Section 115JB

Section 115JB — the law in short

What the courts have decided on section 115JB, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Sarla Holdings P Ltd v PCIT Supreme CourtHelps department
  I did not tick s.115BAA in the return and filed Form 10-IC late. Can I still get the concessional rate?
  No, if the return itself did not opt. Section 115BAA(5) requires the option to be exercised in the prescribed manner on or before the s.139(1) due date, and Circular 6/2022 condones only a late Form 10-IC where the option was in fact exercised in the return. A company that marked 'None of the above' cannot claim the benefit later, and s.115JB applies.
• JCIT v Rolta India Ltd Supreme CourtHelps department
  My company paid no advance tax because we only knew we would fall under MAT once the accounts were audited — is interest under sections 234B and 234C still chargeable on the tax on book profit?
  Yes. The Supreme Court held on 7 January 2011 that interest under sections 234B and 234C is payable on failure to pay advance tax in respect of tax payable under section 115JA or section 115JB. Neither interest section makes any exception for the minimum alternate tax, and assessed tax means the tax determined on regular assessment, which is the tax determined by applying those provisions. Both sections 115JA and 115JB expressly say that all other provisions of the Act apply to a MAT company, and the Finance Acts provided for advance tax on them. Circular No. 13/2001 therefore has no application.
• CIT v Tulsyan NEC Ltd Supreme CourtHelps taxpayer
  The Assessing Officer computed interest under s.234B and s.234C first and only then gave me credit for MAT under s.115JAA. My refund has turned into a demand. Is that the right order?
  No. MAT credit admissible under s.115JAA must be set off against the tax payable before interest under s.234B and s.234C is calculated, not after. The right to the set-off crystallises when the tax under s.115JA (now s.115JB) is paid and does not depend on any determination by the Assessing Officer, so an assessee may take the credit into account even when estimating advance tax on its current income.
• Ajanta Pharma Ltd v CIT Supreme CourtHelps taxpayer
  When I reduce export profits from book profit under section 115JB, do I take the full section 80HHC(3) figure or only the 80 per cent the phase-out allows?
  The full figure. The Supreme Court held that clause (iv) of the Explanation to section 115JB reduces book profit by the amount of profits eligible for deduction under section 80HHC as computed under sub-section (3) or (3A), and the phased percentages in section 80HHC(1B) do not cut it down. Section 80HHC(1) governs eligibility and sub-section (3) the computation, while sub-section (1B) deals only with the extent of the deduction. Section 115JB is a self-contained code taxing deemed income and operates in a different sphere. So on export profits of Rs 100 crore the downward adjustment is Rs 100 crore, not Rs 80 crore.
• Rama Industries Ltd v PCIT Mumbai-3 High CourtHelps taxpayer
  The portal would not accept Form 10-IC for FY 2019-20 before the Circular 6/2022 cut-off of 30 June 2022, and I filed it physically eleven days late. Is the s.115BAA benefit lost?
  No. The Bombay High Court quashed the rejection under s.119(2)(b) and condoned the delay where the assessee had selected s.115BAA in the return, had saved a draft Form 10-IC on the portal before the cut-off but could not submit it because the Financial Year 2019-20 option was not available, and filed a physical Form with the Jurisdictional Assessing Officer eleven days after the extended date.
• Pr. CIT v Gujarat Industries Power Co. Ltd — where the accounts depart from the company's own accounting policy, the book profit can be altered High CourtCuts both waysNo later treatment found
  I have always understood that under Apollo Tyres the Assessing Officer cannot touch audited accounts. He says s.115JB is wider than s.115J and that our profit and loss account was not drawn in accordance with our own stated revenue recognition policy. Is there anything in that?
  There is, but note at once how the point comes down: the High Court dismissed the Revenue's appeal holding that no substantial question of law arose, so the proposition below is the reasoning of the CIT(A), confirmed by the Tribunal and left undisturbed, and not the High Court's own. The Apollo Tyres bar is not absolute under s.115JB: the net profit can be altered where the profit and loss account was not drawn up in accordance with Parts II and III of Schedule VI to the Companies Act, and where the accounting policies and accounting standards were not correctly adopted for the accounts laid before the annual general meeting. On these facts the amount actually recovered had to be recognised as revenue under the company's own stated policy, and Rs.16.01 crores was rightly added to book profit — but the balance of Rs.78.1 crores, not being recovered, was not.
