The Income Tax Appellate Tribunal, Mumbai Bench “A”, in Aditya Birla Real Estate Limited (formerly known as Century Textiles and Industries Limited) v. Commissioner of Income Tax, Circle 6(1)(1), Mumbai, dealt with significant questions concerning the relationship between Indian Accounting Standards (Ind AS), Income Computation and Disclosure Standards (ICDS), and computation of taxable income under the Income-tax Act, 1961. The cross-appeals, bearing ITA Nos. 3476/Mum/2025 and 4378/Mum/2025, related to Assessment Year 2019-20 and were decided on 17 August 2026 by Smt. Beena Pillai, Judicial Member, and Shri Jagadish, Accountant Member.
The Tribunal laid down an important principle that the figures appearing in financial statements prepared under Ind AS are only the starting point for determining taxable income. An amount credited to the Profit and Loss Account under an accounting standard does not automatically become taxable merely because it has been recognised in the books. Taxability must independently be determined with reference to the Income-tax Act and the applicable ICDS.
ICDS Adjustment on Interest-Free Security Deposit
The assessee had received an interest-free refundable security deposit of Rs.200 crore from Grasim Industries Ltd. Under Ind AS 109, the deposit was recognised at its discounted present value, resulting in accounting entries for amortisation and notional rental income. For the relevant year, the assessee recorded amortisation of Rs.9.30 crore and rental income of Rs.13.92 crore, resulting in a net ICDS adjustment of approximately Rs.4.62 crore.
The Tribunal observed that the assessee had added back the amortisation while computing taxable income and reduced the corresponding notional rental income. There was no material showing that the assessee had actually earned or acquired an enforceable right to receive such rental income. Accordingly, the Tribunal held that an amount recognised solely because of Ind AS accounting treatment could not be taxed in the absence of real accrual. The addition of Rs.4,62,66,434 was therefore deleted and the assessee’s ground was allowed.
The Tribunal also noted the relevance of consistency. Although res judicata does not strictly apply to income-tax proceedings, where the Revenue has examined and accepted the same method of computation in earlier and subsequent years, departure from that treatment ordinarily requires some distinguishing factual or legal feature.
Rs.40 Crore Royalty Income – Double Taxation Not Permissible
The assessee had granted Grasim Industries Ltd. the right to manage and operate its Viscose Filament Yarn business for fifteen years against an upfront royalty of Rs.600 crore. According to the assessee, the entire amount had already been offered to tax in Assessment Year 2018-19. Under Ind AS, however, Rs.40 crore was recognised as revenue in the financial statements during Assessment Year 2019-20.
The Tribunal held that recognition of Rs.40 crore in the books did not represent any fresh receipt or independent accrual of income. Once the entire upfront royalty had already been subjected to tax, bringing a part of the same consideration to tax again merely because it was recognised as revenue under Ind AS would amount to taxing the same receipt twice. The Rs.40 crore addition was consequently deleted.
EPCG Government Grant of Rs.75.93 Crore
Another dispute concerned Rs.75,93,37,323 representing customs duty benefits received under the Export Promotion Capital Goods (EPCG) Scheme. The benefit had been recognised in the Profit and Loss Account pursuant to Ind AS 20 after fulfilment of the relevant export obligations.
The Tribunal emphasised that accounting recognition under Ind AS 20 cannot override the specific treatment prescribed by the Income-tax Act. It considered the statutory treatment of government grants in the context of Section 2(24) read with Explanation 10 to Section 43(1) and noted that the Revenue had not established that the amount constituted independently taxable income over and above the government benefit governed by those provisions.
Accordingly, the Tribunal held that the amount could not be brought to tax merely because it had been credited to the Profit and Loss Account under Ind AS 20, and the addition was deleted.
Borrowing Cost Adjustment Under ICDS IX
The assessee had also made an adjustment of Rs.10,36,11,508 arising from the difference between the method of capitalisation of borrowing costs under Ind AS and the statutory computation required under ICDS IX.
