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B & B Infotech Ltd vs. ITO (ITAT Bangalore)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS: ,
COUNSEL:
DATE: October 7, 2015 (Date of pronouncement)
DATE: November 18, 2015 (Date of publication)
AY: 2005-06
FILE: Click here to download the file in pdf format
CITATION:
S. 115JB: Even a non-taxable capital receipt credited to the P&L A/c cannot be excluded while computing the book profits. The fact that the notes to the A/cs state that the receipt is on capital account is irrelevant. Shivalik Venture distinguished

The assessee received an amount of Rs.43 lakhs being remission of liability of ING Vysya Bank Ltd. The assessee submitted before the AO that this remission of the liability was on account of principal amount of loan and therefore, the same is not in the nature of income which can be considered as part of the book profits u/s 115JB of the Act. The AO rejected the objections of the assessee and added the said amount of Rs.43 lakhs while computing book profits u/s 115JB of the Act. Before the CIT(A), assessee reiterated the contention that the remission of the principal loan amount in one time settlement cannot be considered as income for the purpose of book profits u/s 115JB. The CIT(A) did not accept the contention of the assessee and had held that book profits arrived at as per the provisos of Schedule VI of the Companies Act cannot be tinkered with in view of the judgment of the Hon’ble Supreme Court in the case of Apollo Tyres (255 ITR 274). Before the Tribunal, the assessee submitted that remission being capital receipt, cannot be considered as income of the assessee even for the purpose of book profits u/s 115JB of the Act. In support of his contention, he has relied upon the decision of the Mumbai Bench of the Tribunal in the case of M/s.Shivalik Venture Pvt. Ltd. vs. DCIT in ITA No.2008/Mum/2012 dated 19/8/2015 as well as the decision of the Jaipur Bench of the Tribunal in the case of ACIT vs. Shree Cement Ltd. in ITA Nos.614, 615 & 635/JP/2010 dated 9/9/2011. The assessee also relied on the judgment of the Hon’ble Andhra Pradesh High Court in the case of CIT vs. Nagarjuna Fertilizers & Chemicals Ltd. in ITTA No.100 of 2003 dated 23/9/2014 (373 ITR 252 (Andhra Pradesh) and submitted that when the assessee has the disclosed the fact of capital receipt in the notes to accounts, then said amount shall be excluded from the profit and loss account (P&L A/c) for the purpose of book profits u/s 115JB. It was submitted that even if the said amount is shown by the assessee in the P&L A/c when the assessee has disclosed the nature of receipt in the notes to the accounts, then the effect of said disclosure in the notes to the accounts will be that the said amount should not be considered as part of P&L A/c of the assessee as per the provisions of Schedule VI of the Companies Act. HELD by the Tribunal dismissing the appeal:

The amount of Rs.43 lakhs pertains to remission of liability under one time settlement of outstanding loan with ING Vysya Bank. The assessee has prepared its P&L A/c by including this amount as income. However, the assessee has contended that this amount should be excluded for the purpose of computing book profits u/s 115JB of the Act. The assessee has placed reliance on various judgments as referred above. We note that the ratio of the decisions relied upon by the assessee is based on the premise that if an item of income or expenditure is required as per Part II of Schedule VI of the Companies Act to be part of P&L A/c, but the same was not disclosed in the P&L A/c and has been disclosed in the notes forming part of the accounts, then the said disclosure in the notes to the accounts would be treated as disclosure of that particular item of income or expenditure as the case may be, in the P&L A/c for the purpose of book profits u/s 115JB. In the case in hand, the assessee got remission of liability of Rs.43 lakhs under one time settlement by the ING Vysya Bank which has been disclosed by the assessee in the P&L A/c. This disclosure, in the P&L A/c is strictly as per the requirement of Schedule VI of the Companies Act and further in conformity with the mandatory accounting standard AS 5. Therefore, the treatment of the amount in the books of account and particularly in the P&L A/c, is as per the provisions of Schedule VI of the Companies Act as well as accounting standard AS 5. Hence, any disclosure in the notes to accounts would not require any change in the P&L A/c already prepared as per Schedule VI of the Companies Act. The decisions relied upon by the assessee are applicable on the facts and circumstances where if an item of income or expenditure which is required to be disclosed in the P&L A/c prepared as per provisions of Schedule VI of the Companies Act but instead of disclosing the said item in the P&L A/c, it was disclosed in the Notes to the accounts, then such item of income or expenditure will be treated as part of the P&L A/c for the purpose of computing book profits u/s 115JB. Once P&L A/c is admittedly prepared as per Schedule VI of the Companies Act, then neither the AO has any power to tinker with it nor the assessee is permitted to claim exclusion or inclusion of any item of income or expenditure as the case may be, for the purpose of computing book profits u/s 115JB except the permissible adjustment provided under the Explanation to sec. 115JB of the Act itself. It is not disputed that this amount does not fall in the ambit of any of the clauses of Explanation to 115JB. Therefore, once this amount has been disclosed in the P&L A/c prepared strictly as per provisions of Schedule VI of the Companies Act, the same cannot be excluded for the purpose of computing book profits u/s 115JB. We find that the CIT(A) has rejected the claim of the assessee by following the judgment of the Hon’ble Supreme Court in the case of Apollo Tyres (255 ITR 274) as well as the Hon’ble Bombay High Court in the case of CIT vs. HCL Comnet Systems & Services Ltd. (305 ITR 409). Accordingly, in the facts and circumstances of the case as well as above discussion, we do not find any error or illegality in the impugned order of the CIT(A).

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