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6. The Ld. AR took us through the observations of the CIT(A) in context of the issue under consideration. It was submitted by the Ld. A.R that by virtue of sub-section (6) of Sec. 211 of the Companies Act,1956 the reference to the balance sheet or the profit & loss account of a company shall include the ‗Notes' to the accounts giving information required under the said Act. In support of his aforesaid contention the Ld. A.R relied on the judgment of the Hon'ble High Court of Delhi in the case of CIT Vs. Sain Processing and Waiving Mills (P) Ltd. (2010) 325 ITR 565 (Del). The Ld. AR taking us through the facts of the aforementioned case submitted, that the assessee in the case before the Hon'ble High Court had not charged current year ‗depreciation' in its profit and loss account which was prepared in the form Mukund Limited Vs. ITO-3(2)(2) 7 prescribed i.e Part II and III of Schedule VI of the Companies Act,1956, but had disclosed the fact along with the quantum of current year depreciation computed in accordance with Sec.205(2) of the Companies Act,1956 as per the mandate of Clause 3(iv) of Part II of Schedule VI to the Companies Act,1956 by way of a ‗Note' to the accounts. It was submitted by the ld. A.R, that the Hon'ble High Court observed that as long as the depreciation which was though not charged to the profit & loss account was disclosed in the ‗Notes' of the accounts, it would come within the expression of the ‗shown' in the profit and loss account, as the notes to the accounts, form part of the profit & loss account by virtue of sub-sec (6) of Sec. 211 of the Companies Act, 1956. In the back drop of the aforesaid observations, it was held by the High Court that though the current year depreciation had not been debited by the assessee to the profit and loss account, however, as the ‗notes' to accounts formed part of the accounts, thus the same would in no way deprive the assessee of its claim for deduction of the same from the ‗net profit' for arriving at the figure of ‗book profit' under Sec. 115JB of the Act. The ld. A.R taking support of the aforesaid judicial pronouncement submitted, that as long as the disclosure is made by the assessee in the ‗notes' to the accounts, the same would form part of the profit and loss account by virtue of sub-sec. (6) of Sec. 211 of the Companies Act, 1956. The Ld. A.R further relied on the order of the ITAT, Pune Bench ‗A' in the case of K.K Nag Ltd. Vs. Addl. CIT, Range-9, Pune [(2012) 52 SOT 381 (Pune)]. It was submitted by the Ld. A.R that the Tribunal in the aforementioned case had observed that in view of Sec. 211 of the Companies Act,1956 the net profit as shown in the profit and loss account for the purpose of Explanation 1 of the second proviso to Sec. 115JB was to be understood with reference to the ‗Notes' to accounts accompanying the annual accounts. It was observed by the Tribunal that where the incremental liability towards leave encashment had not been debited by the assessee to its profit and loss account, but was disclosed in the ‗Notes' to accounts, the same would have to be deducted while determining the ‗book profit' u/s 115JB of the Act. The Ld. A.R further relied on the order of the ITAT, Mumbai ―J‖, Mumbai in the case of M/s. JSW Steel Limited Vs. ACIT, Mukund Limited Vs. ITO-3(2)(2) 8 Circle-11(5), Bangalore (ITA No. 923/Bang/2009; dated 13.01.2017). It was submitted by the Ld. A.R that in the aforementioned case wherein a similar issue was involved the assessee had entered into a Financial Restructuring Package i.e ‗Corporate Debt Restructuring Package' (for short ‗CDR') in respect of loans taken from various Indian and foreign financial institutions. The assessee in the said case had entered into an agreement to settle the dues, pursuant to which principal and interest payable were reworked and part of the same amounting to Rs. 390,76,03,999/- was waived. Accordingly, the entire sum of Rs. 390,76,03,999/- was credited by the assessee to its profit and loss account as an exceptional item on account of waiver of the principal and interest payable thereon, with a specific note in the accounts that the exceptional item represented waiver of dues on settlement with certain lenders and since the principal amount of borrowing of Rs. 228.46 crore was utilized to pay purchase price of the plant and machinery imported by the assessee for setting up steel plants, therefore, it amounted to a capital surplus and was not a trading liability. It was submitted by the Ld. A.R that the Tribunal after deliberating at length on the issue under consideration had concluded that as the assessee company was in receipt of a ‗capital receipt' which was not chargeable to tax at all, that is, it does not fall within any of the charging section or can be classified under any heads of income under the Income-tax Act, then the same cannot be treated as part of the net profit as per the profit & loss account or reckoned as ‗working result' of the company of the relevant previous year and consequently, cannot be held to be taxable as ‗book profit' under MAT in terms of Sec. 11JB. On the basis of its aforesaid observations, the Tribunal had in the aforesaid case concluded that the capital surplus on waiver of dues is neither taxable nor can be included in the computation of the ‗book profit' under Sec. 115JB of the Act. On the basis of the aforesaid submissions it was averred by the Ld. A.R that the amount of Rs. 162,30,33,516/- waived in respect of principal and interest under OTS with the lenders was rightly excluded by the assessee company for the purpose of computing the ‗book profit' u/s 115JB of the Act.

