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MAT . S. 115JA and 115JB full Deferred Revenue Expenditure (DRE) is to be debited claimed in profit and loss account to be prepared even if in P & L account for shareholders a part is debited window dressing to be eliminated for MAT

MAT . S. 115JA and 115JB – full Deferred Revenue Expenditure (DRE) is to be debited claimed in profit and loss account to be prepared even if in P & L account for shareholders a part is debited – window dressing to be eliminated for MAT - Income Tax - Direct Tax Code - DTC - By: - CA DEV KUMAR KOTHARI - Dated:- 17-2-2016 - Relevant links and references: Section 115JA and 115JB of the Income-tax Act, 1961. COMMISSIONER OF INCOME TAX AND ANR. Versus M/s. KARNATAKA SOAPSAND DETERGENTS LTD. 2016 (1) .....

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ourt and relevant provisions applicable in different years, because in judgment for all three years S.115JA has been mentioned, whereas from AY 2001-02 S. 115JB was inserted. Decision of the Supreme Court: On behalf of revenue, the petitioners the following four counsels appeared; Mr. P. S. Patwalia, ASG., Mr. S. Wasim A. Qadri, Adv., Mr. Arijit Prasad, Adv., Mrs. Anil Katiyar, Adv. There was petition for condonation of delay also. Though it has not been mentioned in the order, the counsels of r .....

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involved (about MAT): Assessee has prepared separate P & L account for presenting in AGM before shareholders, in which certain expenses were not fully charged and a par was treated as Deferred Expenditure (DRE) and were written off in more than one years. Therefore, though expenditure were actually incurred but not fully charged in P & L account presented to shareholders ( this is considered as window dressing to satisfy shareholders). The purpose of full amount being charged was not to .....

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ear in which incurred, and spreading it over many years is window dressing to satisfy shareholders. As per Tribunal and High Court, this shows that company has shown profit, but in fact company has not earned profit (or less profit has been earned) on which only tax can be imposed. The AO should not be influenced by such window dressing, because tax can only be imposed on profit, even if for some purposes expenses actually incurred have not been debited in P & L account presented to sharehol .....

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e Sheet and approved by the assessee's Board as per the Companies Act when maintaining regular books of accounts could be modified and other years expenditure can be claimed during the current assessment year itself when computing Book profits u/s.115JB of the Act contrary to judgment of Apex Court in Apollo Tyres and Malayalam Manorama? 2. about S. 80HHC -not relevant 3. Whether the finding of the Tribunal that the assessee is entitled to prepare profit and loss account for the purposes of .....

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e modified and both the years expenditure claimed during claimed during the current assessment year itself when computing Book profits u/s.115JB of the Act contrary to judgment of Apex Court in Apollo Tyres and Malayalam Manorama? Observations and order of High Court: As seen above in questions as well as during arguments, revenue relied on judgments of the Supreme court, about adjustments in P & L account and about separate P & L a/c for purpose of MAT. About earlier judgments of the Su .....

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ing Authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an Assessing Officer under the Income-Tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinized and certified by the statutory auditors and will have to be approved by the company in its general .....

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unts have been maintained in accordance with the provision of the Companies Act. Sub-Section (1A) of Section 115J does not empower the authority under the Income Tax Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of Section 115J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There c .....

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rsing the said view of the Tribunal. The Assessing Officer while computing the income under Section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said Section. To put it differently, the Assessing Officer does not have .....

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ies deserves attention. In 1983, a new s. 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have held and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a 'minimum corporate tax' on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30 per cent of its book profit. In other words, a domestic widely-held company will pay tax of at lea .....

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n the Act with a deeming provision which makes the company liable to pay tax or at least 30% of its book profits as shown in its own account. Therefore, the object of this Section is to prevent the mischief. Therefore while applying the Section what is to be borne in mind is whether the assessee is trying to avoid payment of tax by any manipulative process by adjustment of accounts. Sub-Section (2) of Section 115J(1A) makes it clear that every assessee, being a company shall for the purpose of t .....

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in the P & L account for the relevant previous year prepared under Sub-Section (2). Part-I of Schedule-VI of the Companies Act, 1956 deals with the Form of Balance Sheet. Part-II of Schedule-VI deals with the Requirements as to Profit and Loss Account. Clause (2) of Part-II of Schedule- VI which deals with the Profit and Loss Account reads as under: The profit and loss account - a) shall be so made out as clearly to disclose the result of the working of the company during the period covered .....

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t is not in dispute that the assessee has incurred the expenses as stated above for the years 1999-2000, 2000-01 and 2006-07. The net profit could be determined only after deducting the aforesaid amount. The assessee is seeking for deduction of the said amount which has actually incurred. However, in the P & L account which is printed for the purpose of showing it to the shareholders in order to show that they have earned some profits, they do not want to deduct the entire amount. They want .....

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a portion of it is shown as deferred expenditure. That portion as deferred expenditure cannot be deducted. There cannot be two balance sheets - one for the purpose of income tax and another for the purpose of showing it to the share holders under the Income Tax Act and therefore, it was contended that the order passed by the Tribunal is incorrect. On section 115JA: It is clear from Section 115JA of the Act, that it deals with the 'deemed income'. In other words it is not the actual inco .....

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uditors, the same becomes the basis for levying tax on book profit. When once the assessee has incurred an expenditure and it is deducted in terms of Part-II of Schedule-VI of the Companies Act and the profit is arrived at, merely because in the printed P & L account for the purpose of showing to the shareholders that a profit is made by the Company, the entire expenditure is not deducted and a portion of it is shown as a deferred expenditure, the assessee cannot be denied the benefit of act .....

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nd the tax liability is less when compared with the net profit arrived at after giving deduction to the actual expenditure, the tax payable is on that net profit and not on the fancy figure shown in the P & L account for the purpose of showing profit to the shareholders. In other words, to find out what is net profit one has to look into the books of accounts maintained by the company and the profit and loss account prepared on the basis of such book of accounts. What is shown in the printed .....

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thing but a window dressing and the authority should not be mislead or guided by this balance sheet which is prepared to satisfy the shareholders. It is the P & L account prepared on the basis of the books of accounts as contemplated in Part-II of Schedule VI which should form and assist to find out what is the profit earned and on that profit, tax is levied. Final order of High Court on questions: 17. In that view of the matter, the order passed by the Tribunal cannot be found fault with. I .....

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& L account to show only revenue and actual profits. This was necessary to exclude certain capital receipts included in income in P & L, or some expense not fully charged in P & L a/c for share- holders. The view of author is that merely because different accounting treatments are made by companies in P & L a/c for shareholders, should really not affect tax liability under normal computation as well as in computation for the purpose of MAT. This was accepted in many cases and the .....

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