Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

[Section 115JB (2)]- Statement of Profit and Loss of the Company to be prepared as per provisions of the Companies Act. with Computation of Book Profit

Every assessee,—

(a)           being a company shall, for the purposes of this section, 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; or

(b)          being a company, to which the second proviso to Section 129(1) of the Companies Act. 2013 is applicable, shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of the Act governing such company.

[Section 115JB (2)]- Statement of Profit and Loss of the Company to be prepared as per provisions of the Companies Act. with Computation of Book Profit
[Section 115JB (2)]- Statement of Profit and Loss of the Company to be prepared as per provisions of the Companies Act. with Computation of Book Profit
[First and Second Provisos to Section 115JB (2)] :

While preparing the annual accounts including statement of profit and loss:

(i)            the accounting policies of the company;

(ii)           the accounting standards followed by the company for preparing such accounts including statement of profit and loss;

(iii)          the method and rates adopted for calculating the depreciation by the company.

shall be the same as have been adopted for the purpose of preparing such accounts including statement of profit and loss as laid before the company at its annual general meeting in accordance with on the provisions of Section 129 of the Companies Act, 2013
Further, where the company has adopted or adopts the financial year under the Companies Act, 2013, which is different from the previous year under the Income-tax Act, the above three (i.e. accounting policies, accounting standards and method of calculating depreciation) shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including statement of profit and loss for such financial year or part of such financial year falling within the relevant previous year.

When an Assessing Officer has power to Alter the Profit:

In the following cases, the Assessing Officer shall have power to rework or rewrite the statement of profit and loss:

(1)          Where the statement of profit and loss submitted is not as per Schedule III of the Companies Act.

(2)          Where the accounting policies or accounting standards or rate of depreciation adopted are different from those adopted for the statement of profit and loss prepared for the annual general meeting.

Assessing Officer has No Power to Scrutinize the Statement of Profit and Loss:

Where the statement of profit and loss has been prepared in accordance with Schedule III to the Companies Act and which has been scrutinised and certified by the statutory auditors and relevant authorities, the Assessing Officer has no power to scrutinise net profit in profit and loss account .

How to Compute Book Profit  under Section  115JB

‘Book profit’ is arrived at after making specified adjustments to the profit as shown in the statement of profit and loss so prepared. These adjustment can be made as per the following steps:—

See also  [Section 64]- Clubbing of Income of an Individual with income of Spouse, Minor Child, etc.

Step 1:

The Profit as shown in the statement of profit and loss shall be Increased by the following amounts:

(a)           the amount of income-tax paid or payable, and the provision therefor: or

(b)          the amounts carried to any reserves by whatever name called: or

(c)           the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or

(d)          the amount by way of provision for losses of subsidiary companies: or

(e)           the amount or amounts of dividends paid or proposed; or

(f)           the amount or amounts of expenditure relatable to any income to which section 10 , 11’ or 12 apply (i.e. incomes which are exempt from tax); or

(fa)        the amount or amounts of expenditure relatable to, income, being share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86;

(fb)        the amount or amounts of expenditure relatable to income accruing or arising to an assessee, being a foreign company, from,—

(A)          the capital gains arising on transactions in securities; or

(B)          the interest, royalty or fees for technical services chargeable to tax at the rate or rates (i.e. special rate(s)) specified in Chapter XII,

(fc)         the amount representing notional loss on transfer of a capital asset.

(fd)         the amount or amounts of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF; or

(g)           the amount of depreciation; or

(h)          the amount of deferred tax and provisions therefor; or

(i)            the amount or amounts set aside as provision for diminution in the value of any asset

(j)            the amount standing in revaluation reserve relating to revalued assets on the retirement or disposal of such asset if such amount is not credited to the statement of profit and loss.

(k)          the amount of gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred, as the case may be.

Step 2:

The profit as per the Statement of Profit and Loss shall be Reduced by the following:

(i)            The amount withdrawn from any reserves or provisions, if any, such amount is credited to the statement of profit and loss:

In other words, the amount withdrawn from any reserve, credited before 1.4.1997, shall not be reduced from the profit unless the same was debited to the statement of profit and loss at the time when such reserve was created.

Similarly, the amount withdrawn from the reserve created on or after 1.4.1997 and credited to the statement of profit and loss shall not be deducted while computing book profit unless the book profit in the year of creation of such reserve was increased by such reserve at that time.

See also  Self-Assessment [Section 140A] before Submitting Return Of Income

For purpose of computing book profit under section 115JB, amount withdrawn from revaluation reserve created after 1.4.1997. and credited to profit and loss account, is not to be reduced from net profit as per profit and loss account unless book profit had been increased by amount of reserve in year of creation of such reserve.

(ii)           The book profit under section 115JB shall be reduced by the amount of income to which provision of section 10 applies.

(iia)        the amount of depreciation debited to the statement of profit and loss (excluding the depreciation on account of revaluation of assets); or

(iib)        the amount withdrawn from revaluation reserve and credited to the statement of profit and loss, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia) above; or

(iic)         the amount of income, being the share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86, if any such amount is credited to the statement of profit and loss; or

(iid)        the amount of income accruing or arising to an assessee, being a foreign company, from,—

(A)          the capital gains arising on transactions in securities; or

(B)          the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII,

(iie)        the amount representing,—

(A)          notional gain on transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47; or

(B)          notional gain resulting from any change in carrying amount of said units; or

(C)          gain on transfer of units referred to in clause (xvii) of section 47,

if any, credited to the statement of profit and loss; or

(iif)         the amount of loss on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time o exchange where such shares are carried at a value other than the cost through profit or loss account, as the case may be; or

(iig)        the amount of income by way of royalty in respect of patent chargeable to tax under section
115BBF;

(iih)        the aggregate amount of unabsorbed depreciation and loss brought forward in case of a company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority .

See also  [Section 206C]- TCS on Profit and Gains from the Business of trading in Alcoholic Liquor, Forest Produce, Scrap, etc.

(iii)          the amount of loss brought forward or unabsorbed depreciation, whichever is less

(vii)        the amount of profits of sick industrial company for the assessment year commencing from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.

(viii)       the amount of deferred tax, if any such amount is credited to the statement of profit and loss:

  • the amount of profit derived from the activities of a tonnage tax company [Section 115VO] .

The amount computed after increasing or decreasing the above in Step 1 and Step 2, respectively, is known as Book-profit.

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