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Applicability of MAT on Revaluation Reserve credited to profit and loss account

Section 115JA of the Income-tax Act, 1961 - Minimum alternate tax - Assessment year 2000-01 - Assessee had created a reserve in assessment year 1986-87 by enhancing value of assets - Assessee had withdrawn Rs. 1.53 crores from said reserve and credited it to profit and loss account - In assessment year 2000-01 assessee-company claimed deduction of Rs. 1.53 crores from book profit for calculating adjusted book profit under section 115JA - Assessing Officer allowed assessee's claim

The case of the assessee was that it was covered by the proviso to clause (i) and, therefore, it was justified in reducing the amount from the book profit. The case of the revenue was based on the fact that while working out book profits of earlier years, the assessee had claimed depreciation on the enhanced value of the assets and, therefore, a further reduction of the amount during the year would lead to double deduction. The case of the revenue was not based on correct legal interpretation of the clause and the proviso thereto. The reserve was created by the assessee in the assessment year 1986-87 by enhancing the value of the assets, on which depreciation was being debited to the books of account. However, for the purpose of computation of total income, the depreciation could not have been claimed and was also not allowed by the Assessing Officer. At the time of creation of the reserve, the provision contained in section 115JA was not there on the statute. It was inserted in the Act by the Finance (No. 2) Act, 1996, with effect from 1-4-1997. Thus, it became applicable for the assessment year 1997-98 and onwards. Therefore, insofar as computation of adjusted book profit was concerned, the creation of reserve had no implication and even it did not alter in any manner the computation of the total income. This provision remained on the statute book for the assessment years 1997-98 to 2000-01. Since the reserve was not created in these years, there was no question of any adjustment in the book profit in these years at the time of its creation. Accordingly, there could have been no implication of withdrawing certain amount from this reserve and crediting it to the profit and loss account. Therefore, the case of the Commissioner was based on an erroneous interpretation of law that the reduction could not be made in respect of amount withdrawn from this reserve, as it had been credited to the profit and loss account. In any case, such an interpretation is amenable to a valid difference of opinion, as held in the case of SRF Ltd. v. Asstt. CIT [1993] 47 ITD 504 (Delhi) under the analogous law contained in section 115J. Therefore, the order of the Assessing Officer could not be said to be erroneous and prejudicial to the interest of the revenue.

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Categories: Income Tax
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