S. 115JB

JSW Steel Limited v ACIT (ITA No.923/Bang/2009 dated 13.01.2017) (Mumbai ITAT) BACKGROUND: – Assessee had availed term loans from various Indian and foreign financial institutions and banks for setting up of integrated steel plants.  The assessee had utilized the above loans to pay the purchase price of the imported plant and machinery for setting up of the Steel plants. The loans were repayable over various maturity dates up to 2010. – After setting up the steel plants, the assessee had incurred huge loss due to economic recession in general and steel industry in particular and was under severe financial crisis. Accordingly, the assessee entered into a financial restructuring package. – After negotiations with the foreign lenders, the assessee entered into agreements to settle the dues, pursuant to which the principal and interest payable were reworked and part of the principal and interest amounts were waived. – Accordingly, the entire sum of was credited to the Profit and Loss account as an exceptional item on account of waiver of the principal and interest payable thereon with a specific note in ‘Notes to Account’ that the exceptional item represents waiver of dues on settlement. – During the course of assessment proceedings, the assessee contended that since the waiver of principal amount of borrowing was utilized on capital account, therefore, it is a capital receipt not taxable while computing the income of the assessee and hence the amount waived has not been offered to tax as per section 41(1). – Further, the assessee by way of a note in the computation gave a caveat that the amount of Rs.314.14 crores which represents capital receipt is not in the nature of profit and gains of business and therefore, is not includable in the book profit under section 115JB. – The Assessing Officer, however, while computing the book profit in the assessment order considered the figure as given in the profit & loss account and did not agree to reduce the aforesaid waiver of dues.

Capital Receipt / Waiver of loan [not chargeable to tax u/s 41(1)] to be excluded ...

Genesys International Corpn. Ltd. v ACIT [ITA No.6903/Mum/2011 dtd 31.10.2012] Mumbai ITAT Background: Assessee has two undertakings, one located at SEEP2, Mumbai which is a SEZ unit and other located at Bangalore which is STPI unit. Both units are eligible for tax benefit under section 10A of the Act. The Finance Act, 2007 amended section 115JB with effect from 2008-09 for bringing the amount of income to which provisions of section 10A or 10B apply within the purview of MAT. Further, provisions of sub-section (6) of Section 115JB of the Act were inserted by Special Economic Zone Act, 2005 (SEZ Act) w.e.f. 10.2.2006 which provides that provisions of MAT would not apply to income from any business carried on by an entrepreneur or a developer in a unit or SEZ, as the case may be. The assessee reduced the income u/s 10A from MAT computation. The AO did not accept said contention of the assessee and held that the scope of Minimum Alternate Tax (MAT) was widened by including the income exempt u/s.10A/10B of the Income tax Act in the book profit. The AO stated that section 115JB(6) is applicable to an assessee claiming deduction under section 10AA of the Act and not an assessee claiming deduction under 10A of the Act. Ld CIT (A) after considering the submissions of assessee has confirmed the action of AO. 

10A & 10B benefit available even under MAT computation (prior to 1.4.2012) – Mum ITAT

Tamil Nadu Cements Corporation Ltd. v JCIT [TC(A). No. 1123 of 2005] (Madras High Court) Background: The assessee during the relevant assessment year deducted prior period expenses of Rs 96,94,693 from book profits while computing MAT under section 115JA. The Assessing Authority viewed that as per the provisions of the Companies Act, prior year adjustments could not be reduced for arriving at the net profit of that particular year. The AO held that the computation done by the assessee was not in accordance with Section 115JA of the Act.

Prior period expenses allowable as a deduction from book profits while computing MAT – Madras ...