| The Tax Publishers2020 TaxPub(DT) 4402 (Del-Trib) INCOME TAX ACT, 1961
Section 115JB
Security premium account, being part of capital of company was not in the nature of an entry bearing character of income and since it had not been credited by debiting Profit & Loss Account of the company, its reversal in any subsequent year was not required to be reflected in profit & loss account and thus applicability of clause (b) of Explanation to section 115JB(2) was ruled out. Also, clause (c) of said Explanation had no applicability since securities premium account was not in the nature of provision. Accordingly, no addition could be made to book profits since securities premium account was never debited to the Profit & Loss Account.
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MAT - Computation of book profit - AO made addition of security premium account used to set off brought forward losses -
AO noticed that assessee used security premium account of Rs. 2000 crores to set off brought forward losses without taking this amount to Profit & Loss Account for the year. He noticed that assessee gave notes to accounts/return giving accounting treatment of the same. On being confronted by AO, assessee submitted that details so called for had no relevance for tax purposes. According to AO, as per Company Law, share premium can only be used for capital account transactions. Therefore, treatment given by assessee was not in conformity with Company Law provisions. AO, therefore, held that amount concerned was to be taken as Profit and Loss transaction which would ultimately affect tax on MAT account. Held: AO did not have power to recast the accounts which had been audited, prepared in accordance with Parts II & III of Schedule VI to Companies Act, 1956 and adopted at AGM. For making any additions to the 'book profits' as shown in Profit & Loss Account, AO could only invoke Explanation to section 115JB(2). Security premium account, being part of capital of company was not in the nature of an entry bearing character of income and since it had not been credited by debiting profit & loss account of the company, its reversal in any subsequent year was not required to be reflected in profit & loss account and thus, applicability of clause (b) of Explanation to section 115JB(2) was ruled out. Also, clause (c) of said Explanation had no applicability since securities premium account was not in the nature of provision. In any case, no addition could be made to book profits since securities premium account was never debited to the profit & loss account.
Relied:Apollo Tyres Ltd v. CIT, (2002) 255 ITR 273 (SC) : 2002 TaxPub(DT) 1371 (SC), Malayala Manorama Co. Ltd. v. CIT, (2008) 216 CTR 102 (SC) : 2008 TaxPub(DT) 1900 (SC), Kinetic Motor Co Ltd v. DCIT, (2003) 262 ITR 330 (Bom) : 2003 TaxPub(DT) 0967 (Bom-HC) and Sri Hariram Hotels (P) Ltd v. CIT, (2016) 237 Taxman 564 (Kar) : 2016 TaxPub(DT) 1835 (Karn-HC), etc.)
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2003-04
IN THE ITAT DELHI C NEW DELHI BENCH
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