has prepared its account in accordance with the Schedule-VI of the Companies Act and, therefore, he held that the addition made by the Assessing Officer in the book profit is not correct. 5. Before us, Ld. Couns .....

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nt to the book profits for an amount of ₹ 3,52,78,000/-, which was on account of waiver of principal amount of loan, which has been credited by the assessee directly in the Balance Sheet in 'General Reserve' account, which according to the Assessing Officer should have been routed through profit and loss account and thus, would have been part of the book profit. The provisions relating to book profit u/s 115JB are absolutely clear that same is to be computed on the basis of profit .....

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