The Tribunal held that where ICDS IX prescribes a method of computing borrowing costs for tax purposes which differs from the accounting treatment under Ind AS, taxable income must give effect to the ICDS computation. A mere difference between the amount capitalised in the financial statements and the amount determined under ICDS does not establish that the assessee has obtained a double deduction.
Since the Revenue had not demonstrated that the same borrowing cost was actually deducted twice, the addition was held to be unsustainable.
TDR Capital Loss Restored for Verification
The case also involved the tax treatment of Transferable Development Rights (TDRs) received from MHADA against surrender of land at Worli.
The assessee had offered long-term capital gain of approximately Rs.212.05 crore in Assessment Year 2018-19 on surrender of the land and treated the fair market value of approximately Rs.309.09 crore as the corresponding cost of acquisition of the TDRs. On sale of the balance TDRs during Assessment Year 2019-20, it claimed a short-term capital loss of Rs.39,66,26,986. The Assessing Officer, however, treated the cost of acquisition of the TDRs as nil and assessed the entire sale consideration of approximately Rs.160.16 crore as short-term capital gain.
The Tribunal did not finally determine the cost or the resulting loss. Instead, it restored the issue to the Assessing Officer to verify the Assessment Year 2018-19 records, including whether the capital gain on surrender of the land was actually offered to tax, the basis adopted for the TDR cost, the treatment given to the first tranche of TDRs, and the correctness of the proportionate cost claimed for the balance TDRs. Consequently, both the assessee’s and Revenue’s corresponding grounds were allowed for statistical purposes.
Leave Entitlement and Gift Expenses
On the provision for leave entitlement of Rs.20.70 lakh, the assessee contended that the amount had already been disallowed under Section 43B and that a further addition would result in double disallowance. The Tribunal restored the matter to the Assessing Officer for the limited purpose of verifying the computation of income, Tax Audit Report and relevant records. If the amount had already been added back, no further disallowance could be made. The ground was allowed for statistical purposes.
The disallowance of gift expenses of Rs.60,06,694 was also restored to the Assessing Officer. The Tribunal observed that the nature, purpose and supporting evidence relating to the expenditure required examination and directed fresh adjudication after providing the assessee adequate opportunity of hearing. The assessee’s ground and the Revenue’s corresponding ground were both allowed for statistical purposes.
Section 35(2AB) Deduction Cannot Be Denied Merely for Absence of Form 3CL
A further significant issue related to the weighted deduction claimed under Section 35(2AB) for an approved in-house Research & Development facility.
The assessee’s R&D facility had the requisite approval in Form 3CM, but Form 3CL had not been issued by the prescribed authority. The Tribunal held that Form 3CL involves communication between the prescribed authority and the Income Tax Department and that an assessee cannot be made to suffer because the prescribed authority has failed to furnish that form.
Relying upon the coordinate Bench decision in Rallis India Ltd. v. ACIT and the judicial precedents referred to therein, the Tribunal held that the absence of Form 3CL could not, in the circumstances of the case, justify denial of the weighted deduction where the R&D facility had valid Form 3CM approval. Accordingly, the assessee’s ground under Section 35(2AB) was allowed.
Key Principle Emerging from the Decision
The ruling is significant for taxpayers preparing financial statements under Ind AS while computing taxable income under the Income-tax Act and ICDS. The Tribunal has clearly distinguished accounting recognition from tax accrual. A book entry created because of Ind AS cannot independently create taxable income where the Income-tax Act or ICDS requires a different treatment.
The decision also reinforces that taxpayers should not suffer double taxation or double disallowance merely because accounting standards and tax computation standards recognise an item differently. At the same time, claims involving factual questions—such as the cost of TDRs, leave entitlement and gift expenses—remain subject to proper verification of the underlying records.
The appeals of the assessee and the Revenue were ultimately disposed of in accordance with the individual findings recorded by the Tribunal, with the order being pronounced on 17 August 2026.
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