VARUN COPORATION LTD, MUMBAI V. ITO 2(3)(4), MUMBAI

ITA 2825/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4056 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M DAYASAGAR
• Keywords: Capital asset; Depreciation; Unabsorbed depreciation
• Section: 143(3); 115JB; 139

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.2825/MUM/2013 ASSESSMENT YEAR:2009-10 VARUN CORPORATION LIMITED, LAXMI BUILDING, 6, SHOORJI VALLABHADAS MARG, BALLARD ESTATE, MUMBAI-400001 / VS. ITO WARD-2(3)(4), ROOM NO.555, AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI-400020 ( /ASSESSEE) ( ! / REVENUE) PAN. NO . AAACK1582A / ASSESSEE BY SHRI NITESH JOSHI ! / REVENUE BY SHRI M. DAYASAGAR ' !# $ % / DATE OF HEARING : 13/04/2016 $ % / DATE OF ORDER: 22/04/2016 ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 13/03/2013 OF THE FIRST APPELLATE AUTHORITY, MUMBAI , ON THE GROUNDS MENTIONED IN THE GROUNDS OF APPEAL. 2. DURING HEARING OF THIS APPEAL, SO FAR AS, THE F IRST GROUND IS CONCERNED, SHRI NITESH JOSHI, LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT IT IS GENERAL IN NATURE, TH EREFORE, REQUIRES NO ADJUDICATION, CONSEQUENTLY, DISMISSED B EING GENERAL IN NATURE. 3. SO FAR AS, GROUNDS NUMBER 3 & 4 ARE CONCERNED, THE LD. COUNSEL CLAIMED THAT THERE GROUNDS WERE NOT ADJ UDICATED BY THE FIRST APPELLATE AUTHORITY, THEREFORE, IT WAS PLEADED THAT THERE GROUNDS MAY BE SENT TO THE FILE OF THE COMMISSIONER OF INCOME TAX (APPEAL) FOR ADJUDICATIO N. THE LD. DR, SHRI M. DAYASAGAR, DID NOT CONTROVERT THE FACTUAL MATRIX, THUS, CONSIDERING THE TOTALITY OF FACTS AND THE FACTUAL MATRIX THAT BOTH THESE GROUNDS WERE RAISED BY THE A SSESSEE BEFORE THE LD. CIT(A), ARGUMENTS ADVANCED FROM BOT H SIDES, BOTH THESE GROUNDS ARE SENT TO THE FILE OF THE COMM ISSIONER OF INCOME TAX (APPEAL) FOR FRESH ADJUDICATION ON MERIT IN ACCORDANCE WITH LAW. THE ASSESSEE BE GIVEN OPPORTUN ITY OF BEING HEARD WITH FURTHER LIBERTY TO FURNISH EVIDENC E, IF ANY, IN ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 3 SUPPORT OF ITS CLAIM, THUS, BOTH THESE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES ONLY. 4. THE ONLY GROUND REMAINED FOR ADJUDICATION BY TH IS TRIBUNAL AND AGITATED/ARGUED BY THE ASSESSEE IS GRO UND NUMBER 2, WHICH IS WITH RESPECT TO ALLOWABILITY OF LOSS ON DEMERGER IN THE COMPUTATION OF BOOK PROFIT U/S 115J B OF THE ACT. THE CRUX OF ARGUMENTS ADVANCED ON BEHALF OF TH E ASSESSEE IS THAT THERE ARE VARIOUS DIVISIONS AND ON E OF THEM IS THE RESORTS DIVISION HAVING ASSET AND LIABILITIE S. BY VIRTUE OF DEMERGER, ALL THE ASSET AND LIABILITIES WERE TRANSF ERRED AND SHARES OF KHATAU RESORT WERE ISSUED AS PER SCHEME A ND SINCE THE ASSET AND LIABILITIES WERE TRANSFERRED LOSS RES ULTED INTO OF RS.145.23 CRORES, WHICH WAS DEBITED TO PROFIT AND L OSS ACCOUNT AS EXTRA ORDINARY ITEM. THE CONTENTION OF THE LD. ASSESSING OFFICER THAT THIS LOSS CANNOT BE ALLOWED, BEING NOT A REAL LOSS WAS CHALLENGED BY THE ASSESSEE. OUR ATTE NTION WAS INVITED TO PAPER BOOK PAGE 32 CONTAINING THE SCHEME , PAGE 37- CLAUSE 1.9, PAGE 40 PARA 4.1, PAGE 43 PARA 6, P AGE 44 PARA 7. THE LD. COUNSEL ALSO INVITED OUR ATTENTION TO THE ORDER DATED 19/09/2008 OF THE HONBLE HIGH COURT AVAILABL E AT PAGE-32, PAGE 33 OF THE PAPER BOOK AND ALSO PAGE 5 CONTAINING PROFIT & LOSS ACCOUNT. IT WAS ALSO CLAIM ED THAT THE CASE OF THE ASSESSEE IS COVERED BY THE DECISION FRO M HONBLE CALCUTTA HIGH COURT (ITA NO. 7 OF 2004). OUR ATTENT ION WAS FURTHER INVITED TO THE LANGUAGE CONTAINED IN SECTIO N 115JB OF THE ACT, ITA NO.5810/MUM/2008; 45 SOT 399 AND DECIS ION ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 4 FROM HONBLE BOMBAY HIGH COURT IN CIT VS VEEKAYAL INVESTMENT CO. PVT. LTD. & ORS (249 ITR 597) (BOM. ) ORDER DATED 08/02/2001. FURTHER RELIANCE WAS PLACED UPON THE DECISION IN RAIN COMMODITY 40 SOT 265 (SPECIAL BENC H). IT WAS ALSO EXPLAINED THAT THE ACCOUNTING TREATMENT (P AGE 44 OF THE PAPER BOOK) HAS BEEN AFFIRMED BY HONBLE HIGH C OURT AND THE DEPARTMENT HAS NOT DOUBTED THE CREDIBILITY OF T HE ACCOUNTING TREATMENT. 4.1. ON THE OTHER HAND, THE LD. DR CONTENDED THAT THE COMPUTATION OF INCOME IS NOT AS PER SCHEDULE, THERE FORE, THE ADDITION WAS RIGHTLY MADE. SO FAR AS, THE CASES REL IED UPON BY THE ASSESSEE IS CONCERNED, THE LD. DR CONTENDED THA T THESE ARE ON DIFFERENT FACTS. THE CRUX OF ARGUMENT IS IN SUPPORT TO THE ASSESSMENT ORDER AS WELL AS THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL) BY CONTENDING T HAT IT WAS NOT A REAL LOSS BUT NOTIONAL. 4.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT TILL 04/01/2009, THE ASSESSEE WAS NAMED AS KHATAU INTERNATIONAL LTD AND WAS CARRYING ON ITS BUSINESS ACTIVITIES THROUGH THREE DIVISIONS NAMELY (1) RESORT DIVISION (2) TRAVEL DIVISION AND (3) INVESTMENT DIVISION. UNDER THE RE SORT DIVISION, THE ASSESSEE WAS RUNNING A RESORT NAMELY INFINITY RESORT AT CORBETT, RAMNAGAR. WITH EFFECT FROM 15/0 7/2008, THE ASSESSEE DEMERGED ITS RESORT DIVISION (REFERRED TO IN THE ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 5 SCHEME AS HOSPITALITY UNDERTAKING) TO A COMPANY NAM ELY KHATAU RESORTS PVT. LTD. IN ACCORDANCE WITH SECTI ON 391 TO 394 OF THE COMPANIES ACT, 1956. THE DEMERGED SCHEM E WAS APPROVED BY HONBLE JURISDICTIONAL HIGH COURT ON 19/09/2008, PURSUANT TO DEMERGER, THE ASSESSEE TRAN SFERRED ITS RESORT DIVISION ALONGWITH ALL ASSET AND LIABILI TIES EXCEPT REMAINING BUSINESS. AS PART OF REMAINING BUSINESS, IN INTER- ALIA RETAINED CERTAIN INVESTMENTS IN SHARES OF COMP ANIES AND BORROWINGS FROM FINANCIAL INSTITUTION (REMAINING BU SINESS IS DEFINED IN CLAUSE 1.9 OF THE SCHEME)(PAGES 37-38 OF THE PAPER BOOK). THE SCHEME IS APPROVED ALSO MANDATED THE FAC T TO BE GIVEN IN THE ACCOUNT OF BOTH THE DEMERGE COMPANY AN D RESULTANT COMPANY TO THE TERMS OF THE SCHEME. AS P ER PARAGRAPH 7 OF THE SCHEME, THE ASSESSEE REDUCED THE BOOK VALUE OF ALL THE ASSET AND LIABILITIES RELATING TO THE HOSPITALITY UNDERTAKING FROM ITS BOOKS OF ACCOUNTS. THE DIFFER ENCE BEING THE EXCESS OF THE BOOK VALUE OF THE ASSETS TRANSFER RED OVER THE BOOK VALUE OF THE LIABILITIES TRANSFERRED WAS TO BE ADJUSTED BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT (PAGE 44, PARA 7 OF THE PAPER BOOK). THE HONBLE HIGH COURT WHILE APPRO VING THE SCHEME HAS OBSERVED (PARA-5 & 6, PAGE 33 OF THE PAP ER BOOK) AS UNDER:- 5. UPON PERUSAL OF THE ENTIRE MATERIAL PLACED ON R ECORDS, THE SCHEME APPEARS TO BE FAIR AND REASONABLE AND IS NOT VIOLATIVE OF ANY PROVISIONS OF LAW AND IS NOT CONTRARY TO ANY PU BLIC POLICY. ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 6 NONE OF THE PARTIES CONCERNED HAS COME FORWARD TO O PPOSE THE SCHEME. MOREOVER, THE REGIONAL DIRECTOR HAS STATED THAT THE SCHEME AS PROPOSED IS NOT PREJUDICIAL TO THE INTERE ST OF SHAREHOLDERS, CREDITORS AND THE PUBLIC. 6. THERE IS NO OBJECTION TO THE SCHEME AND SINCE AL L THE REQUISITE STATUTORY COMPLIANCES HAVE BEEN FULFILLED , COMPANY PETITION NO.718 OF 2008 FILED BY THE RESULTING COMP ANY ARE MADE ABSOLUTE IN TERMS OF PRAYER CLAUSES (A) TO (C) OF T HE RESPECTIVE PETITIONS. IN THE AFORESAID OBSERVATION, THE HONBLE HIGH COU RT HAS CLEARLY OBSERVED THAT THE ASSESSEE HAS NOT VIOLATED ANY PROVISIONS OF THE LAW AND SUCH THE SCHEME WAS NEVER OPPOSED BY EITHER PARTY. IT HAS BEEN FURTHER OBSERV ED THAT THE REQUISITE STATUTORY COMPLIANCE HAS BEEN MADE. 4.3. THE ASSESSEE IN ITS ANNUAL ACCOUNTS, PREPARED FOR YEAR ENDING 31/03/2009, INTER-ALIA, DEBITED LOSS OF RS.145,23,56,165/-, WHICH AROSE ON TRANSFER OF ASSE T ON DEMERGER. THIS LOSS WAS DULY DISCLOSED BY THE ASSES SEE AS EXTRAORDINARY ITEM IN ITS PROFIT & LOSS ACCOUNT. TH IS LOSS WAS ARRIVED AT BY REDUCING FROM THE BOOK VALUE OF THE A SSET TRANSFERRED TO THE TUNE OF RS.146,93,56,165/-. THE BOOK VALUE OF THE LIABILITIES TRANSFERRED OF RS.1,70,00, 000/- AND THE TREATMENT, GIVEN BY THE ASSESSEE, TO THE LOSS ARISI NG ON DEMERGER IS IN ACCORDANCE WITH PART II AND III OF S CHEDULE VI ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 7 OF THE COMPANIES ACT AS WELL AS ACCOUNTING STANDARD 5 DEALING WITH NET PROFIT OR LOSS FOR THE PERIOD PRI OR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES ISSUED BY ICAI. 4.4. ON 05/01/2010, THE ASSESSEE DECLARED NIL INCO ME (ASSESSMENT YEAR 2009-10), IN REGULAR COMPUTATION O F INCOME AND LOSS OF RS.64,21,12,555/- WAS COMPUTED U/S 115J B OF THE ACT (PAGE 1 & 2 OF THE PAPER BOOK). THIS COMPUT ATION OF INCOME WAS BASED ON THE ANNUAL ACCOUNTS PREPARED FO R THE YEAR ENDING 31/03/2009, WHICH WERE AUDITED BY ITS S TATUTORY AUDITORS AND APPROVED BY THE SHAREHOLDERS (AUDIT RE PORT IS AVAILABLE AT PAGES 131 AND 132 OF THE PAPER BOOK). IN AUDITORS REPORT (CLAUSE 1.4 AND 1.12) , IT HAS BEE N MENTIONED AS UNDER:- 1.4. THE COMPANY HAS TAKEN COST OF INVESTMENTS SOL D DURING THE PERIOD OF FIRST IN THE FIRST OUT BASIS INSTEAD OF AVERAGE COST BASIS AS MENTIONED IN PARA 22 OF ACCOUNTING STANDAR D 13 ACCOUNTING FOR INVESTMENTS ISSUED BY THE INSTITUT E OF CHARTERED ACCOUNTANTS OF INDIA. XXXXXXXXXXXXXXXX 1.12. IN OUR OPINION AND TO THE BEST OF OUR INFORMA TION AND ACCORDING TO THE EXPLANATIONS GIVEN TO US, THE SAID ACCOUNTS READ TOGETHER WITH THE NOTES THEREON IN SCHEDULE U , GIVE THE INFORMATION REQUIRED BY THE COMPANIES ACT, 1956, IN THE MANNER SO REQUIRED AND SUBJECT TO COMMENTS MADE IN ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 8 PARAGRAPHS 1.4 & 1.5 ABOVE, GIVE A TRUE AND FAIR VI EW IN CONFORMITY WITH THE ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDIA. THE AUDITORS HAVE ACCEPTED THE BOOK TREATMENT IN RE SPECT OF LOSS ARISING ON ACCOUNT OF DEMERGER. THOUGH THE AUD ITORS HAVE QUALIFIED THE ANNUAL ACCOUNTS IN RESPECT OF ANOTHER ISSUE, WHERE ACCORDING TO THEM, A LESSER LOSS HAS BEEN BOO KED ON ACCOUNT OF SALE OF INVESTMENT TO THE EXTENT OF RS.3 8.75 CRORES BUT THERE IS NO QUALIFICATION/RESERVATION WITH RESP ECT TO THE ISSUE UNDER CONSIDERATION. 4.5. THE LD. ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT U/S 143(3) ON 28/12/2011, ACCEPTED THE I NCOME AT NIL, AS PER REGULAR COMPUTATION OF INCOME, HOWEV ER, ON COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT, TH E LD. ASSESSING OFFICER STARTED WITH THE NET PROFIT AS RE FLECTED IN THE PROFIT & LOSS ACCOUNT OF RS.78,37,68,201/- I.E. SUC H PROFIT BEFORE PROVISIONS OF FRINGE BENEFIT TAX, PRIOR PERI OD ADJUSTMENT AND EXTRAORDINARY ADJUSTMENT. HOWEVER, THE CLAIM OF THE ASSESSEE IS THAT SUCH COMPUTATION SHOULD START WITH NET LOSS OF RS.66,86,13,773/-, BEING THE LOSS AS SHOWN IN TH E PROFIT & LOSS ACCOUNT AFTER EXTRAORDINARY ADJUSTMENT. THE ST AND OF THE LD. ASSESSING OFFICER IS THAT SUCH LOSS COULD NOT B E DEBITED TO THE PROFIT & LOSS ACCOUNT AND OUGHT TO HAVE BEEN AD JUSTED AGAINST THE RESERVES OF THE ASSESSEE COMPANY. HE AL SO OBSERVED THAT THE ACCOUNTING TREATMENT IS NOT ACCOR DANCE WITH ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 9 PART II AND III OF SCHEDULE VI OF THE COMPANIES ACT , 1956. HE ALSO OBSERVED THAT THE ASSESSEE DID NOT TRANSFER CE RTAIN LIABILITIES BY WAY OF BORROWINGS FROM FINANCIAL INS TITUTIONS. 4.6. ON APPEAL, BEFORE THE FIRST APPELLATE AUTHORI TY, THE ADJUSTMENT TO BOOK PROFIT, AS COMPUTED BY THE ASSES SING OFFICER U/S 115JB OF THE ACT, WAS UPHELD. ACCORDING TO THE COMMISSIONER OF INCOME TAX (APPEAL), THE AMOUNT OF PROFIT/LOSS, IN THE PROFIT & LOSS ACCOUNT WAS REFLE CTED AT FIVE DIFFERENT PLACED IN PROFIT & LOSS ACCOUNT OF WHICH FOUR OF THEM WERE CORRECTLY MENTIONED. HOWEVER, WITH RESPECT TO THE 5 TH AMOUNT/LOSS OF RS.66,86,13,773/-, AS TAKEN BY THE A SSESSEE, THE STARTING POINT FOR COMPUTATION OF BOOK PROFIT W AS HELD TO BE NOT CORRECT. HE ALSO OBSERVED THAT SCHEME OF ARR ANGEMENT WAS BETWEEN KHATAU INTERNATIONAL LTD. AND KHATAU RE SORTS LTD. TO WHICH THE ASSESSEE WAS NOT A PARTY. IT WAS FURTHER OBSERVED THAT THE TRANSACTION OF DEMERGER DID NOT R ESULT IN ANY PROFIT OR LOSS TO THE ASSESSEE AS IT WAS AN ARR ANGEMENT BETWEEN SHARE HOLDER AND THE SHARE HOLDERS OF THE D EMERGE COMPANY HAD RECEIVED SHARES OF THE RESULTING COMPAN Y. 4.7. BEFORE THIS TRIBUNAL, THE CLAIM OF THE ASSESS EE IS THAT THE STARTING POINT FOR COMPUTATION OF BOOK PROFIT U /S 115JB OF THE ACT IS THE NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR. IN THE PRESENT CASE , THE AMOUNT OF LOSS IS RS.66,86,13,773/-(PROFIT & LOSS ACCOUNT IS AVAILABLE AT PAGE-5 OF THE PAPER BOOK). WHICH IS TABULATED AS UNDER:- ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 10 PARTICULARS SCHEDULE 2008-09 RUPEES 2007-08 RUPEES INCOME ROOMS RESTAURANTS, FOOD & BEVERAGES & OTHER SERVICES M 8,670945 22,760,658 SALE OF TICKETS& HANDLING CHARGED N 116,359,550 190,151,213 OTHER INCOME O 1,197,443,801 181,570,754 1,322,474,296 394,482,624 EXPENDITURE FOOD & BEVERAGES AND SHOP ITEMS P 1,061,550 3,216,0 37 OTHER PURCHASES Q 111,279,448 186,862,939 OPERATING EXPENSES R 4,192,844, 17,477,036 ADMINISTRATION, SELLING & ESTABLISHMENT EXPENSES S 170,540,166 14,214,946 INTEREST & FINANCE CHARGES T 250,818,950 91,407,894 DEPRECIATION 643,154 2,204,695 SHARE OF LOSS FROM PARTNERSHIP FIRM M/S INTERNATIONAL PARTNERS & CO. 27 2 SHARE ISSUE EXPENSES WRITTEN OFF 42,564 42,564 LOSS ON SALE OF ASSETS --- 338,558, LOSS ON REDEMPTION OF UNITS 110,116 -- ASSETS WRITTEN OFF (NET) 17,276 --- 538,706,095 315,764,670 PROFIT/LOSS BEFORE TAX 783,768,201 78,717,954 PROFIT FROM CONTINUING OPERATIONS BEFORE TAX 781,850,454 ----- LESS:-CURRENT YEAR INCOME TAX ------ ----- PROFIT FROM CONTINUING OPERATIONS AFTER INCOME TAX 781,850,454 ----- PROFIT FROM DISCONTINUED OPERATIONS BEFORE TAX 1,917,747 ---- LESS:-CURRENT YEAR INCOME TAX ------ ----- PROFIT FROM DISCONTINUED OPERATIONS AFTER INCOME TAX ( REFER NOTES TO ACCOUNTS NOTE 2.15 ) 1,917,747 -------- PROFIT/LOSS FROM OPERATING ACTIVITIES AFTER INCOME TAX 783,768,201 ----- LESS: PROVISION FOR FRINGE BENEFIT TAX 25,000 90,0 00 PROFIT/LOSS BEFORE EXTRAORDINARY ITEMS AND OTHER ADJUSTMENTS 783,743,201 78,618,954 ADD/LESS: PRIOR TO PERIOD ADJUSTMENTS (809) 47,648 LOSS OR TRANSFER OF ASSETS ON DEMERGER 1,452,356,165 ----- PROFIT/LOSS AFTER EXTRAORDINARY ITEMS AND OTHER ADJUSTMENTS 668,613,773 78,571,306 ADD/LESS: BALANCE OF PROFIT/(LOSS) BROUGHT FORWARD FROM PREVIOUS YEAR 343,700,578 265,129,272 BALANCE PROFIT(LOSS) CARRIED TO BALANCE SHEET 324,913,195 343,700,578 ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 11 IF THE AFORESAID TABLE IS ANALYZED, THERE COULD BE ONLY NET PROFIT WHICH IS THE LAST ENTRY, AS APPEARING IN THE SAID A CCOUNT. THERE IS NO CONCEPT LIKE MULTIPLE PROFITS IN THE PR OFIT & LOSS ACCOUNT. THE ASSESSEE BY WAY OF DEBIT OF LOSS ARISI NG ON DEMERGER OF RS.145,23,56,165/- TO THE PROFIT & LOSS ACCOUNT AS AN EXTRAORDINARY ADJUSTMENT IN ACCORDANCE WITH P ART II TO SCHEDULE VI OF THE COMPANIES ACT AS WELL AS ACCOUNT ING STANDARD 5. THIS TREATMENT HAS ALSO BEEN ACCEPTED B Y THE STATUTORY AUDITORS, THE REGISTRAR OF THE COMPANIES AND IT SHARE HOLDERS. 4.8. NOW, WE SHALL ANALYZE SECTION 115JB(2) OF THE ACT ALONG WITH EXPLANATION-1. 115JB. (1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, WHERE IN THE CASE OF AN ASSESSEE, BEING A COMP ANY, THE INCOME-TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMME NCING ON OR AFTER THE 1ST DAY OF APRIL, 2012, IS LESS THAN EIGHTEEN AND ONE-H ALF PER CENT OF ITS BOOK PROFIT, SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL I NCOME SHALL BE THE AMOUNT OF INCOME-TAX AT THE RATE OF EIGHTEEN AND ONE-HALF PER CENT. (2) EVERY ASSESSEE, (A) BEING A COMPANY, OTHER THAN A COMPANY REFERRED TO IN CLAUSE (B), SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AN D LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVI SIONS OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956); OR (B) BEING A COMPANY, TO WHICH THE PROVISO TO SUB-SE CTION (2) OF SECTION 211 OF THE COMPANIES ACT, 1956 (1 OF 1956) IS APPLICABLE, SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT F OR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF THE ACT G OVERNING SUCH COMPANY: ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 12 PROVIDED THAT WHILE PREPARING THE ANNUAL ACCOUNTS I NCLUDING PROFIT AND LOSS ACCOUNT, (I) THE ACCOUNTING POLICIES; (II) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARIN G SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURP OSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE P ROVISIONS OF SECTION 210 OF THE COMPANIES ACT, 1956 (1 OF 1956) : PROVIDED FURTHER THAT WHERE THE COMPANY HAS ADOPTED OR ADOPTS THE FINANCIAL YEAR UNDER THE COMPANIES ACT, 1956 (1 OF 1956), WHICH IS DIFFERENT FROM THE PREVIOUS YEAR UNDER THIS ACT, (I) THE ACCOUNTING POLICIES; (II) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARIN G SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, SHALL CORRESPOND TO THE ACCOUNTING POLICIES, ACCOUN TING STANDARDS AND THE METHOD AND RATES FOR CALCULATING THE DEPRECIATION W HICH HAVE BEEN ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LO SS ACCOUNT FOR SUCH FINANCIAL YEAR OR PART OF SUCH FINANCIAL YEAR FALLI NG WITHIN THE RELEVANT PREVIOUS YEAR. EXPLANATION 1.FOR THE PURPOSES OF THIS SECTION, 'B OOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS INCREASED B Y (A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AND THE PROVISION THEREFOR; OR (B) THE AMOUNTS CARRIED TO ANY RESERVES, BY WHATEV ER NAME CALLED, OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC; OR (C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; OR (D) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF S UBSIDIARY COMPANIES; OR (E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PRO POSED ; OR (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAIN ED IN CLAUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 APPLY; OR FOLLOWING CLAUSES (FA), (FB) AND (FC) SHALL BE INSE RTED AFTER CLAUSE (F) IN EXPLANATION 1 BELOW SUB-SECTION (2) OF SECTION 1 15JB BY THE FINANCE ACT, 2015, W.E.F. 1-4-2016 : (FA) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO, INCOME, BEING SHARE OF THE ASSESSEE IN THE INCOME OF AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS, ON WHICH NO INCOME-TAX IS PAYABLE IN ACCORDANCE WITH T HE PROVISIONS OF SECTION 86; OR ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 13 (FB) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO INCOME ACCRUING OR ARISING TO AN ASSESSEE, BEING A FOREIGN COMPANY, FR OM, (A) THE CAPITAL GAINS ARISING ON TRANSACTIONS IN S ECURITIES; OR (B) THE INTEREST, ROYALTY OR FEES FOR TECHNICAL SE RVICES CHARGEABLE TO TAX AT THE RATE OR RATES SPECIFIED IN CHAPTER XII, IF THE INCOME-TAX PAYABLE THEREON IN ACCORDANCE WIT H THE PROVISIONS OF THIS ACT, OTHER THAN THE PROVISIONS OF THIS CHAPTER, IT IS A RATE LESS THAN THE RATE SPECIFIED IN SUB-SECTION (1); OR (FC) THE AMOUNT REPRESENTING NOTIONAL LOSS ON TRANS FER OF A CAPITAL ASSET, BEING SHARE OR A SPECIAL PURPOSE VEHICLE TO A BUSINESS TR UST IN EXCHANGE OF UNITS ALLOTTED BY THE TRUST REFERRED TO IN CLAUSE (XVII) OF SECTION 47 OR THE AMOUNT REPRESENTING NOTIONAL LOSS RESULTING FROM ANY CHANG E IN CARRYING AMOUNT OF SAID UNITS OR THE AMOUNT OF LOSS ON TRANSFER OF UNI TS REFERRED TO IN CLAUSE (XVII) OFSECTION 47; OR (G) THE AMOUNT OF DEPRECIATION, (H) THE AMOUNT OF DEFERRED TAX AND THE PROVISION T HEREFOR, (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION F OR DIMINUTION IN THE VALUE OF ANY ASSET, (J) THE AMOUNT STANDING IN REVALUATION RESERVE REL ATING TO REVALUED ASSET ON THE RETIREMENT OR DISPOSAL OF SUCH ASSET, FOLLOWING CLAUSE (K) SHALL BE INSERTED AFTER CLAUSE (J) IN EXPLANATION 1 BELOW SUB-SECTION (2) OF SECTION 115JB BY THE FIN ANCE ACT, 2015, W.E.F. 1- 4-2016 : (K) THE AMOUNT OF GAIN ON TRANSFER OF UNITS REFERR ED TO IN CLAUSE (XVII) OF SECTION 47 COMPUTED BY TAKING INTO ACCOUNT THE COST OF THE SHARES EXCHANGED WITH UNITS REFERRED TO IN THE SAID CLAUSE OR THE CARRYIN G AMOUNT OF THE SHARES AT THE TIME OF EXCHANGE WHERE SUCH SHARES ARE CARRIED AT A VALUE OTHER THAN THE COST THROUGH PROFIT OR LOSS ACCOUNT, AS THE CASE MAY BE; IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (I) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT OR IF ANY AMOUNT REFERRED TO IN CLAUSE (J) IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT, AND AS REDUCED BY, (I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVI SION (EXCLUDING A RESERVE CREATED BEFORE THE 1ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO AN ASSESSE E IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMME NCING ON OR AFTER THE 1ST DAY OF APRIL, 1997 SHALL NOT BE REDUCED FROM THE BO OK PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RES ERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXPLANATION BELOW THE SECOND PR OVISO TO SECTION 115JA, AS THE CASE MAY BE; OR ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 14 (II) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROV ISIONS OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 APPLY, IF ANY SUCH AMOUNT IS CREDITED TO THE PRO FIT AND LOSS ACCOUNT; OR (IIA) THE AMOUNT OF DEPRECIATION DEBITED TO THE PRO FIT AND LOSS ACCOUNT (EXCLUDING THE DEPRECIATION ON ACCOUNT OF REVALUATION OF ASSET S); OR (IIB) THE AMOUNT WITHDRAWN FROM REVALUATION RESERVE AND CREDITED TO THE PROFIT AND LOSS ACCOUNT, TO THE EXTENT IT DOES NOT EXCEED THE AMOUNT OF DEPRECIATION ON ACCOUNT OF REVALUATION OF ASSETS REFERRED TO IN CLA USE (IIA); OR FOLLOWING CLAUSES (IIC), (IID), (IIE) AND (IIF) SHA LL BE INSERTED AFTER CLAUSE (IIB) IN EXPLANATION 1 BELOW SUB-SECTION (2) OF SEC TION 115JB BY THE FINANCE ACT, 2015, W.E.F. 1-4-2016 : (IIC) THE AMOUNT OF INCOME, BEING THE SHARE OF THE ASSESSEE IN THE INCOME OF AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS, ON W HICH NO INCOME-TAX IS PAYABLE IN ACCORDANCE WITH THE PROVISIONS OFSECTION 86, IF ANY, SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR (IID) THE AMOUNT OF INCOME ACCRUING OR ARISING TO A SSESSEE, BEING A FOREIGN COMPANY, FROM, (A) THE CAPITAL GAINS ARISING ON TRANSACTIONS IN SECURITIES; OR (B) THE INTEREST, ROYALTY OR FEES FOR TECHNICAL S ERVICES CHARGEABLE TO TAX AT THE RATE OR RATES SPECIFIED IN CHAPTER XII, IF SUCH INCOME IS CREDITED TO THE PROFIT AND LOSS A CCOUNT AND THE INCOME-TAX PAYABLE THEREON IN ACCORDANCE WITH THE PROVISIONS O F THIS ACT, OTHER THAN THE PROVISIONS OF THIS CHAPTER, IS AT A RATE LESS THAN THE RATE SPECIFIED IN SUB- SECTION (1); OR (IIE) THE AMOUNT REPRESENTING, (A) NOTIONAL GAIN ON TRANSFER OF A CAPITAL ASSET, BEING SHARE OF A SPECIAL PURPOSE VEHICLE TO A BUSINESS TRUST IN EXCHANGE OF UNITS AL LOTTED BY THAT TRUST REFERRED TO IN CLAUSE (XVII) OF SECTION 47; OR (B) NOTIONAL GAIN RESULTING FROM ANY CHANGE IN CAR RYING AMOUNT OF SAID UNITS; OR (C) GAIN ON TRANSFER OF UNITS REFERRED TO IN CLAUS E (XVII) OF SECTION 47, IF ANY, CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR (IIF) THE AMOUNT OF LOSS ON TRANSFER OF UNITS REFER RED TO IN CLAUSE (XVII) OF SECTION 47 COMPUTED BY TAKING INTO ACCOUNT THE COST OF THE SHARES EXCHANGED WITH UNITS REFERRED TO IN THE SAID CLAUSE OR THE CARRYIN G AMOUNT OF THE SHARES AT THE TIME OF EXCHANGE WHERE SUCH SHARES ARE CARRIED AT A VALUE OTHER THAN THE COST THROUGH PROFIT OR LOSS ACCOUNT, AS THE CASE MAY BE; (III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSOR BED DEPRECIATION, WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (A) THE LOSS SHALL NOT INCLUDE DEPRECIATION; (B) THE PROVISIONS OF THIS CLAUSE SHALL NOT APPLY IF THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION IS NIL; OR ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 15 (IV) TO (VI) [***] (VII) THE AMOUNT OF PROFITS OF SICK INDUSTRIAL COMP ANY FOR THE ASSESSMENT YEAR COMMENCING ON AND FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB- SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL CO MPANIES (SPECIAL PROVISIONS) ACT, 1985 (1 OF 1986) AND ENDING WITH T HE ASSESSMENT YEAR DURING WHICH THE ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, 'NET WORTH' SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (GA) OF SUB-SECTIO N (1) OF SECTION 3 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 (1 OF 1986); OR (VIII) THE AMOUNT OF DEFERRED TAX, IF ANY SUCH AMOU NT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT. EXPLANATION 2.FOR THE PURPOSES OF CLAUSE (A) OF EX PLANATION 1, THE AMOUNT OF INCOME-TAX SHALL INCLUDE (I) ANY TAX ON DISTRIBUTED PROFITS UNDER SECTION 115-O OR ON DISTRIBUTED INCOME UNDER SECTION 115R; (II) ANY INTEREST CHARGED UNDER THIS ACT; (III) SURCHARGE, IF ANY, AS LEVIED BY THE CENTRAL A CTS FROM TIME TO TIME; (IV) EDUCATION CESS ON INCOME-TAX, IF ANY, AS LEVIE D BY THE CENTRAL ACTS FROM TIME TO TIME; AND (V) SECONDARY AND HIGHER EDUCATION CESS ON INCOME- TAX, IF ANY, AS LEVIED BY THE CENTRAL ACTS FROM TIME TO TIME. EXPLANATION 3.