15. We find that in the case of the assessee before us the auditors had by way of ‗notes' at Para 3(vi)(9) and Para 3(vi)(11) of Auditors Report qualified the financial statements and had specifically mentioned that the benefit of waiver of loan on OTS with the lenders had been credited to the profit & loss account of the company prior to the fulfilment of the conditions of the settlement, and that such credit has not yet accrued to the assessee. It is Mukund Limited Vs. ITO-3(2)(2) 15 stated by the auditors that taking of such credit which had not yet ‗accrued' to the company had translated the loss to the extent of Rs. 162,30,33,516/- into profit, and the same had an equivalent effect to the reserves and surpluses of the company. Further, the assessee company had in its revised return of income categorically claimed that the waiver of principal and interest amount under OTS with the lenders amounting to Rs. 162,30,33,516/- was not liable to be included in the total income for the purpose of computing the ‗book profit' as per Sec. 115JB of the Act. It is thus a matter of record that the auditors of the assessee company had at the very initial stage disclosed all the particulars, and by way of qualification ‗notes' to the auditors report had mentioned that the benefit of the OTS made with the lenders resulting in waiver of principal and interest had been credited by the assessee company to the profit & loss account prior to the accrual of the same to the assessee company. In our considered view by virtue of sub-section (6) of Sec. 211 of the Companies Act,1956 the reference to the balance sheet or the profit & loss account of a company shall include the ‗notes' to the accounts giving information required under the said Act. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Delhi in the case of CIT Vs. Sain Processing and Waiving Mills (P) Ltd. (2010) 325 ITR 565 (Del). The Hon'ble High Court of Delhi in its aforesaid judgment observing that ‗notes' to the accounts form part of the P & loss account by virtue of sub-s. (6) of s. 211 of the Companies Act, 1956, held as under:

According to us, once this information is disclosed in the notes to the account it would clearly fall within the ambit of the Explanation to s. 115J of Mukund Limited Vs. ITO-3(2)(2) 16 the Act which defines "book profit" to mean 'net profit' as 'shown' in the P&L a/c for the relevant assessment year.