• Sobha Developers Ltd v DCIT High CourtHelps taxpayer
  Can the Rule 8D figure be added back to book profit under clause (f) of the Explanation to s.115JB?
  The Karnataka High Court held it cannot. A disallowance under s.14A is a notional disallowance, and the amount cannot be added back to book profit under clause (f) by taking recourse to s.14A. Clause (f) can operate only on amounts actually debited to the profit and loss account.
• CIT v Saint Gobain Glass India Ltd High CourtHelps taxpayer
  CPC has computed my MAT credit on income-tax alone and left out the surcharge and the education cess in both the MAT and the normal computation. That has cut the credit down. Is the Department right?
  No. The Madras High Court held that MAT credit under s.115JAA includes surcharge and education cess and is not confined to income-tax stripped of them, following its own earlier judgment in PCIT v. Scope International Pvt. Ltd. and the Supreme Court's construction of 'income tax' in CIT v. K. Srinivasan. The Revenue's appeal was dismissed and the substantial question answered against it.
• CIT-LTU v Union Bank of India (Bombay High Court) — section 115JB did not apply to a banking company before the Finance Act 2012, because the machinery in sub-section (2) was unworkable for it High CourtHelps taxpayerNo later treatment found
  The Assessing Officer has raised a MAT demand on my client bank for an assessment year before 2013-14. Can section 115JB apply at all to a company whose accounts are prepared under the Banking Regulation Act?
  Not for a year before the Finance Act 2012 amendment. The Bombay High Court held that section 115JB as it stood before that amendment would not be applicable to a banking company, because sub-section (2) required the profit and loss account to be prepared under Parts II and III of Schedule VI to the Companies Act 1956 while its first proviso required the same accounting policies, accounting standards and depreciation method and rates as were used for the accounts laid before the annual general meeting — accounts which a bank necessarily prepares under the Banking Regulation Act 1949. A bank could satisfy one requirement or the other but not both, so the machinery provision failed, and on the principle in B.C. Srinivasa Setty a case in which the computation provision cannot apply was not intended to fall within the charging section. All the Revenue's appeals were dismissed.
• Pr. CIT v New Holland Fiat (India) Pvt Ltd — a warranty provision is an ascertained liability and stays out of book profit High CourtHelps taxpayerNo later treatment found
  The Assessing Officer has added our provisions for warranty, gratuity and leave encashment to book profit under clause (c) of Explanation 1 on the footing that they are unascertained liabilities. Are they?
  No. Clause (c) adds back only amounts set aside to provisions made for meeting liabilities other than ascertained liabilities, and a provision for warranty made on the Rotork Controls basis is an ascertained liability. Provisions for gratuity, warranty and leave encashment are not contingent or unascertained and cannot be adjusted in computing book profit under s.115JB.
• M/s Gie Jewells v PCIT High CourtHelps departmentNo later treatment found
  My client is a firm, not a company. It paid alternate minimum tax under s.115JC when it filed its return, along with the accountant's report. The Assessing Officer has charged interest under s.234B for not paying that tax as advance tax. Can advance tax provisions apply to AMT?
  Yes, on this Court's view. The Rajasthan High Court dismissed the assessee's appeals, holding that having retained the amount which was supposed to be paid under s.115JC, s.234B was rightly invoked, and that no substantial question of law arose from the Tribunal's treatment of s.115JC on the same footing as s.115JA and s.115JB for the purpose of the advance-tax obligation under s.208.
• PCIT v IL & FS Energy Development Company Ltd High CourtHelps taxpayerSuperseded by amendment
  The officer relies on CBDT Circular 5/2014 to disallow under s.14A although I earned no exempt income at all in the year. Does the Circular carry it?
  For years before the Finance Act 2022 Explanation, no. The Delhi High Court held that Circular No. 5/2014 cannot override the express provisions of s.14A read with Rule 8D, because Rule 8D(1) speaks of income not forming part of total income 'for such previous year' — so if no exempt income was earned in the year, no disallowance arises. That position has since been altered prospectively by statute, and the entry must be read with that.