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY CLARIFIED THAT FOR THE PURPOSES OF THIS SECTION, THE ASSESSEE, BEING A COM PANY TO WHICH THE PROVISO TO SUB-SECTION (2) OF SECTION 211 OF THE COMPANIES ACT, 1956 (1 OF 1956) IS APPLICABLE, HAS, FOR AN ASSESSMENT YEAR COMMENCING ON OR BEFORE THE 1ST DAY OF APRIL, 2012, AN OPTION TO PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR EITHER IN ACCORDANCE WITH TH E PROVISIONS OF PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 OR IN ACCORDANCE WITH THE PROVISIONS OF THE ACT GOVERNING SUCH COMPANY. FOLLOWING EXPLANATION 4 SHALL BE INSERTED AFTER EXP LANATION 3 TO SUB- SECTION (2) OF SECTION 115JB BY THE FINANCE ACT, 20 15, W.E.F. 1-4-2016 : EXPLANATION 4.FOR THE PURPOSES OF SUB-SECTION (2), THE EXPRESSION 'SECURITIES' SHALL HAVE THE SAME MEANING AS ASSIGNE D TO IT IN CLAUSE (H) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956). (3) NOTHING CONTAINED IN SUB-SECTION (1) SHALL AFFE CT THE DETERMINATION OF THE AMOUNTS IN RELATION TO THE RELEVANT PREVIOUS YEAR T O BE CARRIED FORWARD TO THE SUBSEQUENT YEAR OR YEARS UNDER THE PROVISIONS OF SU B-SECTION (2) OF SECTION 32 OR SUB-SECTION (3) OF SECTION 32A OR CLAUSE (II) OF SUB-SECTION (1) OF SECTION 72 OR SECTION 73 OR SECTION 74 OR SUB-SECTION (3) O F SECTION 74A. (4) EVERY COMPANY TO WHICH THIS SECTION APPLIES, SH ALL FURNISH A REPORT IN THE PRESCRIBED 79 FORM FROM AN ACCOUNTANT AS DEFINED IN THE EXPLANAT ION BELOW ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 16 SUB-SECTION (2) OF SECTION 288, CERTIFYING THAT THE BOOK PROFIT HAS BEEN COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION ALONG WITH THE RETURN OF INCOME FILED UNDER SUB-SECTION (1) OF SEC TION 139 OR ALONG WITH THE RETURN OF INCOME FURNISHED IN RESPONSE TO A NOTICE UNDER CLAUSE (I) OF SUB- SECTION (1) OF SECTION 142. (5) SAVE AS OTHERWISE PROVIDED IN THIS SECTION, ALL OTHER PROVISIONS OF THIS ACT SHALL APPLY TO EVERY ASSESSEE, BEING A COMPANY, MEN TIONED IN THIS SECTION. (5A) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO ANY INCOME ACCRUING OR ARISING TO A COMPANY FROM LIFE INSURANCE BUSINESS R EFERRED TO IN SECTION 115B. (6) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO THE INCOME ACCRUED OR ARISING ON OR AFTER THE 1ST DAY OF APRIL, 2005 FROM ANY BUSINESS CARRIED ON, OR SERVICES RENDERED, BY AN ENTREPRENEUR OR A DEVELOPE R, IN A UNIT OR SPECIAL ECONOMIC ZONE, AS THE CASE MAY BE: PROVIDED THAT THE PROVISIONS OF THIS SUB-SECTION SHALL CEASE TO HAVE EFFECT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2012. IF THE AFORESAID PROVISION OF THE ACT IS ANALYZED, AS PER EXPLANATION-1 BELOW SECTION 115JB (2) OF THE ACT, O NLY ADJUSTMENT AS PERMITTED TO THE BOOK PROFIT ARE THOS E AS PROVIDED IN THE SAID EXPLANATION. THE STAND OF THE ASSESSEE IS THAT THERE IS NO ADJUSTMENT PRESCRIBED IN THE SAID EXPLANATION WITH RESPECT TO INCREASING THE BOOK PROFIT BY LOSS ARISING ON TRANSFER OF ASSET AND LIABILITIES UPON DEMERGER. TH E POSITION WAS INITIALLY EXPLAINED BY HONBLE APEX COURT IN AP OLLO TYERS LTD. VS CIT 255 ITR 273 AND REITERATED IN CIT VS HC L COMNET SYSTEM AND SERVICES LTD. 305 ITR 409. HOWEVER, IN T HE PRESENT APPEAL, THE LD. ASSESSING OFFICER AND ALSO THE COMMISSIONER OF INCOME TAX (APPEAL) TOOK THE START ING POINT, FOR THE PURPOSES OF SECTION 115JB OF THE ACT, AS TH E NET PROFIT AS DISCLOSED BEFORE PROVISION FOR FRINGE BENEFIT TA X, PRIOR PERIOD ADJUSTMENT AND EXTRAORDINARY ADJUSTMENT TANTAMOUNT TO ALLOWING THE REVENUE TO MAKE ADJUSTMENT TO THE BOOK PROFIT ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 17 CONTRARY TO EXPLANATION-1 BELOW SECTION 115JB(2) OF THE ACT, WHICH IS NOT PERMISSIBLE AS PER THE PROVISIONS OF T HE ACT. OUR VIEW FIND SUPPORTS FROM THE DECISION IN CIT VS KEHT AN CHEMICALS AND FERTILIZERS LTD. 307 ITR 150 (DEL.) A ND TAMILNADU CEMENTS CORPORATION LTD. VS JCIT 349 ITR 58 (MADR.). IT IS ALSO OBSERVED THAT SUCH TREATMENT (G IVEN BY THE ASSESSEE) WAS APPROVED BY HONBLE JURISDICTIONAL HI GH COURT AND THE REVENUE HAS NOT CHALLENGED THE APPROVAL. TH E ACCOUNTING TREATMENT IN THE BOOKS OF KIL IS REPRODU CED HEREUNDER (PAGE 44 OF THE PAPER BOOK) FOR READY REF ERENCE AND ANALYSIS:- 7. ACCOUNTING TREATMENT IN THE BOOKS OF KIL 7.1. ON THE EFFECTIVE DATE, KIL SHALL REDUCE THE BO OK VALUE OF ALL THE ASSETS AND LIABILITIES RELATING OR PERTAINI NG TO THE HOSPITALITY UNDERTAKING. 7.2. THE DIFFERENCE, BEING THE EXCESS OF THE BOOK V ALUE OF ASSETS TRANSFERRED OVER THE BOOK VALUE OF LIABILITI ES TRANSFERRED, OR VICE VERSA, AS THE CASE MAY BE, SHALL BE ADJUSTE D BY KIL IN ITS PROFIT & LOSS ACCOUNT. THE ABOVE ARRANGEMENT/ACCOUNTING TREATMENT HAS BEEN APPROVED BY HONBLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 19/09/2008. AS PER CLAUSE 2(B) OF PART II TO SCHEDU LE VI OF THE COMPANIES ACT, 1956, THE PROFIT & LOSS ACCOUNT SHOU LD DISCLOSE EVERY MATERIAL FEATURES/FACT INCLUDING CRE DITS OR RECEIPT AND DEBIT AND EXPENSES IN RESPECT TO NON-RE CURRING ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 18 TRANSACTIONS OR TRANSACTION OF AN EXCEPTIONAL NATUR E, WHICH IS AVAILABLE PAGE 72 OF THE PAPER BOOK. AS PER CLAUSE 3(XII)(B) OF THE SAID PART OF THE SCHEDULE, ONE ALSO HAS TO BE R EFLECT PROFIT & LOSSES IN RESPECT OF TRANSACTION OF A KIND NOT US UALLY UNDER TAKEN BY THE COMPANY OR UNDERTAKEN IN CIRCUMSTANCES OF AN EXCEPTIONAL OR NON-RECURRING NATURE. THE STAND OF T HE ASSESSEE IS THAT THE ASSESSEE IS REQUIRED TO DEBIT ITS PROFI T & LOSS ACCOUNT BY THE LOSS ARISING ON DEMERGER AS THE SAME IS MANDATED BY CLAUSES OF PART II TO SCHEDULE VI OF TH E COMPANIES