Since TUFS Scheme interest is a capital receipt, it should not be included for calculating book profits under Section 115JB

Fact and issue of the case

This appeal filed by the assessee is directed against the order dated 29.08.2018 of the Commissioner of Income Tax (Appeals)-4, Kolkata relating to Assessment Year 2011-12.

Assessee is the company stated to be engaged in the business of manufacturing & trading of synthetic/wollen/worsted yarn fabrics & synthetics fabrics, manufacturing and trading of ready-made garments, generation of power, processing of synthetics etc. Assessee electronically filed its return of income for AY 2011-12 on 23.09.2011 declaring total income of Rs.7,43,42,220/- under the normal provisions of the Act and Rs.10,38,62,502/- under 115JB of the Act. The case of the assessee was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dated 13.03.2014 and the total taxable income was determined at Rs.9,26,29,490/-.

Aggrieved by the order of AO assessee carried the matter before CIT(A) who vide order dated 29.08.2018 in Appeal No.815/CIT(A)-4/2014-15 granted partial relief to the assessee.

Aggrieved by the order of the CIT(A), assessee is now in appeal before the Tribunal and has raised the following grounds: –

“1.(i) That on facts and circumstances of the case, the Ld. CIT(A) was not justified in upholding the action of the assessing officer in disallowing the claim of statutory deduction u/s 80IA to the extent of Rs. 75,56,637/- by making adjustment of notional brought forward losses without appreciating the facts of the case and legal position.

(ii) That business losses of earlier years having been set off against income of those years and there being no case of any brought forward losses pertaining to eligible unit, the disallowance of claim of statutory deduction u/ s 80IA is on illegal and arbitrary basis.

(iii) That this being the initial year of claiming statutory deduction u/s 801 A, the notional adjustment of brought forward losses considered by the AO and confirmed by CIT(A) is not sustainable in the light of principle laid down in plethora of decisions of Supreme Court, High Courts and Tribunal read in consonance with CBDT Circular No.

2(i) That on facts and circumstances of the case, the Ld. CIT(A) was not justified in not excluding interest subsidy of Rs. 3,03,80,678/- being in the nature of capital receipt from book profit computed u/s 115JB of the Act.

(ii) That interest subsidy being capital receipt not taxable under normal provisions of the Income Tax Act, 1961, the same is liable to be excluded from book profit computed u/ s 115JB of the Act.

That orders of lower authorities are not justified on facts and same are bad in law.

That the appellant craves leave to add, alter, amend, substitute, withdraw and/or vary any grounds of appeal at or before the time of hearing.”

Observation of the court

We thus, find the coordinate bench of the Tribunal after considering the decision of Hon’ble Karnataka High Court in the case of B&B Infratech Ltd. (supra) and after placing reliance on the decision of Kolkata High Court in the case of Ankit Metal and Power Ltd. (supra) had decided the issue in favour of the assessee.

Before us Revenue has not placed any material on record to demonstrate that the decision rendered by Delhi Tribunal in the case of Indogulf Cropsciences Ltd. (supra) has been set aside/stayed/overruled by higher judicial forum. Further Revenue also not placed on record any contrary binding decision in its support. In view of the aforesaid facts and following the decision of the coordinate bench in the case of Indogulf Cropsciences Ltd. (supra), we hold that since the interest receipt under TUFS Scheme is capital in nature, it needs to be excluded while working out the book profits u/s 115JB of the Act. We direct accordingly. Thus, the ground of the assessee is allowed.

In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 12.05.2023