Query :- Whether in determination of book profit u/s 115JB of I. T. Act, adjustment is to be made for:-

(a) Depreciation not debited to P & L Account but a note is given in respect thereof;
(b) Capital gain not credited to P & L account and taken to reserve;
(c) Prior period expenses and extra ordinary items;
(d) Difference in the amount of depreciation on account of change in the method of providing depreciation i.e. straight line to WDV or vice-versa?


a) As per provisions of Companies Act read with mandatory Accounting Standards (AS-6) depreciation is a charge against profit and therefore, same is to be deducted in determination of book profit even if disclosed by way of note to accounts. Hon’ble Delhi High Court, recently, in the case of CIT vs. Sain Processing and Weaving Mills (P) Ltd., ITA No.1128/2007/Delhi has held so.

(b) As per AS-5 all items of income have to be routed through P & L Account and therefore, department contention is that same is to be included in book profit. Tribunal in certain cases and also Madras High Court in CIT vs. Vijayashree Fin. & Inv. Co. (P) Ltd. (2008) 216 CTR (Mad.) 191, however, has held that in view of decision of Supreme Court in the case of Apollo Tyres Ltd. vs. CIT 255 ITR 273 no adjustment in book profit can be made.

(c) Extraordinary and prior period items are charge against profit of the current years though required to be shown separately as per AS-5 as a matter of disclosure. Therefore, book profit is to be taken after prior period and extra ordinary items. (CIT vs. Khaitan Chemicals & Fertilizers Ltd. (2008) 307 ITR 150 (Del.).

(d) Assessee is entitled to change method of depreciation (AS-6) and therefore, no adjustment can be made on account of difference in amount of depreciation arising as a result of change in method of depreciation. [Malayala Manorama Co. Ltd vs. CIT, 300 ITR 251 (SC); CIT vs. C.J. International Hotels Ltd ITA No. 1092/2008 (Del)].

Query :-Whether for the purpose of determination of book profit under Section 115 JB of the Act loss or depreciation has to be taken cumulatively for all the years or for each year separately?


As per Clause (iii) of Explanation to Section 115 JB amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account, is to be reduced. The amount of loss or depreciation as per books would be one consolidated figure and above clause does not require determination of amount on year-to-year basis. [Amline Textiles Pvt. Ltd. vs. ITO (2009) 27 SOT 152 (Mum.)]

More Under Income Tax

Posted Under

Category : Income Tax (27860)
Type : Articles (17571)

0 responses to “Frequently asked questions on section 115JB related to adjustment of Depreciation, Capital gain, Prior period Expenses, Loss etc”

  1. sandeep butaney says:

    Dear Sir,

    I require your genuine help now.I had purchased a property in 2004 for Rs.400000 (Rupees Four Lacs Only) and have sold the same on 08/03/2012 for Rs.725000 (Rupees Seven Lacs Twenty Five thousand Only). I was informed that if I keep the same with BOI under their Capital gain tax scheme for five years and once the period is over I would be able to utilise the money as it would be free from tax.

    Please advice.

Leave a Reply

Your email address will not be published. Required fields are marked *