ACT. THE HONBLE JURISDICTIONAL HIGH COUR T IN CIT VS VEEKAYLAL INVESTMENT CO. PVT. LTD. 249 ITR 597 CONC LUDED AS UNDER:- HELD, ALLOWING THE APPEAL, THAT ACCORDING TO SECTI ON 115J OF THE ACT, IN THE CASE OF AN ASSESSEE BEING A COMPANY, IF THE TOTAL INCOME IS LESS THAN 30 PER CENT OF ITS BOOK PROFITS THEN T HE TOTAL INCOME OF SUCH COMPANY SHALL BE DEEMED TO BE AN AMOUNT EQUAL TO 30 PER CENT. OF SUCH BOOK PROFIT AND SUCH INCOME SHALL BE CHARGEABLE TO TAX. THE IMPORTANT THING TO BE NOTED IS THAT WHILE CALCULATING THE TOTAL INCOME UNDER THE INCOME TAX ACT, THE ASSESSEE IS REQUIRED TO TAKE INTO ACCOUNT INCOME BY WAY OF CAPITAL GAINS UN DER SECTION 45 OF THE INCOME TAX ACT. IN THE CIRCUMSTANCES, WHILE COMPUTING THE BOOK PROFITS UNDER THE COMPANIES ACT, THE ASSESSEE HAS TO INCLUDE CAPITAL GAINS FOR COMPUTING THE BOOK PROFITS UNDER SECTION 115J. EVEN UNDER CLAUSE 3(XII)(B) OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, 1956, PROFIT OR LOSS IN RESPECT OF T RANSACTIONS OR TRANSACTIONS OF AN EXCEPTIONAL OR NON-RECURRING NAT URE ARE TO BE ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 19 DISCLOSED. THIS SHOWS CLEARLY THAT CAPITAL GAINS SH OULD BE INCLUDED FOR THE PURPOSES OF COMPUTING BOOK PROFITS . 4.9. DURING HEARING, THE LD. DR INVITED OUR ATTENT ION TO THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S SHI VALIK VENTURES PVT. LTD. VS DCIT (ITA NO.2008/MUM/2012), ORDER DATED 19/08/2015, WHEREIN, VIEW HAS BEEN TAKEN AGAI NST THE ASSESSEE. THE RELEVANT PORTION OF THE SAME IS REPR ODUCED HEREUNDER FOR READY REFERENCE AND ANALYSIS:- 24. IT IS UNDISPUTED FACT THAT THE LONG TERM CAPIT AL GAIN EARNED BY THE ASSESSEE IS INCLUDED IN THE NET PROFIT DETERMIN ED AS PER PROFIT AND LOSS ACCOUNT PREPARED AS PER PART II AND PART I II OF SCHEDULE VI TO THE COMPANIES ACT. IN OTHER WORDS, IT IS NOT THE CASE OF THE ASSESSEE THAT THE CAPITAL GAIN EARNED BY THE ASSESS EE WAS NOT INCLUDED IN THE NET PROFIT DETERMINED AS PER PROFIT AND LOSS ACCOUNT OF THE ASSESSEE PREPARED UNDER THE COMPANIES ACT. A S PER THE AUDITED ACCOUNTS OF THE ASSESSEE, THE STATUTORY AUD ITORS HAVE REPORTED THAT AMONGST OTHERS, THAT IN THEIR OPINION , THE PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET ARE IN COMPLIANC E WITH THE ACCOUNTING STANDARDS REFERRED TO IN SUB-SECTION (3C ) OF SECTION 211 OF THE COMPANIES ACT, AND FURTHER REPORTED THAT THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT READ TOGETHER WIT H THE NOTES THEREON, GIVE THE INFORMATION REQUIRED BY THE COMPA NIES ACT, 1956 IN THE MANNER SO REQUIRED AND GIVE A TRUE AND FAIR VIEW IN CONFORMITY WITH THE ACCOUNTING PRINCIPLES GENERALLY ACCEPTED. AS PER AUDITED PROFIT AND LOSS ACCOUNT, THE ASSESSEE H AS INCLUDED LONG TERM CAPITAL GAIN. IN THE NOTES ON ACCOUNTS, IT IS NOWHERE MENTIONED AND CLARIFIED THAT THOUGH THE LONG TERM C APITAL GAIN IS INCLUDED IN THE PROFIT AND LOSS ACCOUNT BUT IT IS N OT TO BE INCLUDIBLE IN THE NET PROFIT IN TERMS OF PROVISIONS OF PART II AND PART III OF ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 20 SCHEDULE VI TO THE COMPANIES ACT OR THE ACCOUNTING PRINCIPLES ACCEPTED UNDER THE COMPANIES ACT.. 25. IT IS TO BE NOTED THAT THE ASSESSEE HAS NOT MAD E ANY CLAIM OF DEDUCTION OF LONG TERM CAPITAL GAIN FROM THE BOOK P ROFIT, WHICH GOES TO SHOW THAT CAPITAL GAIN AS SUCH IS NOT DEDUC TIBLE FROM THE NET PROFIT PREPARED IN ACCORDANCE WITH PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT. MOREOVER, THE TAXABILITY O F CAPITAL GAIN IS RELEVANT ONLY FOR THE PURPOSE OF COMPUTATION OF INCOME UNDER THE NORMAL PROVISIONS OF INCOME TAX ACT, AND HAS NO THING TO DO WITH THE PREPARATION OF PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PROVISIONS OF PART II AND III OF SCHEDULE VI TO THE COMPANIES ACT. THE LD A.R SUBMITTED THAT, SINCE THE ASSESSEE BEFOR E THE SPECIAL BENCH DID NOT COMMENT ABOUT SUCH INCLUSION IN THE N OTES OF ACCOUNTS, BUT CLAIMED DEDUCTION ONLY AT THE TIME OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT, THE SPECIAL BEN CH TOOK THE VIEW THAT THE ASSESSEE, HAVING INCLUDED THE CAPITAL GAIN IN THE PROFIT AND LOSS ACCOUNT WHICH WAS AGREED TO HAVE BE EN PREPARED IN ACCORDANCE WITH PARTS II AND III OF THE SCHEDULE VI TO THE COMPANIES ACT, CANNOT CLAIM THAT THE SAME SHOULD BE EXCLUDED FROM NET PROFIT FOR THE PURPOSE OF COMPUTING BOOK P ROFIT U/S 115JB OF THE ACT. 4.10. THE LD. COUNSEL FOR THE ASSESSEE EXPLAINED T HAT THE NOTE MENTIONED IN THE AFORESAID ORDER WAS NOT P UT IN, THEREFORE, THE AFORESAID CONCLUSION WILL NOT APPLY TO THE FACTS OF THE PRESENT APPEAL. BROADLY, WE ARE OF THE VIEW, IN RAIN COMMODITY (40 SOT 265)(SPECIAL BENCH), THERE IS A R ECORDING THAT WHERE THERE IS NO SUCH NOTES, THE PROFIT AND LOSS ACCOUNTS IS SACROSANCT. THE SCHEDULES ANNEXED TO A ND FORMING PART OF THE BALANCE SHEET AND PROFIT AND LO SS ACCOUNT ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 21 AS ON 31/03/2009 IS AVAILABLE PAGE 18 OF THE PAPER BOOK AND NOT SHOWN ACCOUNTS TO SCHEDULE U IS AVAILABLE AT PAGE 19 ONWARDS OF THE PAPER BOOK. THE NOTE SHOWN ACCOUNTS ARE FURTHER ELABORATED AND DEMERGER OF RESORT UNDERTAKI NG UNDER THE COMPOSITE SCHEME OF ARRANGEMENT IS AVAILABLE AT PAGE 22 AND 23 OF THE PAPER BOOK, WHICH ARE REPRODUCED HERE UNDER FOR READY REFERENCE:- 2. NOTES ON ACCOUNTS THE COMPANY WAS; UNTIL 31 ST MARCH 2008, ENGAGED IN THE BUSINESS OF RESORT, HOSPITALITY, RAVEL AND INVESTMENT ACTIVI TY 1. DEMERGER OF RESORT UNDERTAKING UNDER THE COMPOSITE SCHEME OF ARRANGEMENT. A COMPOSITE SCHEME OF ARRANGEMENT UNDER SECTION 391 TO 394 OF THE COMPANIES ACT,1956 BETWEEN THE COMPANY (AND ITS SHAREHOLDERS) (HEREINAFTER REFERRED TO AS THE SCHEM E) AND KHATAU RESORTS PRIVATE LIMITED (AND ITS SHAREHOLDERS) WAS APPROVED BY THE HON'BLE HIGH COURT OF BOMBAY VIDE ITS ORDER DATED 1 9/09/2008.THE SCHEME AMONGST OTHERS, PROVIDED DEMERGER OF RESORT UNDERTAKING OF THE COMPANY LOCATED AT RAMNAGAR, DELHI AND MUMBA I (HEREINAFTER REFERRED TO AS DEMERGED UNDERTAKING) O N A GOING CONCERN BASIS WITH ALL ITS ASSETS AND LIABILITIES A S DEFINED IN THE SCHEME. THE SAID SCHEME OF DEMERGER