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16. Treatment of Certain Statutory Deductions"[ Assessments of 'Companies']

 

(i)  Withdrawal from any Reserve or Provision [ Section 11 5JB(2)(i) (explanation)]

“The amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account); if any such amount is credited to the profit and loss account.
Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserve created or provision made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit under the book profit of such year has been increased by those reserves or provision (out of which the said amount was withdrawn) under this Explanation or Explanation below second proviso to Section uSiA, as the case be.”

 

The above explanation can be explained in following manner :

(ii) Case A. If reserve was created before 1-4-97

(a)       By debiting to profit and loss A/c In such a case if any amount is withdrawn from such reserve and is credited to profit and loss account then such amount is to be reduced from ‘Net worth’ while calculating ‘Book Profits’.

 

(b)       Otherwise than by debiting to profit and loss A/c : In such a case, if any amount is withdrawn from such reserve or provision during any previous year is credited to profit and loss account then it is not to be reduced from net profit of that previous year. For example, assessee company made revaluation of its fixed assets during previous year 200 1-02 and the increase in value of fixed assets amounting to Rs. 2,50,000 was credited to a separate reserve called ‘Revaluation Reserve’. Now, during previous year 2008-09 the company withdrew Rs. 1,50,000 from the revaluation reserve and credit to profit and loss account. In such a case, this amount shall not to be reduced from net profit while calculating ‘book profit’.

 

(iii)    Case B. (1) If reserve was created on or after 1-4-97

In such a case, any amount withdrawn from such reserve shall be reduced from ‘Book profits’ only if, in the year of creation of such reserve/provision, the net profit was increased by the amount of reserve created while calculating book profits.

For example : Profit and Loss a/c for previous year 2013-14

 

Debit                                       Rs.                                          Credit                                                 Rs.


To transfer to General Reserve 1,00,000

 

While calculating ‘book profits for the previous year 2013-14, the above Rs. 1,00,000 must have to be added back to net profit. Now, if during previous year 2013-14, any amount is withdrawn from such reserve and is credited to profit and loss account then it shall be reduced from net profits while calculating ‘book profits’.

 

(iv) B/F loss or Unabsorbed depreciation

 

Section 1 15JB (2)(iii)(Explanation) provides for a deduction of loss brought forward or unabsorbed depreciation, whichever is less, as per books of accounts.


Important point to be noted is that brought forward loss shall not include brought forward unabsorbed depreciation. In case brought forward loss includes brought forward unabsorbed depreciation then, brought forward unabsorbed depreciation shall be reduced from brought forward loss.

 

Example:

Brought forward loss Rs. 2,50,000 and it includes Rs. 1,00,000 as brought forward unabsorbed depreciation. Such loss shall be reduced by the brought forward unabsorbed depreciation i.e. Rs. 1,00,000 and balance loss of Rs. 1,50,000 or brought forward unabsorbed depreciation Rs. 1,00,000 whichever is less shall be reduced from book profit.

(v) MAT Provisions not to affect c/f & set off provision provided under Income Tax Act

Section 11 51B( 1) shall not affect in any way the following amounts to be carried forward to the subsequent year or years as provided under Income Tax Act, 1961:

 

(1)       Brought forward unabsorbed depreciation as provided u/s 32 (2)

 

(2)       nvestment Allowance as provided u/s 32A (3)

 

(3)       Business loss as provided u/s 72 (1) (ii)

 

(4)       Losses in speculation business as provided u/s 73

 

(5)       Losses under the head “Capital Gains” (Short term and long term) as provided u/s 74

 

(6)       Losses from activity of owning & maintaining of race courses as provided u/s74A(3)

 

These amounts can be carried forward & set off against future year or years as per provisions contained in respective sections.

(vi) Furnishing of report from Chartered Accountant [Section 115JB(4)]

The company shall furnish a report in the prescribed form from an accountant certifying that the book profit, has been computed in accordance with the provisions of this section. This report has to be furnished along with the return of income filed u/s 139 (1) or along with the return of income furnished in response to a notice u/s 142(i).

 

Important. Save as otherwise provided in this section; all other provisions of this Act shall apply to every company assessee liable to pay MAT.

 
 
 
 
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