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TMI Blog2002 (9) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (iv) of Explanation to section 115J ?" The assessment year is 1990-91. The assessee is a public limited company engaged in the manufacture and sale of yarn. For the previous year relevant to the assessment year 1990-91, a sum of Rs. 1,65,72,468 was debited in the accounts in accordance with sections 265 and 350 of the Companies Act relating to extra/multiple shift allowance on certain machineries, which were not claimed in the earlier years. The Assessing Officer was of the view that the allowance for the period not related to the accounting year was not allowable and therefore recomputed the profit and loss of the company by adding back the extra/multiple shift allowance to the book profits for arriving at the assessee's taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). Explanation.-For the purposes of this section, 'book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (1A), as increased by - (a) the amount of income-tax paid or payable and the provision therefor ; or (b) the amounts carried to any reserves (other than the reserves specified in section 80HHD or sub-section (1) of section 33AC), by whatever name called ; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities ; or (d) the amount by way of provision for losses of subsidiary companies ; or (e) the amount or amounts of div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account ; or (iii) the amounts (as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (f) and reducing the net profit by the amounts referred to in clauses (i) and (ii) attributable to the business, the profits from which are eligible for deduction under section 80HHC or section 80HHD ; so, however, that such amounts are computed in the manner specified in sub-section (3) or sub-section (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be ; or (iv) the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but the dispute is whether the same could be done in the accounting year relevant to the assessment year 1990-91. When the statute expressly requires the setting off of depreciation of earlier years also against the current year's profits, such setting off has necessarily to be done. Section 205(1) of the Companies Act and section 115J of the Income-tax Act have been considered by the Supreme Court in the case of Surana Steels P. Ltd. v. Deputy CIT [1999] 237 ITR 777, while considering the question as to whether the term "loss" as appearing in section 205(1), first proviso, clause (b), of the Companies Act, 1956, read with section 115J of the Income-tax Act, 1961, means "including depreciation" holding as follows : "Section 115J, Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the provisions of section 205. The language of clause (b) of the proviso to section 205(1) is clear. It applies to those cases where the depreciation has been provided in accordance with the provisions of sub-section (1) of section 205." In another case Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 (SC), the facts, are similar to the case on hand in the sense that the assessee-company while determining its net profit for the relevant accounting 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. Hence the Assessing Officer, while considering the case of the assessee-company under section 115J of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company." While so holding, the Supreme Court has ultimately held that : "while determining the 'book profits' under section 115J, the Assessing Officer could not recompute the profits in the profit and loss account by excluding provisions made for arrears of depreciation." In the light of the abovesaid judgments of the Supreme Court, the question is answered in favour of the assessee and agai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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