HAS BECOME EFFECTIVE WI TH EFFECT FROM L5TH JULY 2008 AND ACCORDINGLY, THE ASSETS AND LIAB ILITIES OF DEMERGED UNDERTAKING STANDS TRANSFERRED TO AND VEST IN AS A GOING CONCERN TO KHATAU RESORTS PRIVATE LIMITED AT ITS BO OK VALUES. EXCESS OF ASSETS TRANSFERRED OVER LIABILITIES AMOUN TING TORS.145.23 CRORES HAVE BEEN TRANSFERRED TO PROFIT & LOSS ACCOUNT AS PER PROVISIONS OF THE SCHEME. CARRYING AMOUNTS OF ASSET S AND ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 22 LIABILITIES ATTRIBUTABLE TO RESORT DIVISION WHICH W ERE TRANSFERRED TO RESULTING COMPANY AS ON THE EFFECTIVE DATE WERE AS FOLLOWS . PARTICULARS AMOUNT (RS.) AMOUNT (RS.) (I) FIXED ASSETS ( NET BLOCK) 7,3070,104 (II) INVESTMENTS 139,27 57,373 (III) NET CURRENT ASSETS CURRENT ASSETS, LOANS & ADVANCES INVENTORIES 102,712 SUNDRY DEBTORS 23,02,838 CASH & BANK BALANCES 48,91 838 OTHER CURRENT ASSETS 3245 LOANS & ADVANCES 1427,933 TOTAL CURRENT ASSETS, LOANS & ADVANCES 8728,566 LESS:- CURRENT LIABILITIES & PROVISIONS SUNDRY CREDITORS FOR GOODS 9.11 749 FOR EXPENSES 7,60,474 OTHER LIABILITIES T.O.S. PAYABLE 6117 OTHERS 29,96,711 PROVISIONS 5,24,823 TOTAL CURRENT LIABILITIES & PROVISIONS 51,99,874 NET CURRENT ASSETS 35,28,692 LESS:- LIABILITIES (IV) UNSECURED LOAN 17000,000 NET ASSETS VALUE (I+II+III-IV) 145,23,53,169 . IN ACCORDANCE WITH THE SCHEME OF DEMERGER, THE SHAR EHOLDERS OF VARUN CORPORATION LIMITED (FORMERLY KNOWN AS KHA TAU INTERNATIONAL LTD.) HAVE BEEN ALLOTTED ONE SHARE OF KHATAU RESORTS PVT. LTD., FOR EVERY TWENTY NINE SHARES HEL D BY THEM IN VARUN CORPORATION LTD. ON 15 TH JULY 2008. THE FACE VALUE PER SHARE AND THE AGGREGATE PAID UP SHARE CAPITAL OF VA RUN CORPORATION LIMITED REMAINS UNCHANGED. ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 23 ACCOUNTS FOR THE YEAR ENDED 31 ST MARCH 2009 HAVE PREPARED AFTER GIVING EFFECT OF THE SCHEME OF DEMERGER. 2. CHANGE IN ACCOUNTING POLICY. DURING THE YEAR THE COMPANY HAS CHANGED ITS ACCOUNT ING POLICY WITH RESPECT TO ACCOUNTING FOR COST OF INVESTMENTS SOLD FROM WEIGHTED AVERAGE BASIS TO FIRST IN FIRST OUT BASIS, DUE TO WHICH PROFIT FOR THE YEAR IS OVERSTATED BY RS.39,83,16,86 2/- AND THE CARRYING COST OF INVESTMENT IS OVERSTATED BY RS.39, 83,16,862/-. 4.11. IF THE CONCLUSION DRAWN BY THE TRIBUNAL IN TH E CASE OF M/S SHIVALIK VENTURE PVT. LTD. VS DCIT (SUPRA) I S ANALYZED WITH THE FACTS OF THE PRESENT APPEAL AND ALSO THE F ACTUM THAT SUCH DEMERGER WAS APPROVED BY THE HONBLE JURISDICT IONAL HIGH COURT, IT CAN BE CONCLUDED THAT THE FACTS ARE DIFFERENT. EVEN OTHERWISE, BEFORE THE SPECIAL BENCH, THE ASSES SEE DID NOT COMMENT ABOUT SUCH INCLUSION IN THE NOTES OF AC COUNTS BUT MERELY CLAIMED DEDUCTION WHILE COMPUTING BOOK P ROFIT U/S 115JB OF THE ACT, IN THAT SITUATION, A PARTICUL AR VIEW WAS TAKEN. THE PROFIT & LOSS ACCOUNT SHOULD BE READ ALO NG WITH NOTES FORMING PART OF THE ACCOUNT. THE CASE OF THE ASSESSEE IS FORTIFIED BY THE DECISION IN SAIN PROCESSING AND WE AVING MILLS LTD. (2010) 325 ITR 565 (DEL.), WHICH WAS FOLLOWED BY THE PUNE BENCH IN K.K. NAG LTD. VS ADDL. CIT (2012) 52 SOT 381. THE RATIO LAID DOWN IN CIT VS BINANI CEMENTS LTD. ( GA NO.3094 OF 2012-ITA NO.7 OF 2004) ON THE ISSUE WHET HER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUN AL ERRED IN LAW IN HOLDING THE LOSS OF AN AMOUNT OF RS.919.52 L AKHS ON ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 24 ACCOUNT OF TRANSFER OF INVESTMENT DIVISION OF THE A SSESSEE COULD NOT BE ADJUSTED IN SECTION 115JB OF THE ACT A LTHOUGH THE LOSS IS BOOKED IN THE PROFIT & LOSS ACCOUNT, TH E HONBLE HIGH COURT CONSIDERED VARIOUS DECISIONS INCLUDING T HE DECISION IN APOLLO TYERS FROM HONBLE APEX COURT A ND MALAYALA MANORMA COMPANY LTD. VS CIT (2008) 300 ITR 251, CIT VS ISPAT INDUSTRIES LTD. (2008) 2 DTR (CAL) 133 , HONBLE JURISDICTIONAL HIGH COURT IN ADBHUT TRADING COMPANY (2011) 338 ITR 94 DECIDED IN FAVOUR OF THE ASSESSEE. THE R ATIO LAID DOWN IN DUKE OFFSHORE LTD. VS DCIT (2011) 45 SOT 33 9 FURTHER SUPPORT THE CASE OF THE ASSESSEE. 4.12 THE SCHEME OF ARRANGEMENT AS AVAILABLE ON PAGE 36 & 37 OF THE PAPER BOOK IS ALSO REPRODUCED HEREUNDER FOR READY REFERENCE:- 1.5. 'HOSPITALITY UNDERTAKING' MEANS THE HOSPITALI TY BUSINESS CARRIED ON BY KIL UNDER THE NAME AND STYLE OF 'INFI NITY RESORTS', MORE SPECIFICALLY STATED IN ANNEXURE A AND SHALL IN CLUDE THE FOLLOWING: 1.5.1 (I) ALL ASSETS AND PROPERTIES OF KIL PERTAINING OR RELATING TO THE HOSPITALITY UNDERTAKING (WHETHER MOVABLE OR IMMOVAB LE, CORPOREAL OR INCORPOREAL, PRESENT, FUTURE OR CONTIN GENT) AS ON THE APPOINTED DATE; (II) ALL IMMOVEABLE PROPERTY, INCLUDING LAND' AND B UILDING AT UTTARANCHAL, LIVESTOCK, PLANT, INVESTMENT IN COMPA NIES ENGAGED / ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 25 TO BE ENGAGED IN HOSPITALITY UNDERTAKING, CURRENT A SSETS, FUNDS, CAPITAL WORK IN PROGRESS, FURNITURE, FIXTURES OFFIC E EQUIPMENT, APPLIANCES, ACCESSORIES AS ON THE APPOINTED DATE; . (III) ALL PERMITS, RIGHTS, ENTITLEMENTS, INDUSTRIAL AND OTHER LICENSES, BIDS, TENDERS, LETTERS OF INTENT, EXPRESSIONS OF IN TEREST, PERMISSIONS IF ANY MUNICIPAL GRAM PANCHAYAT, TALUKA AND OTHER S TATUTORY AUTHORITY, APPROVALS, CONSENTS, LICENSES, REGISTRAT ION, SUBSIDIES, CONCESSIONS, 'EXEMPTIONS, .REMISSIONS, TAX DEFERRAL S, TENANCIES IN RELATION TO OFFICE, BANK ACCOUNTS, LEASE RIGHTS, LI CENSES, POWERS AND FACILITIES' OF EVERY KIND, NATURE AND DESCRIPTION W HATSOEVER, RIGHTS TO USE AND AVAIL OF TELEPHONES, TELEXES, FACSIMILE CONNECTIONS AND INSTALLATIONS, UTILITIES, ELECTRICITY AND OTHER SER VICES, PROVISIONS, FUNDS; BENEFITS OF ALL AGREEMENTS, CONTRACTS AND AR RANGEMENTS ARID ALL OTHER INTERESTS, PRIVILEGES, ADVANTAGES AND, BE NEFITS IN CONNECTION WITH OR IN RELATION THERETO AS ON THE AP POINTED DATE; (IV) ALL RECORDS, FILES PAPERS, ENGINEERING AND PRO CESS INFORMATION,' COMPUTER PROGRAMS, MANUALS, DATA, CATALOGUES, QUOT ATIONS, SALES AND ADVERTISING MATERIALS, LISTS OF PRESENT AND FOR MER CUSTOMERS AND SUPPLIERS, CUSTOMER CREDIT INFORMATION, CUSTOME R PRICING INFORMATION, 'AND OTHER RECORDS, WHETHER IN PHYSICS ' FORM 'OR ELECTRONIC FORM IN CONNECTION WITH OR IN RELATION T HERETO AS ON THE APPOINTED DATE; AND (V) ALL DEBTS, DUTIES, OBLIGATIONS AND LIABILITIES (INCLUDING CONTINGENT LIABILITIES) PERTAINING OR IN RELATION THERETO AS O N THE APPOINTED DATE. XXXXXXXXXXXXXXXXXXXXXXXXXXX 1.6. ANY QUESTION THAT MA~ ARISE AS TO WHETHER A SP ECIFIC ASSET LIABILITY PERTAINS OR RELATES, OR DOES NOT PERTAIN OR RELATE TO THE ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 26 HOSPITALITY UNDERTAKING OR WHETHER IT ARISES OUT OF THE ACTIVITIES OR OPERATIONS OF THE HOSPITALITY UNDERTAKING SHALL BE DECIDED BY MUTUAL AGREEMENT BETWEEN THE BOARD OF DIRECTORS OF KIL AND KRPL. 1.7. 