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M/s. Vadinar Power Company Ltd. Versus Additional CIT-5 (3) Mumbai

MAT computation - CIT(A)confirming the action of AO while added back interest income and income from sale of unit of Mutual Fund originally reduced from capital work in progress in computation of Book Profit u/s 115JB - Held that:- Respectfully following the decisions of the Hon'ble Apex Court in the case of Apollo Tyres Ltd. [2002 (5)5 - SUPREME Court] that the assessee’s interest income and profit on sale of Mutual Funds would not form part of the computation of ‘book profits’ under section 11 .....

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y, are as under: - 2.1 The assessee-company, engaged in the business of power generation, filed its return of income for A.Y. 2010-11 on 30.09.2010 declaring total income of ₹ 4,27,77,222/- under the normal provisions of the Income Tax Act, 1961 (in short 'the Act') and book profits at ₹ 71,27,23,926/- under section 115JB of the Act. The return was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny. The assessment was concluded under .....

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ns of the Hon'ble Bombay High Court in the case of Veekaylal Investment Company Pvt. Ltd. reported in 249 ITR 597 and of the Coordinate Bench of this Tribunal in the case of Kopran Pharmaceuticals Ltd. (119 ITD 355) (ITAT, Mumbai) to hold that these two items (supra) are to be considered while computing the book profits under section 115JB of the Act as they had not been routed through the Profit & Loss Account as per the provisions of Parts II & III of the Schedule-VI of the Compani .....

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or A.Y. 2010-11, the assessee has preferred this appeal raising the following grounds: - 1) The learned Commissioner of Income-tax (Appeals) -9, Mumbai hereinafter referred as CIT(A) , erred in confirming the action of Assessing Officer while added back interest income and income from sale of unit of Mutual Fund originally reduced from capital work in progress in computation of Book Profit u/s 115JB. 2) The Appellant requests that it may be permitted to alter or withdraw any of the above grounds .....

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rocess of expansion of its power generating plant and all expenditure incurred n the pre-commencement stage was reflected under the head Capital Work-in-Progress (WIP) and preoperative expenses in the books of account, as the project was under construction and for this purpose bank loans were taken. In this period of construction, the assessee-company had invested idle funds which were to be used in future procurement of plant and machinery and construction, were utilised/invested resulting in g .....

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een done in accordance with AS-16 and Accounting Standard on Accounting for Fixed Assets. As per point No. 11 - Borrowing Cost of AS-16, financing arrangements for a qualifying asset may result in an enterprise obtaining borrowed funds. In some circumstances, during the setting up of the qualifying asset concerned, idle funds are often temporarily invested pending their expenditure on the qualifying asset. In determining the amount of borrowing costs eligible for capitalisation during the said p .....

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at Book Profits under section 115JB has to be computed as per the net profit as per the Profit & Loss Account prepared under the provisions of Part-II and Part-III of Schedule VI of the Companies Act. The learned A.R. contends that once the accounts have been prepared as per the provisions of Companies Act, referred to above, and are adopted by the AGM of the company, the net profit disclosed in such accounts cannot be tinkered with by the AO while computing the book profits , except for adj .....

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ran Pharmaceuticals Ltd. (119 ITD 355) (Mumbai ITAT) are factually different and do not apply to the assessee s case. It is argued that the decision of the Hon'ble Apex Court in the case of Apollo Tyres Ltd. (2002) (255 ITR 273) (SC) supports the assessee in the case on hand and has laid down the basic principle that while computing book profits under section 115JB of the Act, the AO has only the power of examining whether the books of accounts are certified by the concerned authorities, as .....

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Trading and Agencies P. Ltd. (2008) 304 ITR 401 (Bom) on the similar issue, by following the decision of the Hon'ble Apex Court in Apollo Tyres Ltd. (supra). It is submitted that a similar finding has also been rendered by the Hon'ble Bombay High Court in the case of Adbhut Trading Co. P. Ltd. (2011) 338 ITR 94 (Bom). It was further submitted that a Coordinate Bench of this Tribunal in the case of Forever Diamonds Pvt. Ltd. (ITA No. 5720/Mum/2011) dated 23.01.2013), following the decisi .....

