TMI Blog2008 (12) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... o the effect that the same are maintained as per the requirements of the Companies Act and the same are approved by the shareholders of the company in its annual general meeting and filed before the Registrar of Companies, the authenticity of such accounts has to be accepted by AO, while computing the book profits u/s 115J/115JA/115JB. AO is however empowered to make such adjustments as provided for in the Explanation to the respective section. Once an asset is held as an investment by a company and is reflected as an investment in the balance sheet of the company from year to year, then any gain on sale of such investments is not linked to the profits and gains of the business carried on by the respective companies. The said gain of sale of units on mutual funds was offered to tax in the respective hands of the companies for the year under appeal. Where the accounts are prepared and certified by the auditors, which in-turn are approved/adopted by the shareholders of the company and are filed before the Registrar of the Companies, AO has no powers of disturbing the profits of business as held by the Hon ble Supreme Court in Apollo Tyres Ltd. s case (supra). Only power of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent as the accounts prepared by the assessee were contrary to the mandatory accounting standards and the addition was justified in view of the decision in the case of Birla Jute Industries v. DCIT 85 ITD 400 (Calcutta). 2.The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. Further, it is prayed that even though the issue involved is below the monitary limits of Board s Circular in view of the recurring nature appeal may kindly be entertained as the said limit is not applicable to legal and recurring issues." 3. The appeals in ITA No. 6248/Mum./2006 and 6247/Mum./2006 were fixed for hearing on 22-10-2008. The learned DR for the Revenue submit- ted that issue in both the appeals is common and should be taken up simultaneously. The Learned AR for the assessee pointed out that the tax effect involved in both the appeals is less than Rs. 2 lakhs and as such the said appeals are not maintainable. The learned DR for the Revenue pointed out that the issue in both the appeals is recurring, being common in the case of several assessees, hence it should be taken up for adjudication on merits. The Learned AR Sm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shay Textiles Trading Agencies (P.) Ltd. s case ( supra ), on the last date of hearing and the paper book in that respect was also filed on the said date of hearing. The matter was adjourned for the limited purpose of filing the Audited Balance Sheet Profit and Loss Account in order to point out the entries made in the books of account in respect of the Capital Gains earned on redemption of units of mutual funds. It was pointed out to Mr. Mistry, the Learned AR for the assessee that the issue of tax effect was already been raised only in respect of ITA Nos. 6248/Mum./2006 and 6247/Mum./2006. However, in respect of the other appeals fixed on 23-10-2008, the plea was that the appeals are covered by the order of Hon ble Bombay High Court in Akshay Textiles Trading Agencies (P.) Ltd. ( supra ) and was referred to as covered matter. The matter was heard on merits. 6. The learned DR for the Revenue pointed out that the provisions of sections 115JA and 115JB of the Act are markedly different. The book profits have to be determined as per Schedule VI of the Companies Act. Part-II of the Schedule VI of the Companies Act requires the assessee to recognize all the income earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in Balance Sheet. The said balance sheet was approved by the Auditors and were adopted by the shareholders of the company. After such approval and adoption of the balance sheet of income, the Assessing Officer is not the authority to correct the accounts under the Companies Act. The learned counsel drew our attention to the question raised before the Apex Court in Apollo Tyres Ltd. s case ( supra ) at page 276 of the judgment. In respect of the Explanation to section 115JB of the Act, it was pointed out by the learned Counsel that it only applies where the item is debited to the profit and loss account and in the case of the assessee there is no debit to the profit and loss account and as such the Explanation to section 115JB of the Act cannot apply. The Learned AR for the assessee further pointed that in case there is a debit to the profit and loss account then the second portion of the Explanation to section 115JB of the Act is to be applied. The learned AR further pointed out that as per the Explanation to section 115 JB of the Act, whether the Assessing Officer have power to adjust the profit and loss account as shown by the assessee and the answer is No. He stress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e debited to the profit and loss account and on this account the Assessing Officer was right in making the adjustment to the book profits under the provisions of section 115JB of the Act. 10. We have heard the rival submissions and perused the records. In the case of all the assessees whose appeals are listed before us, during the year under consideration there was gain on sale of units of mutual fund, which was not credited to the profit and loss account of the each company as on the close of the year. It was directly taken to the Reserves Accounts in the balance sheet. The assessee has filed the copies of profit and loss account and Balance Sheet in respect of M/s. Arundhati Traders Pvt. Ltd. and claims that similar Notes to Accounts have been furnished with regard to the other assessee companies. The clause 4 of Notes to Accounting annexed to the Audited Balance Sheet furnished by the Chartered Accountants provides as under : " Notes on Account 4. The long-term investment in Units of Mutual Fund at the aggregate cost of Rs. 3326 thousand (previous Year Nil ) held by the company was redeemed during the year. The difference between the carrying amount and redemption proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant year had provided for arrears of depreciation in its profit and loss account, which according to the Revenue was not in accordance with Parts II and III of Schedule VI to the Companies Act, 1956. The Assessing Officer while determining the book profits under section 115J of the Income-tax Act recomputed the said profit and loss account of the company so as to exclude the provision made for the arrears of depreciation. The accounts of the company was certified by the Auditors of the company as having been maintained in accordance with the provisions of the Companies Act, 1956 and were accepted in the Annual General Meeting of the Company as well as by the Registrar of the Companies. The view of the Tribunal in the case was that the Assessing Officer has no authority to reopen the accounts of the company. The Hon ble High Court held that the Assessing Officer has the authority to examine whether the accounts of the company have been maintained in accordance with the requirements of sub-section (1) to section 115J of the Act and he could make necessary changes before proceeding to assess the company under the Explanation to section 115JA of the Income-tax Act. 15. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing 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 for the limited purpose of making the said account so maintained as a basis for computing the company s income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the authority under the Income-tax Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of section 115J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of Companies Act and another for the purpose of income-tax both maintained under the same Act. If the Legislature intended the Assessing Officer to reassess the company s income, then it would have stated in section 115J that income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Hon ble Supreme Court in the case of Apollo Tyres Ltd. ( supra ) and the decisions of Mumbai Tribunal in the cases of ITO v. Ranjana Traders (P.) Ltd. in ITA No. 4749/Mum./2003, dated 12-2-2004, ITO v. Orson Trading (P.) Ltd. In ITA No. 1389/Mum./2002, the ground of the revenue is dismissed." 18. The revenue appealed against the order of the Tribunal to the Hon ble Bombay High Court in Akshay Textiles Trading Agencies (P.) Ltd. s case ( supra ), wherein it was held as under : "C.Whether, on the facts and in the circumstances of the case and in law, the Hon ble Income-tax Appellate Tribunal was correct in upholding the order of the CIT(A) in holding that the capital gains of Rs. 19,74,489 are not to be taken into account while computing the profits liable to be taxed under section 115JA of the Income-tax Act, 1961, and that the decisions of the Hon ble Bombay High Court in CIT v. Veekaylal Investment Co. (P.) Ltd. [2001] 249 ITR 597 was not applicable. Insofar as question No. C , our attention is invited to the judgment of the Supreme Court in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273. The question framed therein which is similar to Que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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