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2023 (8) TMI 884 - HC - Income TaxLoss arising on demerger - MAT computation - AO initiating fresh enquiry in regard to the entries made in the books of account of the company - AO took a stand that such loss ought to be adjusted against reserves of respondent and cannot be debited to the profit and loss account - AO also observed that the accounting treatment was not in accordance with the provisions of the Companies Act - HELD THAT:- The admitted position is that as per explanation to section 115JB(2) of the Act, only adjustment as permitted to the book profit are those as provided in the explanation thereto. We have to observe that the treatment given by respondent in its accounts have been approved by the Company Court while approving the scheme of demerger. Moreover, the statutory auditors have accepted the book treatment in respect of loss that arise on account of demerger. It is well settled that as per Explanation 1 below section 115JB(2) of the act, only adjustment as permitted to the book profit are those as provided in the said explanation. The purpose of section 115JB of the Act is to provide an alternative method of computation of tax by accepting the book profits as shown by Respondent, after certain adjustments as specified in Explanation 1 of section 115JB(2) and levying tax thereon as alternative to the tax computed under the other provisions of the Act. Apex Court in the case of Apollo Tyres Ltd.[2002 (5) TMI 5 - SUPREME COURT] has held that the only power the AO has is 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. AO has a limited power of making increase and reduction as provided for in the explanation to section 115JB. AO does not have jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the explanation. Section 115JA was changed to 115JB pursuant to Finance Act, 2000, w.e.f., 1st April, 2001. We also find that the conditions given in explanation 1 in section 115JB is the same as explanation 1 in section 115JA, barring few minor differences. But the undisputable position is once the accounts of the company have been scrutinized and certified by statutory auditors and approved by the Company in general meeting and the Registrar of Company is also satisfied that the accounts of the Company are maintained in accordance with the requirement of the Companies Act, the Assessing Officer cannot embark upon a fresh enquiry in regard to the entries made in the books of account of the company. This is exactly what the ITAT has also held in the impugned order.
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