Ind AS Book Entries Cannot Create Taxable Income: Mumbai ITAT Deleted ₹130.92-Crore Additions

Aditya Birla Real Estate Limited Vs CIT (ITAT Mumbai)

Mumbai ITAT: Ind AS Book Entries Cannot Create Taxable Income; ₹130.92-Crore ICDS Additions Deleted

Summary: Mumbai ITAT in *Aditya Birla Real Estate Limited Vs CIT* dealt with cross appeals for AY 2019-20 involving differences between Ind AS accounting entries and taxable income computed under the Income-tax Act and ICDS. The Tribunal held that an amount appearing in the Profit & Loss Account under Ind AS cannot, merely because of such accounting recognition, be treated as taxable income where the Act or applicable ICDS requires different treatment. It allowed ICDS-related grounds concerning the ₹4.62 crore net security-deposit adjustment, ₹40 crore royalty income already offered in AY 2018-19, ₹75.93 crore EPCG government-grant adjustment and ₹10.36 crore borrowing-cost adjustment. The Tribunal also allowed the assessee’s Section 35(2AB) claim of ₹3.97 crore, holding that absence of Form 3CL could not, in the circumstances, defeat the deduction where Form 3CM approval had been obtained. Issues relating to TDR cost and consequential set-off, leave entitlement and gift expenditure were restored for verification/fresh adjudication. The order was pronounced on 17/08/2026.

Background and Procedural History

The Mumbai Bench of the Income Tax Appellate Tribunal heard cross appeals filed by the assessee and the Revenue against the order dated 31/03/2025 passed by the National Faceless Appeal Centre (NFAC), Delhi, for Assessment Year 2019-20. The assessee is Aditya Birla Real Estate Limited, formerly known as Century Textiles and Industries Limited. The appeals were ITA No. 3476/Mum/2025 filed by the assessee and ITA No. 4378/Mum/2025 filed by the Revenue. The hearing concluded on 11-Jun-2026 and the order was pronounced on 17/08/2026.

The assessee is engaged in manufacturing diversified products across textiles, pulp and paper, chemicals, real estate, power generation and allied activities. During the relevant period, pursuant to a Scheme of Arrangement approved by the National Company Law Tribunal, its cement division was demerged into UltraTech Cement Ltd. with effect from 20/05/2018. The assessee filed its return on 26/10/2019 declaring Nil total income under the normal provisions and book profit of Rs.8,10,14,65,373 under Section 115JB. The assessment was completed under Section 143(3) on 30/09/2021 after the case was initially processed under the Faceless Assessment Scheme and subsequently transferred to the jurisdictional Assessing Officer in terms of Section 144B(8).

The CIT(A), by order dated 31/03/2025, partly upheld the additions, restored certain matters to the Assessing Officer for verification and granted partial relief. Both parties consequently appealed before the Tribunal.

ICDS Adjustments and Ind AS Accounting

The assessee challenged additions arising from differences between accounting treatment under Indian Accounting Standards (Ind AS) and computation of taxable income under the Income-tax Act read with the applicable Income Computation and Disclosure Standards (ICDS). The Tribunal observed that book results are the starting point, but taxable income must be computed in accordance with the Act and applicable ICDS. An amount appearing in the Profit & Loss Account under Ind AS could not, merely for that reason, be treated as taxable income where the Act or ICDS prescribed a different computation treatment.

The Tribunal examined the following ICDS-related adjustments:

Security Deposit Adjustment

The assessee had received an interest-free refundable security deposit of Rs.200 crore from Grasim Industries Ltd. during A.Y. 2018-19 in connection with an arrangement for operation of its Viscose Filament Yarn Division. Under Ind AS 109, the deposit was recognised at discounted present value, with the difference between the transaction value and net present value recognised as deferred income.

For the relevant year, the assessee recorded amortisation expenses of INR 9,30,18,526 and notional rental income of INR 13,92,84,963. It contended that these were accounting entries and did not represent actual expenditure or actual rental income. The resulting net ICDS adjustment was INR 4,62,66,434.

The Tribunal held that the Revenue had not demonstrated any independent accrual of rental income and noted that the corresponding amortisation had not been claimed as a deduction. It therefore found that the adjustment merely neutralised the accounting impact under Ind AS and did not constitute an impermissible deduction. Ground No. 2 was allowed. The Tribunal also noted that identical ICDS adjustments had been examined in earlier and subsequent years without additions and that no distinguishing feature had been brought on record for the relevant year.

Royalty Income

The assessee had granted Grasim Industries Ltd. the right to manage and operate its Viscose Filament Yarn business for fifteen years against upfront royalty of Rs.600 crore. According to the assessee, the entire Rs.600 crore had already been offered to tax in A.Y. 2018-19, whereas Ind AS required recognition over the tenure of the arrangement, resulting in Rs.40 crore being recognised as income in the relevant year.

The Tribunal found that the Revenue did not bring material showing that the Rs.40 crore represented any fresh receipt or income beyond the upfront royalty. It held that bringing the same consideration to tax again merely because it was recognised in the financial statements under Ind AS would result in taxing the same consideration twice. Ground No. 3 was accordingly allowed.

Government Grants under EPCG Scheme

The assessee challenged the addition of Rs.75,93,37,323 relating to customs duty benefits received under the EPCG Scheme. The assessee submitted that the benefit related to purchase of specified items and was subject to export obligations. Upon fulfilment of those obligations, the corresponding amount was recognised in the Profit & Loss Account under Ind AS 20.

