January 2023

No adjustment can be made u/s 115JB in respect of interest on income-tax refund, which as per consistent practice, was not credited to the profit & loss account but was reduced from advance income-tax paid under 'loans and advances'

Jagdish Punjabi, Chartered Accountant
Devendra Jain, Advocate

46. Reliance Industries Ltd. vs. ACIT
[2022] 143 taxmann.com 194 (Mumbai - Trib.)
A.Y.: 2016-17
Date of order: 14th October, 2022
Sections: 244A, 115JB

No adjustment can be made u/s 115JB in respect of interest on income-tax refund, which as per consistent practice, was not credited to the profit & loss account but was reduced from advance income-tax paid under 'loans and advances'.

FACTS


For the year under consideration, the assessee, in its return, offered interest income on an income tax refund of Rs. 266,45,06,765, following the Special Bench decision in Avada Trading Company (Pvt) Ltd vs. ACIT (100 ITD 131). The interest income on the income tax refund was revised to Rs. 265,38,24,122 due to orders passed subsequently.

During the assessment proceedings, the assessee was asked to show cause as to why interest on income tax refund ought not to be added to book profit u/s 115JB of the Act. In reply, the assessee submitted that there was no certainty with the quantum of interest on income tax refund, as the assessee as well as the Department are in appeal on multiple issues before the appellate forums. Thus, no finality has been reached with respect to the assessment. Therefore, interest on the income tax refund was not credited to the profit and loss account as per the policy consistently followed by the assessee. The assessee further submitted that, once the financial statements have been prepared under the Companies Act following the accounting policies and accounting standards, the book profit needs to be computed as per the profit and loss account since the financial statements cannot thereafter be altered for making adjustments.

The AO disagreed with the submissions of the assessee and held that once the income tax refund has been issued,and the same is accounted in the books though not in the profit and loss account directly, the same ought to be considered while working out the book profits as per the provisions of section 115 JB. Accordingly, the interest on income tax refund determined at Rs. 266,45,06,765 was added, inter-alia, for the computation of book profit u/s115 JB.

Aggrieved, the assessee preferred an appeal to CIT(A), who dismissed the appeal filed by the assessee on this issue and held that when the assessee has credited the refund, it should have been credited to the correct account and routed through the profit and loss account.

Aggrieved, the assessee preferred an appeal to the Tribunal contending that any adjustment to book profits can only be made in respect of items provided in Explanation 1 to Section 115JB(1) of the Act.

HELD

The Tribunal noted that the amount of interest on incometax refund has been reduced by the assessee from advance income-tax shown under the head `loans and advancesí. However, while filing the return of income, the said interest has been offered to tax under the

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