• CIT v Vodafone Essar Gujarat Ltd (Full Bench) — clause (i) catches a provision for doubtful debts but not an actual write-off High CourtCuts both ways
  The Assessing Officer has added our provision for bad and doubtful debts to book profit under clause (i) of Explanation 1, relying on the retrospective 2009 amendment. We reduced the provision from sundry debtors on the asset side. Does that make a difference?
  It does. After the retrospective insertion of clause (i) by the Finance (No.2) Act 2009 from 1 April 2001, a provision for diminution in the value of any asset — which is what a provision for doubtful debts is — must be added back, and the earlier line based on HCL Comnet under clause (c) no longer helps. But if the assessee simultaneously obliterates the provision by reducing the corresponding amount from loans and advances or debtors on the asset side, so that the balance sheet shows those figures net of the provision, that is an actual write-off and clause (i) is not attracted.
• CIT v Nalwa Sons Investments Ltd High CourtHelps taxpayerSuperseded by amendment
  My company was finally assessed on book profit under section 115JB. Can the officer still levy concealment penalty on a disallowance he made in the normal computation?
  No. The Delhi High Court held that where the assessment is finally made on book profit under section 115JB because that figure is higher, a disallowance in the normal computation produces no additional tax and so there is no amount of tax sought to be evaded within Explanation 4 to section 271(1)(c). The Court accepted that the assessee had made a false claim of depreciation on machinery it could not show it had used, and it disagreed with the reasons the Commissioner (Appeals) and the Tribunal had given. It still upheld the deletion of penalty, because the concealment had no role to play once tax was charged on book profit.
• ACIT v Reliance Industrial Investments and Holdings Ltd — a compound financial instrument needs a liability component before s.115JB(2C) bites ITATHelps taxpayer
  On conversion to Ind AS our convertible debentures were parked under "other equity" and a note called them the equity component of a compound financial instrument. The Assessing Officer has treated the whole amount as transition amount and is adding one-fifth a year to book profit. Can he?
  Not if the instrument has no liability component. Ind AS 32 requires a compound financial instrument to have both a liability component and an equity component, and where the balance sheet shows the debentures as an instrument entirely equity in nature, they are not a compound financial instrument, are therefore no part of the transition amount defined in s.115JB(2C), and no one-fifth adjustment can be made.
• ITO v Western Developers Private Limited — once the s.115BAA option stands, s.115JB has no application at all ITATHelps taxpayerNo later treatment found
  CPC has processed our return under s.143(1), rejected the s.115BAA option because Form 10-IC was late, and raised a demand by computing book profit under s.115JB. Can it do both?
  No. Sub-section (5A) of s.115JB says in terms that the section shall not apply to a person who has exercised the option under s.115BAA or s.115BAB. Once the option is held good, the MAT provisions cease to apply and the tax liability must be computed under s.115BAA without invoking s.115JB — and here the option was held good because it had been accepted for three earlier years on a Form 10-IC filed in March 2021.
• 360 One Distribution Services Ltd v DCIT — s.80A(5) kills a s.80JJAA claim first made before the Commissioner (Appeals) ITATHelps departmentNo later treatment found
  We missed the s.80JJAA claim in the return and raised it for the first time in appeal, with the Form 10DA report in hand. Can the Commissioner (Appeals) or the Tribunal still allow it?
  No. The Mumbai Tribunal held that s.80A(5) disentitles an assessee from claiming a deduction under s.80JJAA where the claim was not made in the return of income, and that this disposes of the matter without going into any other aspect. It was no answer that the chartered accountant's Form 10DA had been issued, because the Tribunal found nothing on record that prevented the assessee from raising the claim and filing Form 10DA before the Assessing Officer during the scrutiny proceedings, which ran on until the assessment order was passed. The appeal was dismissed.
• The India Cements Ltd v DCIT — what goes into the Ind-AS "transition amount" under s.115JB(2C) ITATHelps taxpayerNo later treatment found
  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.
• ACIT v Lahari Holiday Homes (P) Ltd — the s.115BAA option can be exercised in a revised return, and the MAT credit then goes ITATHelps taxpayer
  We filed the original return under MAT claiming MAT credit, then filed a revised return within the due date opting for s.115BAA. The Assessing Officer says that is a prohibited withdrawal of the option. Is it, and what happens to the MAT credit and our brought-forward losses?
