We converged to Ind AS in FY 2016-17 and claimed one-fifth of the transition reserve as a reduction from book profit. The Assessing Officer has knocked out three components. Which of them can he actually exclude?
Only the six items expressly listed in sub-clauses (A) to (F) of clause (iii) of the Explanation to s.115JB(2C) come out of the transition amount. Everything else adjusted in other equity (other than capital reserve and securities premium reserve) on the convergence date stays in, and one-fifth of it goes into book profit — as a decrease as much as an increase — in the year of convergence and each of the following four previous years.
Decided by the ITAT (George George K, Vice President and S.R. Raghunatha, Accountant Member (ITAT Chennai 'B' Bench)) on 2026-02-03, reported as ITA No.1708/Chny/2025, Assessment Year 2017-18; heard 12 November 2025, pronounced 3 February 2026. It bears on section 115JB, section 115JB(2A), section 115JB(2C), section 143(3), section 147, section 148 of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Deductions & Disallowances matters.
This is the first substantial Tribunal ruling this library carries on s.115JB(2C), and it decides three of the arguments assessing officers actually run. First, clause (F) excludes only cumulative translation differences of a "foreign operation" — a foreign subsidiary, associate, joint venture or branch — and cannot be stretched to exchange differences on a domestic company's own foreign-currency borrowings and payables. Second, an opening fair-value restatement of FVTPL investments on the convergence date is not the "provision for diminution" that Questions 1 and 6 of CBDT Circular 24/2017 shut out; the Circular is about later year-on-year mark-to-market movements. Third, a liability recognised for the first time on transition under Ind AS 37 (here mine restoration and a court-fixed fly-ash price) does not stop being a transition adjustment because the balance sheet calls it a "provision". The Bench also holds the sub-section operates symmetrically — the Department cannot accept the mechanism when it raises book profit and reject it when it lowers it. Limits worth stating to a client: this is a Tribunal order of February 2026, the Revenue's appeal time may not have run, and each of the three findings rests on a factual foundation (no foreign operation; valuation reports; a High Court order and a statutory mine-closure obligation) that a reader must be able to reproduce on his own facts.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The India Cements Ltd, a listed cement manufacturer, was required by the Ministry of Corporate Affairs notification to adopt Indian Accounting Standards from 1 April 2016 and prepared its financial statements for the year ended 31 March 2017 on that basis. On first-time adoption it recognised an Ind AS Transition Reserve of Rs.150,48,11,000 in other equity, made up of a provision towards mine-restoration expenses of Rs.95 crores, a provision for diminution in the value of investments of Rs.19,40,85,000, an adjustment for long-term foreign-currency borrowings of Rs.7,86,48,000, a provision for a TTPS fly-ash claim of Rs.19,26,00,000 and foreign-currency translation adjustments of Rs.8,94,78,000. In computing book profit for AY 2017-18 it reduced one-fifth of that reserve, Rs.30,09,62,200, relying on s.115JB(2C) and CBDT Circular No.24/2017 dated 25 July 2017, and reported the figure in Form 29B. The original assessment under s.143(3) was completed on 30 December 2019; a notice under s.148 followed on 31 March 2021 and the reassessment under s.143(3) read with s.147 dated 31 March 2022 raised MAT income from the returned Rs.205,33,76,642 to Rs.235,43,38,842. The Assessing Officer excluded three groups of items: the two foreign-currency amounts (one-fifth being Rs.178.95 lakhs and Rs.157.30 lakhs) on the footing that clause (F) of the Explanation excludes cumulative translation differences; the FVTPL investment adjustment (one-fifth Rs.388.17 lakhs) relying on Questions 1 and 6 of Circular 24/2017; and the TTPS fly-ash and mine-restoration provisions (one-fifth Rs.385.20 lakhs and Rs.1,900.00 lakhs) on the footing that provisions for expenses can never sit in retained earnings. The NFAC confirmed all three by order dated 11 April 2025 in terms substantially copied from the assessment order.
The appeal of the assessee was allowed in full. The assessee had correctly computed the transition amount at Rs.150.48 crores and was entitled to reduce book profit by one-fifth of it, Rs.30,09,62,200, for AY 2017-18. All three disallowances — Rs.178.95 lakhs and Rs.157.30 lakhs on foreign-currency differences, Rs.388.17 lakhs on the FVTPL fair-value restatement, and Rs.385.20 lakhs and Rs.1,900.00 lakhs on the fly-ash and mine-restoration provisions — were deleted (paragraphs 23, 29, 36 and 39).
