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TMI Blog2018 (11) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act is erroneous and prejudicial to the interests of revenue. 2. Ground No. 2: No adjustment to 'Book Profit' permitted apart from those specified in Explanation 1 to section 115JB of the Act 2.1.On the facts and in the circumstances of the case and in law, the learned Pr. CIT erred in adding notional interest income of INR 12,80,00,000 while computing Book Profits for the purpose of section 115JB of the Act even though such adjustment is neither covered within the adjustments specified under Explanation 1 to section 115JB of the Act nor permitted as per the principles upheld by the Supreme Court and various High Court judgements, which were clearly binding on the learned Pr. CIT. 2.2. On the facts and in the circumstances of the case and in law, the learned Pr. CTT erred in coming to the conclusion that the audited financial statements of the Appellant company as approved by the Board of Directors and the shareholders, inspite of being drawn up in accordance with Part II of schedule VI to the Companies Act, 1956 and applicable Accounting Standards, were erroneous in so far as they do not contain any note on non-recognition of interest on doubtful advance, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Assessee asked for the refund of the entire amount advanced to IAL. However due to financial difficulties, IAL was not able to repay such advance. * According, since there was significant uncertainty of ultimate collection of principal itself, so in accordance with Accounting Standard 9 on revenue recognition ('AS 9'} issued by institute of Chartered Accountants of India ('ICAl'), the Assessee has not recognised any notional interest income on such advance in its audited financial statements. * Further, during the financial year 2016-17, due to non-recovery of advance given to IAL, the Assessee has written off 70% of the principal amount advanced to IAL. * The books of accounts of the Assessee have been audited by a reputed Audit Firm and has been adopted by the Board of Directors and shareholders of the Assessee. * This accounting treatment is not only in fullest consonance with the accounting principles and practice laid down but also in fullest consonance with the provisions of section 145. * The book profit for the purpose of section 115JB has been computed based on the profit and loss account prepared in accordance with Part II of schedule VI to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with Part II of Schedule VI to the Companies Act, 1956) other than those specifically listed under Explanation (1) to sect on 115JB. * Section 115JB is a separate code in itself having overriding effect over other provisions of the Act. * As per Explanation 1 to section 115J8, 'book profits' means 'profits' as per profit and loss account prepared in accordance with Part II of schedule VI to the Companies Act, 1956 as increased/reduced by the specific adjustment listed therein. * No other adjustments are permitted to be made to such profits other than those listed in Explanation 1 to section 115JB. * The Assessing Officer does not have power to examine the net profit shown in profit and loss account and has limited powers to make adjustments only to the extent of items specifically listed under Explanation 1 to section 115JB. * In the given case, since the recovery of loan itself was extremely doubtful at the material time, the notional interest income has rightfully not been recognized in the books of accounts prepared in accordance with Part 11 of the schedule VI to the Companies Act, 1956. * The accounting treatment is not only in fullest consona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "reliance placed on the authoritative pronouncement laid down by the Apex Court in Apollo Tyres Ltd: vs. CIT [2002] 255 ITR 273 (SC) and held that Once it is realized that the assesses had correctly debited the profit and loss account for the loss arising out of the transfer of investment o vision, there remains no difficulty in realizing that the Commissioner proceeded on a wrong premise which was responsible for exercise of jurisdiction under section 253" * Hindustan Construction Co. Ltd. vs. DCIT [2006] 25 SOT 359 (Mumbai Tribunal) Where double taxation relief has been rightly allowed by the A.O. while computing taxability under section 115JB of the Act, it has been held at para 6.4 on page 367 that "the order of A.O. is neither erroneous no prejudicial to the interest of the revenue and therefore the CIT is not correct in invoking section 263. * Apolloy Tyres Ltd. vs. CIT [2002]255ITR273(SC) At page 280, it has been held that "we are of the opinion, the Assessing Officer while computing the income under Section 115-J 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as unascertain. The ld. CIT(A) himself has noted the contention of the assessee that the assessee had given an advance of Rs. 160 Crores to International Amusement Limited ('IAL') for purchase of shares of group companies of IAL, which owned certain land parcels. However, the transaction could not fructify and as a result the Assessee asked for the refund of the entire amount advanced to IAL. It was further been submitted that due to financial difficulties, IAL was not able to repay such advance. Accordingly, since there was significant uncertainty of ultimate collection of principal itself, so in accordance with Accounting Standard 9 on revenue recognition ('AS 9') issued by Institute of Chartered Accountants of India (MCAI'), the Assessee has not recognized any notional interest income on such advance in its audited financial statements. The ld. CIT(A) has further noted that it has been argued that since such notional interest on advance was not recognized as revenue in its audited books of accounts and also the same is not covered in any of the items listed in the Explanation to 1 section 115JB, it was not considered in the books profits for MAT purpose and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made for deduction under Section 143(3) of the Act. Therefore, in the present facts, we are prima-facie of the view that, the Assessing Officer has by necessary implication allowed the claim. Moreover, the basic document for completing the assessment under Section 143(3) of the Act is the computation of income. Therefore, to the extent the claims made for deduction in the computation of come, were disallowed by the Assessing Officer, discussion on the same is found in the assessment order. It is an accepted position that the assessment orders would necessarily deal only with the claims being disallowed and not with the claims being allowed. This is for the reason as observed by the Gujarat High Court in CIT Vs. Nirma Chemicals Ltd 309 ITR 67, that if the Assessing Officer was to deal with all the claims which were to be allowed in the assessment order, the result would be an epictome. This is so, as it would cast an impossible burden upon the Assessing Officer considering his workload and the period of limitation. There was also no reason in the present facts for the Assessing Officer to ask any queries in respect of this claim of the petitioner, as the basic document viz. computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Companies Act. 12. From the above, it is amply evident that the Hon'ble Apex Court has expounded that once the accounts have been certified by the auditors and adopted in the annual general meeting, the A.O. has only the power of examining whether the books of account are certified by the authorities under the Act as having been properly maintained in accordance with the companies act. The A.O. thereafter has a limited power to make adjustments as provided for in the explanation of the said section. From the above exposition, it is amply clear that the Hon'ble Apex Court has duly held that the A.O. does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extend provided in the Explanation to section 115J. 13. We find that the exposition by the Hon'ble Apex Court is the law of the land and if the A.O. had duly followed the same, he did not need to declare so in his assessment order. In fact, what the ld. CIT(A) has done is not at all sustainable in law. He has distinguished the above Hon'ble Apex Court decision on the premise that the accounts have not been prepared as per Part II of Schedule VI of the Companies Act. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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