4.10 To our minds, as long as the depreciation which is not charged to P&L a/c but is otherwise disclosed in the notes of the accounts, it would come within the ambit of the expression 'shown' in the P&L a/c, as notes to the account, form part of the P&L a/c by virtue of sub-s. (6) of s. 211 of the Companies Act, 1956. This is quite evident if the provisions of sub-s. (6) of s. 211 of the Companies Act, are read in conjunction with, sub-s. (1A), as well as, the Explanation to s. 115J of the Act.‖ Still further, the coordinate bench of the Tribunal i.e ITAT, Pune in K.K Nag Vs. Addl. CIT (2012) 52 SOT 381 (Pune) observing that in view of Sec. 211 of the Companies Act,1956 the ‗net profit' as shown in the profit and loss account for the purpose of Explanation 1 of the second proviso to Sec. 115JB was to be understood with reference to the ‗notes' to accounts accompanying the annual accounts, has held as under:

―12. In our view, the aforesaid parity of reasoning is squarely applicable in the present situation also, inasmuch as the provisions of section 115J of the Act and 115JB of the Act which are before us, are pari materia in so far as it relates to the obligation on a corporate assessee to prepare its Profit & Loss account for the relevant previous year in accordance with the provisions of Part II & III of Schedule VI to Companies Act, 1956. Therefore, having regard to the aforesaid parity of reasoning, once it is clear that the information towards incremental liability of leave encashment, which has not been provided in the Profit & Loss account, is otherwise disclosed in the Notes to the accounts, it would clearly fall within the ambit of Explanation 1 to the second Proviso to section 115JB of the Act which defines "book profits" to mean "net profit" as "shown" in the Profit & Loss account for the relevant previous year prepared under sub-section (2) of section 115JB of the Act. Notably, sub-section (2) of section 115JB of the Act imposes an obligation on every assessee to prepare a Profit & Loss account in the relevant previous year in accordance with the provisions of Part II & III to Schedule VI of Companies Act, 1956. At this stage, it would also be pertinent to emphasis the provisions of sub-section (6) of section 211 of the Companies Act, which were referred to by the Hon'ble Delhi High Court in the aforesaid judgment. Subsection (6) of section 211 provides that any reference to a Balance Sheet or Profit & Loss account shall include any Notes thereon giving information required by this Act or is allowed by this Act to be so given. Therefore, in view of the aforesaid statutory provision contained in Companies Act 1956, the impact is that the net profit as shown in the Profit & Loss account for the purposes of Explanation 1 to the second Proviso to section 115JB of the Act is to be understood with reference to the Notes to accounts accompanying the annual accounts also. In this view of the matter, the use of the expression 'net profit' in Explanation 1 to the second Proviso to section 115JB of the Act makes it clear that the impugned incremental liability towards leave encashment not debited to the Profit & Loss account but otherwise disclosed in the Notes to Accounts will have to be taken into Mukund Limited Vs. ITO-3(2)(2) 17 account while determining the "book profits" under section 115JB of the Act. In other words, the liability of Rs 8,35,447/- towards leave encashment has to be considered to determine net profit as the information was disclosed in the Notes appended to accounts, which have been held to be part of the accounts of the assessee company. Therefore, we find ample force in the plea of the assessee which, in our opinion, is allowable having regard to the parity of reasoning laid down by the Hon'ble Delhi High Court in the case of Sain Processing & Weaving Mills P. Ltd (supra).‖ We thus in the backdrop of our aforesaid deliberations on the facts and the settled position of law, are of the considered view that the A.O while determining the ‗book profit' under Sec. 115JB had erred in failing to consider the ‗notes' to the accounts, wherein it was clearly mentioned by the auditors that by crediting the benefit of the amount of ‗waiver of loan' which had not yet ‗accrued' to the company the loss to the extent of Rs. 162,30,33,516/- was translated into profit and the same had an equivalent effect to the reserves and surpluses of the company. In our considered view, now when the auditors of the assessee company had disclosed all the particulars and had qualified the crediting of the amount of Rs. 162,30,33,516/- in the profit & loss account by way of ‗notes' to the accounts, therefore, it was obligatory on the part of the A.O to have considered the same while determining the ‗book profit' under Sec. 115JB of the IT Act. We are unable to persuade ourselves to subscribe to the reading of the profit & loss account in isolation by the A.O, de hors qualification of the same by way of ‗notes' of the auditors to the financial statements. We thus in all fairness are of the considered view that as the A.O had failed to consider the crediting of the waiver of the loan of Rs. 162,30,33,516/- in the profit & loss account in the backdrop of the qualification of the auditors by way of ‗notes' to the accounts in context of the same, therefore, the matter requires to be restored to his file for fresh adjudication. The A.O shall in the course of the ‗set aside' proceedings readjudicate the claim of the assessee that the waiver of loan of Rs. 162,30,33,516/- was not liable to be included while determining the ‗book profit' under Sec. 115JB of the IT Act after taking cognizance of the aforesaid qualifications of the auditors. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee, who shall remain at a Mukund Limited Vs. ITO-3(2)(2) 18 liberty to substantiate its claim before him. The Ground of appeal No. 1 is allowed for statistical purposes.