  It is not a withdrawal. A revised return under s.139(5) substitutes the original return and assumes the character of a return under s.139(1), so an option exercised for the first time in a revised return filed within the due date is a valid first exercise — there was no earlier exercise capable of being withdrawn. But once the concessional regime is allowed, no MAT credit can be claimed for that year; and s.115BAA(2) bars set-off only of losses attributable to the deductions it specifies, not of ordinary brought-forward business and capital losses.
• Reckitt Benckiser Healthcare India Pvt Ltd v DCIT ITATHelps department
  Our demerger was sanctioned by the High Court. The AO now says it is not a demerger under s.2(19AA) and has taxed capital gains and dividend distribution tax. Can he go behind the sanctioned scheme?
  Yes, on the tax conditions. The Tribunal held that the legal obligation of the revenue authorities to examine taxability under ss.2(22) and 2(19AA) is not pre-empted by the High Court's sanction of the scheme, and that the assessee had failed to comply with s.2(19AA)(ii) and (iii). A segment whose liabilities were knocked off against its assets, so that only assets and nil liabilities passed to the resulting company, does not satisfy the requirement that all liabilities relatable to the undertaking be transferred.
• ITD Cementation India Ltd v DCIT — an omitted Ind-AS reduction from book profit can still be claimed before the appellate authority ITATHelps taxpayerNo later treatment found
  We forgot to claim the one-fifth transition amount and the s.115JB(2A)(b) other-comprehensive-income reduction in the return. We raised it by letter during the assessment. The CIT(A) has thrown it out because no revised return was filed. Is that the end of it?
  No. The bar on entertaining a fresh claim without a revised return operates against the Assessing Officer, not against an appellate authority. Where the material was before the CIT(A) he should have examined it and granted the reduction from book profit if it was allowable, and the Tribunal restored the two Ind-AS claims to the Assessing Officer to be reconsidered on the revised Form 29B.
• Alrameez Construction P Ltd v CIT/NFAC ITATHelps taxpayer
  The only addition is the gap between the stamp duty value and my price. Can that carry a s.270A penalty?
  No, on this Tribunal's reasoning, and note the facts it rests on. The Tribunal read s.270A as dealing with deemed income only where the addition is made under s.115JB or s.115JC, so an addition under s.43CA read with s.56(2)(x) falls outside the under-reporting scheme; where a deeming provision applies the assessee has no option but to accept the difference, so neither concealment nor under-reporting can be established. Two further grounds carried the result: the notice never said which limb of s.270A was charged, and the assessment order itself recorded that the assessee had accepted the addition to buy peace. The penalty of Rs. 20,843 was deleted; the addition of Rs. 1,34,100 stands.
• PVR Pictures Ltd v DCIT — "unabsorbed depreciation" in clause (iii) means the unabsorbed part, not the whole depreciation charge ITATHelps taxpayer
  The CIT(A) has recomputed my clause (iii) reduction by taking the entire depreciation charge of an earlier year as unabsorbed depreciation, which wipes out my brought-forward loss and leaves me with nothing. Is that the right way to do the working?
  No. Clause (iii) of Explanation 1 to s.115JB(2) uses the words "unabsorbed depreciation", not "depreciation", and the difference is deliberate: where an earlier year threw up a standalone book profit before depreciation, that year's depreciation stands adjusted against the profit so available and only the balance is unabsorbed. Taking the gross depreciation charge instead of the unabsorbed component is contrary to the language of the clause.
• Pricol Engineering Industries Ltd v ACIT ITATHelps taxpayer
  We gave away a loss-making division at zero consideration; its liabilities exceeded its assets. The Principal Commissioner has revised the assessment under s.263 saying the negative net worth should have been taxed. Is that revision sustainable?
  Not on those facts. The Chennai Tribunal accepted that a negative net worth is to be taken into account in computing the capital gain, but only where there is a positive consideration; where the slump sale consideration is nil, reducing a negative net worth from nil still produces nil, so no tax was lost. The revision failed the second limb of s.263 — no prejudice to the Revenue — and was quashed.
• Landis+Gyr Ltd v DCIT ITATHelps taxpayerNo later treatment found
  MSMED interest is disallowed under the normal provisions. Does it also have to be added back to book profit?