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12.08.2015. The learned A.R. prayed that in the factual and legal matrix of the case on hand, the assessee s appeal be allowed in view of the decisions. 3.3 Per contra, the learned D.R. for Revenue placed strong reliance on the orders of the authorities below. 3.4.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited. The facts of the matter as emanate from the record before us are that .....

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consideration were invested by it resulting in the generation of interest income and income from sale of Mutual Funds. Admittedly, these amounts so earned were offered to tax under the head income from other sources under the normal provisions of the Act since the interest earned was revenue in nature. The same incomes were, however, not part of the book profits , computed by the assessee under section 115JB of the Act, as the assessee was of the view that the treatment for interest income and i .....

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ordance with the provisions of Part-II and Part-II of Schedule VI of the Companies Act. 3.4.2 In the context of the above mentioned facts of the matter, the question before us is whether or not the assessee is required to take into account the interest income and income from sale of Mutual Funds for computing the book profits under section 115JB of the Act. In the case on hand, the authorities below have held that the assessee is required to take the interest income and capital gains income on s .....

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the Hon'ble Apex Court in the case of Apollo Tyres Ltd. (2002) 255 ITR 273 (SC). In these decisions it has been held that once the Profit & Loss Account is certified by authorities under the Companies Act, it is not open to the AO to contend that the same has not been prepared in accordance with the provisions of Companies Act, except as provided in the Explanation to section 115JB(2) of the Act. 3.4.3 We have respectfully perused these judicial pronouncements (supra) and find that the C .....

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on 115JB. Under the said provisions, in case, the total income computed under the normal provisions of the Act is less than specified percentage of book profit, the book profit is deemed to be the total income on which tax is required to be levied at a specified rate. The book profit under section 115JB is required to be computed on the basis of P&L Account prepared in accordance with the provision of Part II and Part-III of Schedule VI of the Companies Act and, to such profit, certain adjus .....

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ther hand has argued that the accounts prepared under the Companies Act and certified by the authorities under the said Act can not be tinkered with by the AO and have to be accepted for computation of the book profit. 4.1 We have carefully considered the various aspects of the matter. We find that the issue raised before us has already been considered and decided by the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT(255 ITR 273). In that case, the assessee had claimed arrear .....

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es liable to pay tax at least 30% of book profit as shown in its own accounts. For the said purpose, the section 115J made income reflected in the company s books of account, the deemed income for the purpose of assessing the tax. The Hon'ble Supreme Court further observed that the use of the words in accordance with the provisions of part-II and Part-III of Schedule-VI of the Companies Act was made for the limited purpose of empowering the assessing authority to rely upon the authentic stat .....

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115J. The relevant portion of the judgment of the Hon'ble Supreme Court is reproduced below as a ready reference. The Assessing Officer, while computing the book profits of a company under section 115J of the Income-tax Act, 1961, 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 increas .....

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hile so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinised and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied th .....

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ourt in the case of Apollo Tyres Ltd. (supra) and, therefore reliance on the judgment of Hon'ble High Court of Bombay is misplaced. The Hon'ble High Court of Bombay, subsequent to the judgment of Hon'ble Supreme Court in case of Apollo Tyres Ltd. (supra), have reconsidered the issue and have held in case of CIT vs. Akshay Textiles Trading And Agencies P. Ltd. (supra), that capital gain not shown in the P&L Account under the Companies Account cannot be added while computing to the .....

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er considering the judgment of the Hon'ble High Court of Bombay in case of CIT vs. Akshay Textiles Trading And Agencies P. Ltd. (supra), have held that the AO has power to re-cast the accounts prepared under the Companies Act, in case, these were not correctly prepared. Arguments advanced by the revenue have no merit in view of the issue having been already settled by the judgment of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra), as pointed out earlier. Moreover, the .....

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