'KIL' OR 'THE DEMERGED COMPANY' MEANS KHATAU INTERNATIONAL LIMITED,' A COMPANY INCORPORATED UNDE R THE' ACT AND HAVING ITS REGISTERED OFFICE AT LAXMI BUILDING, 6, SHOORJI VALLABHDAS MARG. BALLARD ESTATE, MUMBAI 400 001. 1.8. 'KRPL' OR 'THE RESULTING COMPANY' MEANS KHATAU RESORTS PRIVATE LIMITED A COMPANY 'I~CORPORATED' UNDER THE ACT' AND HAVING ITS REGISTERED OFFICE AT LAXMI BUILDING, 6 SHOORJI VALLABHDAS MARQ, MUMBAI 400 001. 1.9. 'REMAINING BUSINESS' MEANS ALL THE BUSINESSES AND DIVISIONS OF KIL OTHER THAN THE HOSPITALITY UNDERTA KING AS DEFINED IN CLAUSE 1.5 ABOVE AND, INTER ALIA, INCLUDES 3,95,34, 243 EQUITY SHARES OF RS.10 EACH OF VARUN SHIPPING COMPANY LIMITED, 84 .09.870 EQUITY SHARES AT RS. 10 EACH OF TARUN SHIPPING & IN DUSTRIES LIMITED, LOANS RECEIVED FROM CHOLAMANDALAM INVESTMENTS & FIN ANCE CO. LTD. IL & FS FINANCIAL SERVICES LTD, INFRASTRUCTURE DEVELOPMENT & FINANCE CO. LTD. INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD. 4.13. THE ARRANGEMENT FOR TRANSFER OF HOSPITALITY UNDERTAKING INTO KRPL IS ALSO REPRODUCED HEREUNDER FOR READY REFERENCE (PAGE 40 OF THE PAPER BOOK) WITH EFFECT FROM THE APPOINTED DATE, THE HOSPITALIT Y UNDERTAKING SHALL, PURSUE' TO THE PROVISIONS OF SEC TIONS 391 TO 394 AND OTHER APPLICABLE PROVISIONS, IF ANY OF THE ACT ,' STAND TRANSFERRED TO KRPL WITHOUT' ANY FURTHER ACT OR DEE D, AT BOOK ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 27 VALUES IN ACCORDANCE WITH SECTION 2(19AA) OF THE IN COME-TAX ACT, 1961, AND THE HOSPITALITY UNDERTAKING SHALL CONSEQU ENTLY VEST IN KRPL WITH EFFECT FROM THE APPOINTED DATE FOR ALL TH E ESTATE AND INTEREST OF KIL THEREIN, SUBJECT HOWEVER, TO ALL CH ARGES, LIENS, MORTGE.GES AND ENCUMBRANCES, IF ANY, AFFECTING THE SAME OR ANY PART THEREOF AND ARISING- OUT .OF THE LIABILITIES W HICH SHALL ALSO STAND TRANSFERRED TO KRPL. THE TRANSFER AND VESTING OF THE HOSPITALITY UNDERTAKING TO KRPL SHALL BE EFFECTED I N THE MANNER AS PROVIDED HEREINBELOW. 4.14. THUS, IF THE TOTALITY OF FACTS AND THE JUDICI AL PRONOUNCEMENTS DISCUSSED HEREINABOVE, IF KEPT IN JUXTAPOSITION WITH THE FACTS OF THE PRESENT APPEAL, WE NOTE THAT THE CLAIMED LOSS WAS DISCLOSED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT AS AN EXTRAORDINARY ITEM AND SUCH LOSS WAS ARRIVED AT BY REDUCING THE SAME FROM THE BOOK V ALUE OF THE ASSET TRANSFERRED AND FURTHER THE TREATMENT AS GIVEN BY THE ASSESSEE TO THE LOSS, AROSE ON DEMERGER IS IN A CCORDANCE WITH PART II & III TO SCHEDULE VI OF THE COMPANIES ACT AND SUCH DEMERGER WAS APPROVED BY THE HONBLE HIGH COUR T VIDE ORDER DATED 19/09/2008. EVEN OTHERWISE, AS MENTIONE D EARLIER, THE STATUTORY AUDITORS HAVE ACCEPTED THE B OOK TREATMENT IN RESPECT OF LOSS AROSE ON ACCOUNT OF DE MERGER, THUS, WE ARE NOT IN AGREEMENT WITH THE OBSERVATION OF THE LD. ASSESSING OFFICER THAT SUCH LOSS COULD NOT BE DEBIT ED TO THE PROFIT AND LOSS ACCOUNT AND OUGHT TO HAVE BEEN ADJU STED ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 28 AGAINST THE RESERVE OF THE ASSESSEE COMPANY. THE ST ARTING POINT FOR COMPUTATION OF BOOK PROFIT U/S 115JB OF T HE ACT IS THE NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUN T FOR THE RELEVANT PREVIOUS YEAR. IN THE PRESENT CASE, SUCH A MOUNT IS THE LOSS OF RS.66,86,13,773/-. THERE IS NO CONCEPT LIKE MULTIPLE PROFIT IN THE PROFIT & LOSS ACCOUNT. IT I S WELL SETTLED PROPOSITION OF LAW THAT, AS PER EXPLANATION-1 BELOW SECTION 115JB(2) OF THE ACT, ONLY ADJUSTMENT AS PERMITTED T O THE BOOK PROFIT ARE THOSE AS PROVIDED IN THE SAID EXPLA NATION. THE PURPOSE OF SECTION 115JB OF THE ACT IS TO PROVI DE AN ALTERNATIVE METHOD OF COMPUTATION OF TAX BY ACCEPTI NG THE BOOK PROFITS AS SHOWN BY THE ASSESSEE, ALBEIT WITH CERTAIN ADJUSTMENT AS SPECIFIED IN EXPLANATION-1 TO SECTION 115JB(2) AND LEVYING TAX THEREON AS ALTERNATIVE TO THE TAX C OMPUTED UNDER THE OTHER PROVISIONS OF THE ACT. SO FAR AS, THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S SHIVALIK VENTURE S PVT. LTD. VS DCIT (SUPRA) IS CONCERNED, IT IS ON DIFFERENT FA CTS AND RATHER IT CAN BE SAID THAT IT FAVOURS THAT THE ASSE SSEE. EVEN OTHERWISE, THE DECISION FROM HONBLE CALCUTTA HIGH COURT IN CASE OF CIT VS BINANI CEMENTS LTD. IS CONCERNED, IT IS EXACTLY ON THE ISSUE IN HAND, WHICH SQUARELY SUPPORTS THE C ASE OF THE ASSESSEE, WHEREIN, THE DECISION FROM HONBLE APEX C OURT IN APOLLO TYRES LTD. (2002) 255 ITR 273 (SC) WAS ALSO CONSIDERED, THUS, IT CAN BE CONCLUDED THAT THE ASSE SSING OFFICER WRONGLY DISPUTED THE CORRECTNESS OF THE ACC OUNTS OF THE ASSESSEE. IT IS ALSO NOTED THAT THE VIEWS EXPRE SS IN APOLLO ITA NO.2825/MUM/2013 VARUN CORPORATION LTD. 29 TYRES WAS FOLLOWED IN CIT VS ISPAT INDUSTRIES LTD. (2008) 2 DTR (CAL.) 133 AND ALSO HONBLE JURISDICTIONAL HIGH COURT IN CIT VS ADBHUT TRADING COMPANY PVT. LTD. (2011) 338 ITR 94 (BOM.), THEREFORE, RESPECTFULLY FOLLOWING THE AFORE SAID DECISIONS, THIS GROUND OF THE ASSESSEE IS ALLOWED. FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22/04/2016. SD/- SD/- ( ASH WANI TANEJA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER ' # MUMBAI; ' DATED : 22/04/2016 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. )*+, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. / / ' 0 ( )* ) / THE CIT, MUMBAI. 4. / / ' 0 / CIT(A)- , MUMBAI 5. 2!3 - , / )*% ) 4 , ' # / DR, ITAT, MUMBAI 6. 5 6# / GUARD FILE. / BY ORDER, .2* - //TRUE COPY// / (DY./ASSTT. REGISTRAR) , ' # / ITAT, MUMBAI