Section 115JB(2C), inserted by the Finance Act 2017, is a complete code: it defines the transition amount, enumerates specific exclusions and prescribes the mechanism, and its object, evident from the language and from CBDT Circular No.24/2017, is to neutralise the one-time accounting impact of first-time Ind AS adoption by spreading it equally over five years whether the result is an increase or a decrease in book profit (paragraph 16). On the first issue, Ind AS 21 draws an unambiguous distinction between a "foreign operation" — a subsidiary, associate, joint venture or branch based in a foreign country — and "foreign-currency transactions" undertaken by a domestic entity, and the record showed the assessee had no foreign branch, subsidiary or operation requiring consolidation or translation; the amounts arose from foreign-currency denominated borrowings and payables, including long-term loans amortised under paragraph 46A of AS-11 and restated under Ind AS 21 on the transition date (paragraphs 19 and 20). Clause (F) excludes only adjustments relating to cumulative translation differences of a foreign operation and the lower authorities had conflated two distinct accounting concepts, enlarging the statutory exclusion beyond what Parliament provided (paragraph 21); the reliance on paragraph 48 of Ind AS 21 was misplaced because the classification of exchange differences in other comprehensive income governs year-on-year accounting and not the eligibility of opening transition adjustments recognised directly in retained earnings under Ind AS 101 (paragraph 22). On the second issue, the assessee had claimed no current-year mark-to-market loss; the adjustment was the mandatory restatement of the carrying value of investments to fair value as at the transition date required by Ind AS 109 read with Ind AS 101 and routed through retained earnings under paragraph 11 of Ind AS 101, the substance and not the nomenclature in internal schedules being determinative, and no exclusion in clause (iii) of the Explanation covers such a restatement (paragraphs 26 to 28). On the third issue, Ind AS 101 requires all adjustments arising from events and transactions before the transition date to be recognised directly in retained earnings, and recognising a liability under Ind AS 37 on transition does not convert it into a current-year expense; the fly-ash liability had crystallised on the High Court's order of 23 February 2017 fixing the rate at Rs.410/MT and related to earlier years' consumption, and the mine-restoration obligation arose from the Mineral (Conservation and Development) Rules 2017 and existed as a present obligation on the transition date, so both were quintessential transition adjustments and the statute excludes only the categories expressly enumerated (paragraphs 32 to 35). The Bench added that the appellate authority's approach was internally inconsistent in accepting the transition adjustments for corporate law and accounting purposes while excluding components for MAT purposes without statutory backing, that the provision is intended to operate symmetrically and not only when it increases tax, and that Circular No.24/2017 issued under s.119 is binding on the Department, which had shown neither a violation of it nor any applicable statutory exclusion (paragraphs 37 and 38).
The said exclusion cannot be extended, by interpretative fiat, to ordinary foreign-currency denominated transactions of a domestic enterprise.
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Handle my notice → Ask a CA on WhatsAppOnly the six items expressly listed in sub-clauses (A) to (F) of clause (iii) of the Explanation to s.115JB(2C) come out of the transition amount. Everything else adjusted in other equity (other than capital reserve and securities premium reserve) on the convergence date stays in, and one-fifth of it goes into book profit — as a decrease as much as an increase — in the year of convergence and each of the following four previous years. This was decided by the ITAT (George George K, Vice President and S.R. Raghunatha, Accountant Member (ITAT Chennai 'B' Bench)) and bears on section 115JB, section 115JB(2A), section 115JB(2C), section 143(3), section 147, section 148 of the Income Tax Act 1961. It is reported as ITA No.1708/Chny/2025, Assessment Year 2017-18; heard 12 November 2025, pronounced 3 February 2026. This is the first substantial Tribunal ruling this library carries on s.115JB(2C), and it decides three of the arguments assessing officers actually run. First, clause (F) excludes only cumulative translation differences of a "foreign operation" — a foreign subsidiary, associate, joint venture or branch — and cannot be stretched to exchange differences on a domestic company's own foreign-currency borrowings and payables. Second, an opening fair-value restatement of FVTPL investments on the convergence date is not the "provision for diminution" that Questions 1 and 6 of CBDT Circular 24/2017 shut out; the Circular is about later year-on-year mark-to-market movements. Third, a liability recognised for the first time on transition under Ind AS 37 (here mine restoration and a court-fixed fly-ash price) does not stop being a transition adjustment because the balance sheet calls it a "provision". The Bench also holds the sub-section operates symmetrically — the Department cannot accept the mechanism when it raises book profit and reject it when it lowers it. Limits worth stating to a client: this is a Tribunal order of February 2026, the Revenue's appeal time may not have run, and each of the three findings rests on a factual foundation (no foreign operation; valuation reports; a High Court order and a statutory mine-closure obligation) that a reader must be able to reproduce on his own facts. If it applies to you, the first step is this: Pull the Ind AS 101 first-time-adoption reconciliation and the note to "other equity" and build the transition amount line by line from the convergence date balance sheet, excluding only capital reserve and securities premium reserve.
