By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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Section 115JB: For the purpose of section 115JB, Book profit has to be computed on the basis of net profit as disclosed in Profit & Loss account prepared as per the provisions of part II and part III of schedule VI of the companies Act.
When the accounts are prepared in conformity with the provisions of companies Act and revaluation of assets had been made as per AS-10, no addition could be made to the net profit on account of revaluation reserves directly taken to balance sheet while computing book profit.
Facts:
Assessee during the year sold its premises for Rs.96 lakh. The value of the premises in the books before revaluation was Rs. 3.29 lakh. Before sale, assessee revalued the premises at Rs. 97.44 lakh through a registered valuer and credited Rs.94.14 lakh to revaluation reserve to the balance sheet. Subsequently, assessee debited loss of Rs.1.44 lakh to Profit and loss account.
However, AO rejected the claim of the assessee on the premise that the assessee had adopted the above devise to avoid tax by revaluing property in the year of transfer and added Rs. 92.70 lakh to book profit.
Aggrieved by the order of AO, the assessee filed an appeal before CIT(A) that book profits had been computed on the basis of provisions of Companies Act and revaluation is done as per AS-10. Hence, AO did not have any power to make changes on such accounts. CIT(A) upheld the claim of the assessee and deleted the adjustment made by the AO, aggrieved by which the revenue filed appeal before Tribunal.
Held:
As per explanation 1 to section 115JB(2), amount carried to any reserve has to be added to the net profit, if the amount had been debited to the profit and loss account.
In the instant case, revaluation reserve was directly taken to balance sheet and not routed through profit and loss account. Therefore, the amount could not be added to book profit.
Revaluation of premises was done in conformity with AS-10 and also certified by a registered valuer. The above revaluation was also accepted by the department. Hence, argument of the dept. that it was colourable devise to avoid tax is rejected.
No addition could be made to net profit on account of revaluation reserve directly taken to balance sheet for computing book profit.
Hence, the appeal of the revenue is dismissed.
