|CORAM:||M. Balganesh (AM), N. V. Vasudevan (JM)|
|CATCH WORDS:||Book Profits, Disallowance u/s 14A & Rule 8D|
|COUNSEL:||V. K. Beswal, Vijay Mehta|
|DATE:||March 2, 2016 (Date of pronouncement)|
|DATE:||March 25, 2016 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 14A/ 115JB: (i) Investments in subsidiary companies are strategic investments to whom s. 14A disallowance does not apply (ii) Receipt on forfeiture of share warrants is a capital receipt and has to be excluded from "Book Profits" even if credited to the P&L A/c|
The assessee credited Rs. 12,65,75,000, representing forfeiture of share warrants, to the Profit & Loss account as an extraordinary item. It claimed that as the said receipt was a capital receipt not chargeable to tax, the same had to be excluded while computing the book profits. The Department relied on Apollo Tyres Ltd 255 ITR 273 (SC) and Rain Commodities Ltd (2010) 131 TTJ (Hyd)(SB) 514 to reject the claim. HELD by the Tribunal:
(i) The assessee has duly disclosed the fact of forfeiture of share warrants amounting to Rs. 12,65,75,000/- in its notes on accounts vide Note No. 6 to Schedule 11 of Financial Statements for the year ended 31.3.2009. Hence following the decision of the Mumbai Tribunal in Shivalik Venture (P) Ltd vs. DCIT (2015) 173 TTJ (Mumbai) 238, the profit and loss account prepared in accordance with Part II and III of Schedule VI of Companies Act 1956, includes notes on accounts thereon and accordingly in order to determine the real profit of the assessee as laid down by the Hon’ble Apex Court in the case of Indo Rama Synthetics (I) Ltd vs CIT reported in (2011) 330 ITR 363 (SC), adjustment need to be made to the disclosures made in the notes on accounts forming part of the profit and loss account of the assessee and the profits arrived after such adjustment, should be considered for the purpose of computation of book profits u/s 115JB of the Act and thereafter, the AO has to make adjustments for additions / deletions contemplated in Explanation to section 115JB of the Act.
(ii) Investments made in subsidiary companies are to be treated as strategic investments and hence the disallowance u/s 14A of the Act would not operate at all as the investment made thereon is not with an intention to earn any exempt income in the form of dividend but only for obtaining controlling interest in the said companies and to further the business interests of the assessee in the said company.