Case Law Details
Revaluation reserve not routed through Profit and Loss Account could not be added to net profit while computing the book profit for the purpose of MAT
Recently, the Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of ITO v. Galaxy Saws P. Ltd. (ITA No. 3747/M/2010) (Judgement Date: 11 March 2011, Assessment Year: 2005-06) held that revaluation reserve not routed through Profit & Loss Account but directly transferred to balance sheet could not be added to net profit while computing the book profit for the purpose of Minimum Alternate Tax (MAT). Further, the Tribunal reiterated that principle that once the accounts have been prepared as per the provisions Schedule VI of the Companies Act and adopted at the Annual General Meeting (AGM) of the company, the net profit disclosed in such accounts cannot be tinkered with by the Assessing Officer (AO) while computing the book profit.
Facts of the case
The taxpayer during the Assessment Year (AY) 2005-06 sold its premises for INR 96 lacs. The value of the premises in the books of account at the beginning of the year was shown at INR 3.3 lacs. Before the sale of premises, the taxpayer got the premises revalued at INR 97.44 lacs by a registered valuer. The taxpayer had taken the revaluation reserve directly to the balance sheet and the loss of INR 1.44 lacs was debited to profit and loss account.
The AO observed that the taxpayer had adopted a device to avoid tax by revaluing the property in the year of transfer and such device was not permitted in view of the judgment of Supreme Court in case of Mcdowell & Co v. CTO [1985] 154 ITR 148 (SC) AO also referred to Bombay High Court’s judgement in case of CIT v. Veekaylal Investment Pvt. Ltd. [2001] 249 ITR 597 (Bom)
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