Top Stories Capital Subsidy should be reduced for Computation of Book Profit u/s 115JB of Income Tax Act: ITAT [Read Order] ITAT held that the capital subsidy should be reduced for the computation of book profit, as AO accepted the reduction of the subsidy from the written-down value and did not adjust depreciation claimed By Saagarika Gopinath – On November 18, 2024 5:54 pm – 2 mins read

The Nagpur Bench of the Income Tax Appellate Tribunal ( ITAT ) held that capital subsidy should be reduced for computation of book profit under Section 115JB of the Income Tax Act,1961. In this case, during the appeal, the assessee had raised 4 grounds, and one of the main grounds was that the Commissioner of Income Tax ( Appeals ) [ CIT( A ) ] erred in rejecting the additional legal claim of reduction of capital subsidy while computing the income under Section 115JB of the Income Tax Act, 1961. Know Practical Aspects of Tax Planning, Click Here

In this case, the assessee is involved in manufacturing detonators/filled shells, aluminium and copper tubes, and fuse heads. The assessee filed its Income Tax Returns ( ITR ) for the assessment year ( AY ) 2017–18 under Section 139 of the Income Tax Act, 1961 and declared gross total income at Rs. 20,85,63,863, under normal provisions, and Rs. 56,35,18,915, under the normal provisions of Minimum Alternate Tax. During the assessment proceedings, it was observed by the assessing officer ( AO ) that In the ITR filed, the assessee claimed the Sales Tax Subsidy as a capital receipt and deducted it while calculating income under ‘Profit and Gains of Business or Profession.’ However, the book profit under MAT provisions was not similarly reduced.

The Assessing Officer, citing Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 (SC), did not adjust the book profit as it fell outside the scope of items specified in Explanation 1 to section 115JB(2). Additionally, relying on Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC), the officer did not consider the claim since no revised return was filed. The assessee, who was aggrieved by the above order, appealed to the Commissioner of Income Tax ( Appeals ) but it did not yield favourable results, and thus the assessee appealed before the ITAT. Know Practical Aspects of Tax Planning, Click Here

The assesse by relying on the case of CIT v. Shyam Century Ferrous Ltd. (386 ITR 477)  in which the Calcutta High Court while dealing with the question of whether sales tax subsidy shall be treated as part of book profit or not, held that since the reserve was not created by debiting the profit and loss account, the AO had no power to go behind the accounts, and, therefore, the assessing officer erred in adding the amount of excise duty refund subsidy while computing book profit under Section 115JB of the Income Tax Act. The ITAT, comprising of V Durga Rao ( Judicial Memeber ) and K.M. Roy ( Accountant Member ), by relying on several judgements held that the capital subsidy should be reduced for computation of book profit as the AO accepted the reduction of the subsidy from the written down value and did not adjust the depreciation claimed. To Read the full text of the Order