Section 115JB – When income which is exempt u/s 10 is credited to Profit & Loss Account, the Book Profit u/s 115JB is to be computed by reducing the amount of such income to which section 10 applies

8. [2020] 120 taxmann.com 31 (Del.)(Trib.) ITO vs. Buniyad Developers (P) Ltd. A.Y.: 2009-10 Date of order: 21^st September,
2020

Section 115JB – When income which is exempt
u/s 10 is credited to Profit & Loss Account, the  Book Profit u/s 115JB is to be computed by
reducing the amount of such income to which section 10 applies

FACTS

For the assessment
year 2009-10, the assessee company filed its return of income on 30^th
September, 2009 declaring Nil income but paid tax on book profits u/s 115JB at
Rs. 5,73,70,009. The return was processed u/s 143(1). The A.O., in the course
of assessment proceedings for A.Y. 2010-11, having noticed that the lands were
sold in part and that there has been no income declared in respect of its profits
of Rs. 5,58,61,180 earned on sale of land, issued notice u/s 148 and, after
hearing the assessee, made an addition of Rs. 5,41,38,217 with interest income
of Rs. 21,90,212.

Aggrieved, the
assessee preferred an appeal to the CIT(A) who, taking note of the remand
assessment in A.Y. 2010-11, found that since the village where the land sold
was located was eight km. away from the municipal limits, the very basis of the
A.O. reopening the assessment proceedings for A.Y. 2009-10 has no locus
standi as the A.O. has himself in the remand assessment for A.Y. 2010-11
admitted the said fact. He, therefore, allowed the contention of the assessee
on that ground. He also accepted the contention of the assessee that under the
provisions of section 115JB(2)(k)(ii), the profits derived from sale of
agricultural land, which is exempt u/s 10, has to be reduced from the book
profits and, therefore, the assessee is entitled to relief even in respect of
the amount that was offered to tax. He directed the A.O. to compute the tax in
accordance with law by reducing the amount of income to which provisions of
section 10 of the Act apply, if the said amount is credited to the profit and
loss account.

Aggrieved, the
Revenue preferred an appeal to the Tribunal.

HELD

The Tribunal observed that it is an admitted fact that the land that
was sold was located in village Kishora, which is more than eight km. away from
the municipal limits and the profits earned on the sale of such land are exempt
u/s 10. It noted that in view of the provisions of section 115JB(2)(k)(ii),
the assessee committed a mistake when it computed the book profits including
the sale consideration of agricultural land, which was credited to the profit
and loss account and offered the same to tax.

The Tribunal held that

i)   in view of the decision of
the Supreme Court in the case of CIT vs. Shelly Products (2003) 129
Taxman 271, such a mistake has to be rectified by the Revenue
authorities when it is brought to their notice and they are satisfied with the
genuineness of the claim;

ii)   when the CIT(A) is satisfied
that the income which is exempt u/s 10 is included in the book profit u/s
115JB, which should not be done, the CIT(A) is justified in directing the A.O.
to follow the law and to compute the tax in accordance with the provisions of
section 115JB by reducing the amount of income to which section 10 applies, if
such amount is credited to the profit and loss account.

iii)  the action of the CIT(A) is
perfectly legal and does not suffer any infirmity.

The Tribunal declined to interfere with the findings of the CIT(A) and
found the appeal of the Revenue to be devoid of merit.