TMI Blog2005 (12) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... income, the assessee has added back provisions of repairs of Rs. 73,92,610. However, in working of profit under section 115 JB, the assessee did not add back provisions made for these repairs. The Assessing Officer observed that the assessee has submitted that loss due to earthquake is ascertained liability and, therefore, provisions of Rs. 84,22,000 was made. However, he was of the view that how can one ascertain in advance what is the amount that is required to be incurred for the repair and maintenance of building, plant and machinery. The Assessing Officer held that as per sub-section (c) to Explanation to section 115JB, all the provisions made for meeting liabilities other than ascertained liabilities are required to be added back to work out book profit under section 115JB. And since liability in the case of the assessee is not ascertained liability, therefore, provisions made by the assessee for meeting this liability is required to be added back to work out book profit under section 115 JB. Accordingly, he added back Rs. 73,92,610 to work out book profit under section 115JB of the Income-tax Act. 3.1 By the impugned order, the CIT(A) confirmed the action of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act for preparation of profit and loss account for arriving at the book profit as per provisions of Parts II and III of Schedule VI to Companies Act, 1956. Section 115JB shows that it is a code in itself for computing the book profit in case of companies. The Act prescribes the manner in which the book profit is to be calculated. The relevant section is reproduced below: "Section 115JB(2) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956): Provided that while preparing the annual accounts including profit and loss account,-(i) the accounting policies; (ii) the accounting standards followed for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of building, plant machinery. During the year itself the assessee has carried out expenditure on such repairs to the extent of Rs. 10.29 lakhs and in the immediately subsequent year, it had incurred Rs. 71.84 lakhs. Thus out of total provision of Rs. 84.22 lakhs, the assessee has actually incurred Rs. 82.13 lakhs during the year and immediately subsequent year, and the balance of Rs. 2.09 lakhs was reversed back as provision no longer required. There is also no dispute to the fact that in respect of expenditure for which provision was made was essentially revenue in nature and the loss was scientifically determined by the Government agency. As per provisions of section 115JB, accounts of the assessee-company were prepared as per the provision of Parts II and III of Schedule VI of Companies Act. Furthermore, profit and loss account was also drawn in accordance with the provision of section 210 of the Companies Act. The accounts also shown fair view of the state of affairs, as per sub-section (3) of section 209 of the Companies Act. The provisions of Part II of Schedule VI to the Companies Act, 1956 have to be applied in the context of the method of accounting following by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (2) of section 115 JB does not empower the Assessing Officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. Thus sub-clause (c) below Explanation to section 115 JB have been erroneously invoked by the Assessing Officer. 5.1 In the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273, the Supreme Court observed as follows: "The Assessing Officer, while computing the book profits of a company under section 115J of the Income-tax Act, 1961 has only 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. The Assessing Officer, therefore, has the limited power of making increases and reductions as provided for in the Explanation to section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words "in accordance with the provisions of Parts II ..... X X X X Extracts X X X X X X X X Extracts X X X X
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