  No - and the Tribunal decided it by adoption. It noted that the issue raised in Ground No. 10 had been decided by the Tribunal in the assessee's own case by its consolidated order dated 13 September 2017 for assessment years 2010-11 and 2011-12, reproduced that order, and allowed the ground on the strength of it. The reasoning reproduced is that s.23 of the MSMED Act operates on the computation of income under the normal provisions and not on the computation of book profit under s.115JB, and that a provision for interest payable to MSMED suppliers, being an ascertained liability, does not have to be added back.
• ACIT v Vireet Investment Private Limited (Special Bench) ITATHelps taxpayer
  The officer has added the s.14A disallowance to my book profit under s.115JB. Can he do that?
  Not by simply carrying the s.14A figure across. A Special Bench of the Tribunal held that the addition under clause (f) of Explanation 1 to s.115JB(2) has to be worked out on its own, without resorting to the computation under s.14A read with Rule 8D. Clause (f) requires the expenditure actually relatable to exempt income to be identified.
• DCIT v National Insurance Co. Ltd (ITAT Kolkata) — under s.44 and Rule 5 an amortised premium and an investment written off are neither expenditure nor allowance nor provision, and the unexpired-risk reserve stays out of book profit ITATHelps taxpayerNo later treatment found
  The Assessing Officer has disallowed my general insurance client's amortisation of premium on investments and its investments written off, and has added the reserve for unexpired risks to book profit under s.115JB. What is the limit on his power?
  The Kolkata Tribunal dismissed all three of the Revenue's appeals. It upheld the Commissioner (Appeals) in deleting the disallowance of amortisation of premium paid on purchase of investments and of investments written off, on the footing that under section 44 read with Rule 5 of the First Schedule the Assessing Officer may add back only an expenditure, an allowance or a listed provision that is inadmissible under sections 30 to 43B, and an amount amortised or written off is none of those. It also upheld the Commissioner (Appeals) in holding that the reserve created for unexpired risk need not be added back in computing book profit under section 115JB, that reserve having been created not by a debit to the profit and loss account but out of the premium received, as the Insurance Act 1938 requires and as Rule 5(c) of the First Schedule and Rule 6E of the Income-tax Rules recognise.
• CBDT Circular 5/2024 CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  The department says the monetary limit does not apply to my case. Which exceptions let it appeal anyway?
  The listed ones only: constitutional validity of a provision, a Board order, instruction, circular or notification held illegal or ultra vires, information from law enforcement agencies such as the CBI or ED, cases where prosecution has been launched or a conviction recorded, adverse judicial comments against revenue authorities, undisclosed foreign income or assets, organised tax evasion, court-directed appeals, TDS/TCS disputes turning on the nature of the transaction, and questions on the applicability of a DTAA.
• CBDT Circular No. 29/2019 — MAT credit on opting into s.115BAA CBDT Circulars & InstructionsHelps department
  My client company has a large MAT credit and wants the 22 per cent rate under s.115BAA. Does the credit survive the switch?
  No. The Board has clarified that because s.115JB itself ceases to apply to a domestic company that exercises the s.115BAA option, 'the tax credit of MAT paid by the domestic company exercising option under section 115BAA of the Act shall not be available consequent to exercising of such option'. The same circular carries the answer to the problem: since there is no time limit for exercising the option, a company holding MAT credit may exercise it after utilising the credit against regular tax under the pre-Ordinance regime.
• Statutory position — s.115JB(2): the two routes to book profit, and why a bank's or insurer's MAT computation is not made on the Schedule III footing CBDT Circulars & InstructionsCuts both ways
  I am computing MAT for a banking company. Do I recast its accounts into the Schedule III format of the Companies Act, or do I start from the accounts it actually prepares under the Banking Regulation Act?
  You start from the accounts it actually prepares under its own governing Act. Section 115JB(2) is in two clauses. Clause (a) applies to a company OTHER THAN one referred to in clause (b) and requires it to prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of Schedule III to the Companies Act, 2013. Clause (b) applies to a company to which the SECOND PROVISO to sub-section (1) of section 129 of the Companies Act, 2013 is applicable — that proviso disapplies the ordinary financial-statement form to any insurance or banking company, any company engaged in the generation or supply of electricity, and any other class of company for which a form of financial statement has been specified in or under the Act governing it — and requires such a company to prepare its statement of profit and loss in accordance with the provisions of the Act governing it. A MAT computation for a bank built on the Schedule III footing is therefore built on the wrong base.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.