TMI Blog2011 (3) TMI 1087X X X X Extracts X X X X X X X X Extracts X X X X ..... inserted for addition of revaluation reserve to the net profit even if the same was not debited to the profit and loss account. Thus no addition could be made to the net profit on account of revaluation reserve directly taken to the balance sheet while computing the book profit. In favour of assessee. - 3747 (MUM.) OF 2010 - - - Dated:- 11-3-2011 - RAJENDRA SINGH, V.D. RAO, JJ. Pawan Ved for the Appellant. Jitendra Jain for the Respondent. ORDER Rajendra Singh, Accountant Member. This appeal by the revenue is directed against the order dated 24-4-2009 of CIT(A) for the assessment year 2005-06. The only dispute raised by the revenue in this appeal is regarding computation of book profit under section 115JB. 2. Briefly stated the facts of the case are that the assessee during the year had sold its premises at Nariman Point for Rs. 96 lacs. The value of the premises in the books of account at the beginning of the year was shown at Rs. 3,29,143. There was thus gain of Rs. 92,70,857. However, the assessee had debited a sum of Rs. 1,44,000 as loss on sale of the property in the profit and loss account. The assessee had got the premises revalued at Rs. 97, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Manorama Co. Ltd. v. CIT [2008] 300 ITR 251/169 Taxman 471 (SC). The CIT(A) observed that in view of the above judgments, the judgment of the High Court of Mumbai in case of Veekaylal Investment Co. (P.) Ltd. (supra) was no longer valid. The judgment of Hon'ble Supreme Court in case of Mc Dowell Co. Ltd. (supra) was also not applicable. CIT(A) accordingly following the judgment of the Supreme Court in case of Apollo Tyres (supra) allowed the claim of the assessee and deleted the adjustment made by the Assessing Officer aggrieved by which the revenue is in appeal before the Tribunal. 3. Before us the Learned AR for the assessee at the very outset pointed out that the issue was covered in favour of the assessee by the decision of the Tribunal in case of sister concern who was a co-owner of the same property i.e., Galaxy Knives (P.) Ltd. in ITA No. 7125/M/2008. In that case also in respect of transfer of the same property the assessee had shown notional loss of Rs. 1,93,340 but the Assessing Officer had made adjustments to the book profit at Rs. 1,51,96,858 for the same reasons as in case of the assessee. The Tribunal however following judgment of the Hon'ble Supreme Court in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit and loss account. The Learned AR also pointed out that the provisions of clause (iia) (inserted from 1-4-2007) of the Explanation to section 115JB(2) provided for reduction of book profit by the amount of depreciation debited to the profit and loss account excluding the depreciation on account of revaluation of assets. But there is no corresponding provisions in relation to the addition to the book profit on account of revaluation of assets which clearly showed that the Legislature had consciously not made any provision for any adjustment on account of revaluation reserve taken to the balance sheet. In regard to the argument of the Learned DR that the assessee had selectively made revaluation so as to avoid payment of tax the Learned AR submitted that under the provisions of para 13.5 of AS-10, while making a revaluation the whole class of assets in a unit should be considered and not selective assets. In this case the assessee had only one immovable property which had been revalued and therefore the whole class of asset being the immovable property had been got revalued in terms of the provisions of account standard AS-10 and therefore there was no violation of any provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le VI of the Companies Act and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956. Once the accounts have been prepared in the manner aforesaid and adopted at the AGM of the company, the net profit disclosed in such accounts cannot be tinkered with by the Assessing Officer while computing the book profit. The Assessing Officer can only make adjustments specified as per Explanation 1 to section 115JB(2). The said proposition of law is settled by the judgment of Hon'ble Supreme Court in case of Apollo Tyres Ltd. (supra). The relevant portion of the judgment of Hon'ble Supreme Court is reproduced below as a ready reference : "The Assessing Officer, while computing the book profit 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, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J. The Assessing Officer does not have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tyres (supra). We have perused the said judgment of Hon'ble High Court of Karnataka and in our view the said judgment also does not help the case of the revenue. In that case, the assessee had sold soft drink bottling plant from which there was surplus of Rs. 43,16,59,811.69 which had been carried to the balance sheet as a capital reserve. The issue was whether the gain arising from the sale could be added to the book profit. The Hon'ble High Court observed that even if it was a case of slump sale, the gain could be computed and in fact the assessee had already computed the surplus which had been taken to the balance sheet. The High Court also observed that even after the preparation of profit and loss account as per Parts II and III of Schedule VI of the Companies Act, the Assessing Officer was required to apply the provisions of Explanation 1 to section 115JB(2). The matter was therefore remanded to Assessing Officer for proper computation. Thus the Hon'ble High Court had only held that the Assessing Officer could apply the provisions of Explanation 1 to section 115JB(2) and it was nowhere held that the gain arising from the sale of the plant had to be added to the book profit. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion reserve had been directly taken to the balance sheet and not debited to the profit and loss account and therefore the amount could not be added under clause (b) of Explanation 1 to section 115JB(2). It is also pertinent to note that clause (iia) was inserted to the Explanation 1 with effect from 1-4-2007 in which it was provided that amount of depreciation debited to the profit and loss account excluding the depreciation on account of revaluation of assets has to be reduced from the net profit. Thus the Legislature though it fit to exclude the depreciation on account of revaluation of assets from the amount to be reduced from the net profit but there were no similar provision inserted for addition of revaluation reserve to the net profit even if the same was not debited to the profit and loss account. This shows that the Legislature had consciously not made any provision for addition on account of revaluation reserve taken to the balance sheet. 4.5 In view of the foregoing discussion and for the reasons given earlier we are of the considered opinion that no addition could be made to the net profit on account of revaluation reserve directly taken to the balance sheet while com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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