Book Profit u/s 115JB can not be computed as per cash basis of accounting

Book Profit u/s 115JB to be computed as per Profit & Loss Account prepared under Schedule III of the Companies Act, not on profit arrived on cash basis of accounting 

In a recent judgment, the ITAT Delhi has held that book profit u/s 115JB is to be computed as per Profit & Loss Account prepared under Schedule III of the Companies Act, not on profit arrived on cash basis of accounting

ABCAUS Case Law Citation:
ABCAUS 4124 (2024) (07) ITAT

In the instant case, the revenue had challenged the order passed by the CIT(A) in directing adoption of loss as per audited Profit & Loss Account on the basis of accrual basis of accounting instead of cash basis of accounting for the purpose of calculation of MAT u/s 115JB of the Income Tax Act, 1961 (the Act).  

The only issue in the appeal of the Revenue was for adjudication whether the CPC was right in adopting the profit/loss as per the cash system of accounting prepared for the purpose of Income Tax while computing the book profits u/s 115JB of the Act.

The respondent assessee was a Private Limited Company. It filed NIL return of income for the relevant Assessment Year following the cash system of accounting computing the loss u/s 115JB of the Act taking the starting point the profit as per Profit & Loss Account as per cash system followed by the assessee for the purpose of Income tax.

The assessee had also prepared its Profit & Loss Account and balance sheet on accrual basis for the purpose of Companies Act according to which the assessee had shown loss which was substantially more than the loss as per P&L Account as per cash basis of accounting.

In the return filed, the assessee had declared this book loss as per profit and loss account prepared on accrual basis under the provisions of the companies Act while computing the book profits u/s 115JB of the Act.

The return was processed u/s 143(1) of the Act by CPC, Bangaluru accepting the loss declared by the assessee under normal provisions of the Act. However, while computing book profits u/s 115JB of the Act the CPC computed the book profits u/s 115JB of the Act by adopting the profit as per Profit & Loss Account prepared for the purpose of Income tax under cash basis of accounting.

The assessee preferred an appeal before the CIT(A) who considering the submissions of the assessee and analyzing the provisions of Section 115JB of the Act, directed the Assessing Officer to adopt loss as per audited Profit & Loss Account on the basis of accrual basis of accounting for the purpose of calculation of MAT u/s 115JB of the Act.

The Tribunal observed that a plain reading of the provision of Section 115JB(2) of the Act provides that every assessee being a company other than a company u/s 129(1) shall for the purpose of Section 115JB of the Act prepare its statement of Profit & Loss Account for the relevant previous year in accordance with the provisions of Schedule III to the Companies Act, 2013. Thus, for the purpose of Section 115JB of the Act the book profit shall be computed by taking the profit as per Profit & Loss Account prepared in accordance with the provision of Schedule III to the Companies Act, 2013.

The Tribunal further observed that in the assessee’s case the loss as per Profit & Loss Account prepared in accordance with the provisions of Schedule III to the Companies Act, was more, however, the CPC while computing the book profit u/s 115JB of the Act adopted the loss as per Profit & Loss Account prepared for the purpose of Income tax, while arriving at the book profits u/s 115JB of the Act which is not permissible under law.

Accordingly, the Tribunal held that the direction given by the CIT(A) to adopt loss as per Profit & loss Account prepared under the Schedule III of Companies Act for the purpose of MAT calculation u/s 115JB of the Act was in accordance with the provisions of 115JB(2) of the Act. The same was sustained.

As a result, appeal of the Revenue was dismissed.

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