The India Cements Ltd, a listed cement manufacturer, was required by the Ministry of Corporate Affairs notification to adopt Indian Accounting Standards from 1 April 2016 and prepared its financial statements for the year ended 31 March 2017 on that basis. On first-time adoption it recognised an Ind AS Transition Reserve of Rs.150,48,11,000 in other equity, made up of a provision towards mine-restoration expenses of Rs.95 crores, a provision for diminution in the value of investments of Rs.19,40,85,000, an adjustment for long-term foreign-currency borrowings of Rs.7,86,48,000, a provision for a TTPS fly-ash claim of Rs.19,26,00,000 and foreign-currency translation adjustments of Rs.8,94,78,000. In computing book profit for AY 2017-18 it reduced one-fifth of that reserve, Rs.30,09,62,200, relying on s.115JB(2C) and CBDT Circular No.24/2017 dated 25 July 2017, and reported the figure in Form 29B. The original assessment under s.143(3) was completed on 30 December 2019; a notice under s.148 followed on 31 March 2021 and the reassessment under s.143(3) read with s.147 dated 31 March 2022 raised MAT income from the returned Rs.205,33,76,642 to Rs.235,43,38,842. The Assessing Officer excluded three groups of items: the two foreign-currency amounts (one-fifth being Rs.178.95 lakhs and Rs.157.30 lakhs) on the footing that clause (F) of the Explanation excludes cumulative translation differences; the FVTPL investment adjustment (one-fifth Rs.388.17 lakhs) relying on Questions 1 and 6 of Circular 24/2017; and the TTPS fly-ash and mine-restoration provisions (one-fifth Rs.385.20 lakhs and Rs.1,900.00 lakhs) on the footing that provisions for expenses can never sit in retained earnings. The NFAC confirmed all three by order dated 11 April 2025 in terms substantially copied from the assessment order. The matter was decided on 2026-02-03 by the ITAT (George George K, Vice President and S.R. Raghunatha, Accountant Member (ITAT Chennai 'B' Bench)). On those facts the ITAT held as follows. The appeal of the assessee was allowed in full. The assessee had correctly computed the transition amount at Rs.150.48 crores and was entitled to reduce book profit by one-fifth of it, Rs.30,09,62,200, for AY 2017-18. All three disallowances — Rs.178.95 lakhs and Rs.157.30 lakhs on foreign-currency differences, Rs.388.17 lakhs on the FVTPL fair-value restatement, and Rs.385.20 lakhs and Rs.1,900.00 lakhs on the fly-ash and mine-restoration provisions — were deleted (paragraphs 23, 29, 36 and 39).
Section 115JB(2C), inserted by the Finance Act 2017, is a complete code: it defines the transition amount, enumerates specific exclusions and prescribes the mechanism, and its object, evident from the language and from CBDT Circular No.24/2017, is to neutralise the one-time accounting impact of first-time Ind AS adoption by spreading it equally over five years whether the result is an increase or a decrease in book profit (paragraph 16). On the first issue, Ind AS 21 draws an unambiguous distinction between a "foreign operation" — a subsidiary, associate, joint venture or branch based in a foreign country — and "foreign-currency transactions" undertaken by a domestic entity, and the record showed the assessee had no foreign branch, subsidiary or operation requiring consolidation or translation; the amounts arose from foreign-currency denominated borrowings and payables, including long-term loans amortised under paragraph 46A of AS-11 and restated under Ind AS 21 on the transition date (paragraphs 19 and 20). Clause (F) excludes only adjustments relating to cumulative translation differences of a foreign operation and the lower authorities had conflated two distinct accounting concepts, enlarging the statutory exclusion beyond what Parliament provided (paragraph 21); the reliance on paragraph 48 of Ind AS 21 was misplaced because the classification of exchange differences in other comprehensive income governs year-on-year accounting and not the eligibility of opening transition adjustments recognised directly in retained earnings under Ind AS 101 (paragraph 22). On the second issue, the assessee had claimed no current-year mark-to-market loss; the adjustment was the mandatory restatement of the carrying value of investments to fair value as at the transition date required by Ind AS 109 read with Ind AS 101 and routed through retained earnings under paragraph 11 of Ind AS 101, the substance and not the nomenclature in internal schedules being determinative, and no exclusion in clause (iii) of the Explanation covers such a restatement (paragraphs 26 to 28). On the third issue, Ind AS 101 requires all adjustments arising from events and transactions before the transition date to be recognised directly in retained earnings, and recognising a liability under Ind AS 37 on transition does not convert it into a current-year expense; the fly-ash liability had crystallised on the High Court's order of 23 February 2017 fixing the rate at Rs.410/MT and related to earlier years' consumption, and the mine-restoration obligation arose from the Mineral (Conservation and Development) Rules 2017 and existed as a present obligation on the transition date, so both were quintessential transition adjustments and the statute excludes only the categories expressly enumerated (paragraphs 32 to 35). The Bench added that the appellate authority's approach was internally inconsistent in accepting the transition adjustments for corporate law and accounting purposes while excluding components for MAT purposes without statutory backing, that the provision is intended to operate symmetrically and not only when it increases tax, and that Circular No.24/2017 issued under s.119 is binding on the Department, which had shown neither a violation of it nor any applicable statutory exclusion (paragraphs 37 and 38). In the words reproduced by the source cited on this page: "The said exclusion cannot be extended, by interpretative fiat, to ordinary foreign-currency denominated transactions of a domestic enterprise." The decision followed or applied CBDT Circular No.24/2017 dated 25 July 2017 — held binding on the Department under s.119 and applied; Ind AS 101 paragraph 11, Ind AS 21, Ind AS 37 and Ind AS 109 — applied as the accounting foundation of the transition amount.
