TMI Blog2005 (2) TMI 749X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Briefly stated, the facts of the case are that the assessee-company had revalued certain shares at Rs. 25,62,300 and taken the difference between the revalued price of the shares and the book value of shares as shown prior to revaluation to Investment Revaluation Reserve Account during the previous year relevant to the assessment year under appeal. The assessee sold the shares subsequently, after revaluation, for Rs. 25,62,000 during the previous year relevant to the assessment year under appeal. Since there was no difference between sale price and revalued price at which the shares were shown in the books of account, the assessee did not show any profit on sale of shares in its Profit Loss Account prepared under the provisions of the Companies Act, 1956. The accounts as prepared under the Companies Act as also the book profit shown therein were duly certified by the statutory auditors of the assessee-company and filed along with the return of income for the purposes of section 115JA of the Income-tax Act, 1961. As far as the treatment of gains arising on sale of shares under the Income-tax Act is concerned, the long-term capital gain after indexation worked out to Rs. 25,22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He further held that the facts of the present case were similar to those in Sutlej Cotton Mills v. Asstt. CIT [1993] 45 ITD 22 (Cal.) (SB) and, therefore, following the said decision of the Special Bench of the Tribunal, excluded the capital gains from the book profit. The Department is now in appeal before the Tribunal against the said order of the CIT(A). 6. At the time of hearing, the learned Departmental representative ( DR in short), relying upon the assessment order, submitted that the capital gain arising on sale of shares was very much part of the book profit and hence the assessee was obliged to show the same in the Profit Loss Account prepared under the Companies Act, 1956. He contended that the Assessing Officer could go behind the Profit Loss Account to find out as to whether it was prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 and, once he found that it was not so prepared, he could recast the Profit Loss Account by making suitable adjustments as done by the Assessing Officer in the case before us. Inviting our attention to the facts of the case, he submitted that the capital gain which arose t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r preparation of accounts for the accounting period ended 31st March, 1998. 9. We have considered the rival submissions. There is no dispute that it is only revalued shares which were subsequently sold and the difference arising on revaluation of shares was taken to the Investment Revaluation Reserve Account in the balance sheet and thus not shown in the Profit Loss Account and consequently not made available even for distribution of dividends. Though there was capital gain on sale of shares under the Income-tax Act, 1961 the sale proceeds were invested in specified securities under section 54EA and hence the capital gain which would otherwise have been chargeable to tax stood exempted from capital gains tax. Shares of one company were sold and shares of another company, which were also specified securities under section 54EA of the Income-tax Act, were acquired. The Accounting Standards referred to in the assessment order were incorporated in section 211 of the Companies Act with effect from October 1998 and hence were not applicable for preparation of accounts under the Companies Act for the previous year under consideration. Nothing has been brought to our notice to sugges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the Assessing Officer to rescrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the Revenue on sub-section (1A) of section 115J of the Income-tax Act in support of the above contention is misplaced. Sub-section (1A) of section 115J 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 . The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02] 255 ITR 273, the Apex Court held that while computing the income under section 115J of the Income-tax Act, the Assessing Officer has only power to examine whether the books of account were certified by the authorities under the Companies Act as having been property maintained in accordance with the Companies Act. It is further held that the Assessing Officer thereafter has limited powers of making increases and reductions as provided for in the Explanation to the said section. The Apex Court further held that the Assessing Officer does not have the jurisdiction to go beyond the net profits shown in the profit and loss account, except to the extent provided in the Explanation to section 115J of the Income-tax Act. In the instant case, the accounts maintained by the assessee are certified by the auditors. Under the circumstances, the book adjustment made by the Assessing Officer being contrary to the decision of the Apex Court, question No. 1 is answered in the negative and in favour of the assessee." [Emphasis supplied] 12. The above decisions, in our view, settle the issue authoritatively in that the Assessing Officer does not have jurisdiction to rescrutinise the Profi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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