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Deferred Tax liability is an allowable exp or not for calculating Book Profit

Rajesh Kumar Das (CA Job) (25 Points)

02 August 2007

Iam working in a steel industry, which has started its& commmercial operation in 2006-07.

Profit before

tax is Rs 678.00 lacs

Deferred

Tax Liability is 206.00 Lacs

I wanted to know whether for calculating Book Profit for the purpose of paying MAT u/s 115 JB, deferred tax liability is to be added in the adjustments or not?

If we interpret the Provisions of Sec 115 JB - it is clearly written that

INCOME TAX PAID OR PAYABLE or PROVISIONS THEREOF is to be added to the profit as per Profit & Loss Account, to find the BOOK PROFIT.

Nowhere it has been mentioned about the Deferred Tax laibility.

Pls Suggest????????????

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7 Replies

Late CA Sampat Jain (Chartered Accountant) (4772 Points)
Replied 02 August 2007

In my opinion deferred tax liablity need not be added back to the book profit , because it is not covered by any of the items to be added back as per IT Act . However you may be required to fight the issue in appeallate proceedings , if the AO takes a otherwise view.
Please note the following also:
Assessing Officer must accept authenticity of accounts certified by statutory auditors - The Assessing Officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act.
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The asessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J.
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The use of the words ‘in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act’ was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an Assessing Officer under the Income-tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by the statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act - Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 (SC).

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miraj d shah (TAX CONSULTANTS) (49 Points)
Replied 08 August 2007

Yes deff tax can be deducted from Book Profit the ITAT kolkata has held the same in the case of Balrampur Chinni Mills Ltd reported as [2007] 14 SOT 372 (Kol.) it held I. Section 115JB of the Income-tax Act, 1961 - Minimum alternate tax - Assessment year 2004-05 - Assessing Officer made an addition of amount of deferred tax under Explanation (c) to section 115JB(2) for purposes of computing book profit - Whether since deferred tax charge is not covered by any of clauses of Explanation to section 115JB(2), such deferred tax charge is not required to be added back in computation of book profit for purpose of section 115JB and, therefore, addition made by Assessing Officer was to be deleted - Held, yes II. Section 115JB, read with section 115-O, of the Income-tax Act, 1961 - Minimum alternate tax - Assessment year 2004-05 - Whether distribution of profit payable as per provision of section 115-O is of similar nature as fringe benefit tax payable under Chapter XII-H - Held, yes - Whether since by virtue of Circular No. 8, dated 29-8-2005 fringe benefit tax is an allowable deduction in computation of book profit under section 115JB, tax on profit distributed as dividend under section 115-O is also allowable as deduction in computation of book profit for purpose of section 115JB - Held, yes

(Guest)

Hi Rajeshs, your view appears to be tenable in the eye of law. DTA/DTL is merely an accounting adjustment in accordance with provisions of the Companies Act 1956 which states compliance of ASs issued by the ICAI are mandatary.DTA/DTL is neither a liability nor a provision. Hence, no adjustments are called for. - Refer SC decesion in APPOLO TYRES case.

Rahul Gupta (Article) (47 Points)
Replied 16 October 2007

NO IM 100% SURE THAT YOU NEED NOT HAVE TO ADD DTL TO YOUR BOOK PROFITS AS SEC.115JB IS BASED PURELY ON THE DEEMING FICTIONS AND DTL IS NOT COVERED BY IT SO NO NEED TO ADD BACK IT.

(Guest)

Sir, I Want to know the status of Reliance Industries Ltd. v.s Deputy Commissioner of Income Tax , I.T.Appeal Nos. 3890 and 4045(Bom.) of 1991. Asstt. Year 1986-87, October 23,2003.

Please clarifiy the present situation of this case whether pending with High Court / Supreme Court or decided , also rquired judgment copy.

Matter: Notional Sale Tax Incentative.

Waiting for early reply

Thanks

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(Guest)

Why is fbt allowed as a deduction while calculating mat as per sec 115 JB nd not allowable while calculating Income as per Buisness & Profession.

SAURABH JAIN (Article ) (22 Points)
Replied 30 September 2008

I'm 101% sure that provision for deffered tax shall be added back if debited to P&L A/c,conversely,if it credited to P&L A/c,it shall be deducted..............