It was decided by the ITAT on 2026-02-03 and is reported as ITA No.1708/Chny/2025, Assessment Year 2017-18; heard 12 November 2025, pronounced 3 February 2026. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 115JB, section 115JB(2A), section 115JB(2C), section 143(3), section 147, section 148, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal of the assessee was allowed in full. The assessee had correctly computed the transition amount at Rs.150.48 crores and was entitled to reduce book profit by one-fifth of it, Rs.30,09,62,200, for AY 2017-18. All three disallowances — Rs.178.95 lakhs and Rs.157.30 lakhs on foreign-currency differences, Rs.388.17 lakhs on the FVTPL fair-value restatement, and Rs.385.20 lakhs and Rs.1,900.00 lakhs on the fly-ash and mine-restoration provisions — were deleted (paragraphs 23, 29, 36 and 39). It arises in Assessment & Scrutiny, How Tax Law Is Read and Deductions & Disallowances matters, on section 115JB, section 115JB(2A), section 115JB(2C), section 143(3), section 147, section 148 of the Income Tax Act 1961, and was decided by George George K, Vice President and S.R. Raghunatha, Accountant Member (ITAT Chennai 'B' Bench). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Against each line, test it only against sub-clauses (A) to (F) of clause (iii) of the Explanation to s.115JB(2C); do not accept an exclusion that is not one of those six. Where exchange differences are disputed, show from Ind AS 21 and from the accounts that there is no foreign branch, subsidiary, associate or joint venture — the absence of any consolidation or translation of a foreign operation is the fact that defeats clause (F). For FVTPL investments, separate the opening restatement on the convergence date from later mark-to-market movements, and put the valuation reports on record; Circular 24/2017 bites only on the latter. Reconcile the transition amount to Form 29B and to the audited financial statements filed with the Registrar, and take the point that the same figures were accepted for corporate law purposes. Track the five-year spread year by year in a standing working, and diarise the two provisos to s.115JB(2C) — the year an asset or investment in sub-clauses (B) to (E), or a foreign operation in sub-clause (F), is retired, disposed, realised or transferred.
Validity check could not be completed. Validity check could not be completed. The order was pronounced on 3 February 2026 and no later treatment of it was located; the period for a s.260A appeal by the Revenue to the Madras High Court may well be open. Nothing doubting it was found, but nothing confirming it either. The statutory text of s.115JB(2A) and (2C) reproduced in the order was independently checked against the department's live section page for s.115JB (Year stamp: 2025) and matches. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order reproduces s.115JB(2A) and s.115JB(2C) with the full Explanation, which is why it is a safe source for the statutory text. Two things a reader should know. Paragraph 3 of the order says "The details of additions made by the AO and the contentions of the assessee are as under:" and is then followed by nothing — a table has dropped out of the electronic text; the individual figures nevertheless appear in paragraphs 6, 10, 11 and 12. The order at paragraph 10.4 refers to "clause (f) of the Explanation" in lower case where the statute and paragraph 21 use sub-clause (F) of clause (iii); they are the same provision. The assessee's own transition reserve was Rs.150.48 crores made up of the five components listed at paragraph 6, of which the Rs.95 crore mine-restoration figure is elsewhere in the order described as Rs.90 crores (paragraph 12 b) — the operative figures the Tribunal worked with are the one-fifth amounts it deleted. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal of the assessee was allowed in full. The assessee had correctly computed the transition amount at Rs.150.48 crores and was entitled to reduce book profit by one-fifth of it, Rs.30,09,62,200, for AY 2017-18. All three disallowances — Rs.178.95 lakhs and Rs.157.30 lakhs on foreign-currency differences, Rs.388.17 lakhs on the FVTPL fair-value restatement, and Rs.385.20 lakhs and Rs.1,900.00 lakhs on the fly-ash and mine-restoration provisions — were deleted (paragraphs 23, 29, 36 and 39).
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