The assessee relied upon Section 2(24)(viii) read with Explanation 10 to Section 43(1), contending that the duty benefits had not been included in the relevant block of assets for depreciation under Section 32. The Tribunal examined the treatment and allowed Ground No. 4.

Borrowing Costs under ICDS IX

The dispute concerning Rs.10,36,11,508 arose because Ind AS and ICDS IX prescribe different methods for determining borrowing costs to be capitalised. The assessee submitted that the adjustment was made only for computation of taxable income and did not constitute a fresh expenditure claim or double deduction. The Revenue contended that the reduction from taxable income resulted in a double deduction.

The Tribunal held that where the amount required to be capitalised under ICDS IX differs from the amount recognised under Ind AS, taxable income must give effect to the ICDS computation. It found that no specific working had been brought on record demonstrating that the same borrowing cost had actually been allowed twice. The adjustment was therefore not unsustainable merely because the accounting and tax computations differed. Ground No. 5 was allowed.

For background on ICDS IX, the verified TaxGuru publication explains its treatment of borrowing costs and capitalisation of borrowing costs for qualifying assets: ICDS IX Borrowing Costs.

Similarly, TaxGuru’s verified publication on ICDS covers revenue recognition, including royalties: ICDS IV Revenue Recognition.

TDR Transaction and Short-Term Capital Loss

The assessee’s land at Worli was compulsorily acquired by MHADA and it received Transferable Development Rights (TDRs). For A.Y. 2018-19, the assessee offered long-term capital gain of Rs.212,05,26,070 on the surrendered land, taking the FMV of the land at Rs.309,09,97,590 as consideration and treating the same FMV as the cost of acquisition of the TDRs.

The first tranche of TDRs sold in A.Y. 2018-19 resulted in a short-term capital loss of Rs.29,63,83,924, which had been accepted by the Assessing Officer. During A.Y. 2019-20, the balance TDRs were sold for Rs.1,60,16,38,418 and the assessee computed short-term capital loss of Rs.39,66,26,986 after allocating proportionate cost. The Assessing Officer treated the cost of acquisition of the TDRs as Nil and assessed the entire sale consideration as short-term capital gain.

The Tribunal held that determination of the correct cost of acquisition and resultant capital gain or loss required verification. It therefore directed the Assessing Officer to determine the correct cost and thereafter examine the consequential set-off. The CIT(A)’s direction allowing set-off could not be treated as a final determination at that stage. Ground No. 6 of the assessee and Ground No. 1 of the Revenue were allowed for statistical purposes.

Leave Entitlement and Section 43B

The dispute involved a provision of Rs.20,70,000 towards leave entitlement. The assessee contended that the amount had already been disallowed in the computation under Section 43B and that a further addition would result in double disallowance.

The Tribunal restored the matter to the Assessing Officer for the limited purpose of verifying the claim from the computation of income, Tax Audit Report and other relevant records. If the amount had already been added back, it was not to be disallowed again; otherwise, its allowability was to be examined under Section 43B. Ground No. 7 was allowed for statistical purposes.

Gift Expenses Restored for Fresh Adjudication

The issue concerned disallowance of Rs.60,06,694 towards gifts. The CIT(A) had observed that the gifts were given to employees and customers and could qualify as employee welfare expenses, but restored the matter to the Assessing Officer because the assessee had not been afforded adequate opportunity to substantiate the claim.

The Tribunal found that the allowability of the expenditure had not been conclusively adjudicated on merits and that examination of the nature, purpose and supporting documentary evidence was required. The issue was therefore restored to the Assessing Officer for fresh adjudication after providing due and adequate opportunity of hearing. Ground No. 8 of the assessee and the corresponding Revenue ground were allowed for statistical purposes.

Weighted Deduction under Section 35(2AB)

The assessee challenged denial of weighted deduction of Rs.3,97,47,645 under Section 35(2AB). The in-house scientific R&D facility had been approved in Form No. 3CM. The dispute arose because Form No. 3CL had not been furnished by the prescribed authority.

The Tribunal found that the absence of Form No. 3CL, in the circumstances of the case, could not be a ground for denying the deduction where the requisite Form No. 3CM approval had been obtained. It followed the coordinate Bench decision in Rallis India Ltd. v. ACIT, ITA No. 4210/Mum/2024, order dated 13/12/2024, which had considered Astec Lifesciences Ltd. v. ACIT, W.P. No. 1790 of 2022, and CIT v. Sun Pharmaceutical Industries Ltd., 250 Taxman 270. Ground No. 9 was allowed.

TaxGuru also has verified material concerning the treatment of Form 3CL and Section 35(2AB), including its publication reproducing the discussion of Sun Pharmaceutical Industries Ltd..

Final Result

The Tribunal pronounced the order on 17/08/2026 and recorded that both the assessee’s and Revenue’s appeals were allowed as indicated in the order. Ground-wise, the Tribunal allowed the assessee’s Grounds 2, 3, 4 and 5 on the ICDS adjustments; allowed Grounds 6 and 7 for statistical purposes; allowed Ground 8 for statistical purposes with the corresponding Revenue ground; and allowed Ground 9 concerning Section 35(2AB). The TDR issue was remanded for verification of cost and consequential set-off, while the gift and leave-entitlement issues were also restored for specified verification.

Cases Discussed

• Rallis India Ltd. v. ACIT (ITAT Mumbai), ITA No. 4210/Mum/2024, order dated 13/12/2024.
• Astec Lifesciences Ltd. v. ACIT (Bombay High Court), W.P. No. 1790 of 2022.
• CIT v. Sun Pharmaceutical Industries Ltd. (Gujarat High Court), 250 Taxman 270.