INCOME TAX ACT, 1961

Section 115JB, Expln. clause (i)

MAT - Computation of book profit - AO treated capital reserve arising on amalgamation in the nature of purchase as revaluation reserve - Applicability of clause (i) of Explanation to section 115JB

AO while computing book profit of assessee-company under section 115JB treated capital reserve created under the scheme of amalgamation on account of vesting of assets in assessee by purchase method, to be in the nature of 'revaluation reserve' referred to in clause (j) of Explanation 1 to section 115JB and accordingly, made addition. Held: Section 129 of Companies Act, 2013 provides that financial statements of company would be prepared to give a true and fair view of the state of affairs and the profit or loss of the company and would comply with Accounting Standards.(AS)-17 In assessee's case. As per sections 391 to 394 of Companies Act, amalgamation was regarded as amalgamation in nature of purchases and hence purchase method of the AS-14 was applicable to assessee as per which consideration was deducted from value of the net assets of transferor company acquired by transferee company, i.e., assessee and since result of the computation was positive, the difference was credited to capital reserve. Since, capital reserve is out of purview of section 115JB and Revaluation Reserve' is only considered for upward adjustment ot profit as per the Act, AO tried to bring capital reserve to the fold of clause (i) (which rightly deals with revaluation reserve). Such an approach of AO was not justified and, therefore, addition could not be sustained.

Relied:Priapus Developers (P) Ltd. 176 ITD 223 (Del-Trib) : 2019 TaxPub(DT) 2429 (Del-Trib), dated 12-3-2019

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

INCOME TAX ACT, 1961

Section 115JB, Expln. 1(f)

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