TMI Blog2010 (7) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... in pursuance of agreement for non-payment of the instalments. As on 1-4-2005 the total amount due to the creditor for purchase of the vessel was ₹ 29,89,25,521. The written down value of the vessel as on 1-4-2005 was ₹ 7,14,35,063. Accordingly, the assessee computed the short-term capital gain of ₹ 22,74,90,458 after setting-off of the depreciation. The assessee computed the profit at ₹ 37,54,671. However, the Assessing Officer found that the assessee is not entitled for set-off of depreciation as claimed in the return of income. Accordingly, disallowed part of the depreciation claimed by the assessee. The Assessing Officer thereafter computed the capital gain at ₹ 15,35,10,501. The Assessing Officer found that this amount of ₹ 15,35,10,501 was not form part of the profit and loss account. Therefore, the profit and loss account was not prepared in accordance with parts II III of Schedule VI to Companies Act. Accordingly, the Assessing Officer recomputed the book profit by making an addition of ₹ 15,35,10,501. 3. According to the learned representative for the assessee the Assessing Officer has no power to re-compute the book prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Part II and Part III of Schedule VI to the Companies Act. Therefore, the judgment of the Apex Court in the case of Apollo Tyres Ltd. (supra) may not be applicable to the facts of this case. The learned Representative placed her reliance on the decision of Mumbai Bench of this Tribunal in the case of Dy. CIT v. Bombay Diamond Co. [IT Appeal No. 7488 (Mum.) of 2007, dated 30-11-2009] and submitted that Part II of Schedule VI to Companies Act requires the assessee to prepare profit and loss account disclosing every material feature including credits or receipts. In the case before the Mumbai Bench, the assessee earned a capital profit of ₹ 10.31 crores on sale of rights in immovable property. The said profit was directly credited to the capital reserve in the balance sheet instead of routing the same through the profit and loss account. Therefore, the Mumbai Bench of this Tribunal held that since the capital profit was not routed through the profit and loss account and it was directly credited to the capital reserve in the balance sheet profit and loss account was not prepared as per Part II of Schedule VI to the Companies Act. Therefore, the judgment of the Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of ₹ 15,35,10,501. 6. The question arises for consideration is when the book profit was computed under section 115JB and the correctness of the profit and loss account prepared by the assessee was certified by the auditor s as having been prepared in accordance with Part II and Part III of Schedule VI to the Companies Act, can the Assessing Officer question its correctness ? 7. We find that this question was elaborately considered by the Apex Court in the case of Apollo Tyres Ltd. ( supra). The Apex Court while considering the provisions of section 115J of the Income-tax Act found that the Assessing Officer was not empowered to embark upon a fresh enquiry in regard to entries made in the books of account of the company. The Apex Court found that when the Income-tax Act mandates the assessee to compute the income in accordance with Companies Act, the same shall be accepted by the Income-tax Authorities. Once the income computed under the provisions of Companies Act is acceptable for the purpose of Companies Act, the same has to be accepted for the purpose of Income-tax Act also. The Supreme Court further observed that there cannot be two incomes one for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 the 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 of the company as accepted by the Assessing Officer . In the absence of the same and on the language of section 115J, it will have to held that view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal. Therefore, we are of the opinion, the Assessing Officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 1961 Act. It may be noted that the adjustments required to be made to the net profit disclosed in the profit and loss account for the purposes of section 349 of the Companies Act are quite different from the adjustment required to be made under the Explanation to section 115JA of the 1961 Act. For the purposes of section 115JA, the Assessing Officer can increase the net profit determined as per the profit and loss account prepared as per Parts II and III of Schedule VI to the Companies Act only to the extent permissible under the Explanation thereto. 10. In view of the above, the Assessing Officer cannot re-scrutinize the accounts in order to satisfy himself whether it was prepared in accordance with Companies Act or not. 11. We have also carefully gone through the judgment of the Mumbai Bench of this Tribunal in Bombay Diamond Co. Ltd. (supra). The Mumbai Bench of this Tribunal after referring to the judgment of the Apex Court in Apollo Tyres Ltd. (supra) found that the judgment of the Apex Court in Apollo Tyres Ltd. (supra) is not applicable when the book profit was computed under section 115JB of the Act. While distinguishing the judgment of the Apex C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 115JB(2) Every assessee, being a company, shall, for the purpose of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). Provided that while preparing the annual accounts including profit and loss account, - (i)the accounting policies; (ii)the accounting standards adopted for preparing such accounts including profit and loss account; (iii)the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purposes of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) ; Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act, - (i)the accounting policies; - (ii)the accounting standards adopted for preparing such accounts including profit and loss account; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t day of April, 2001) (hereafter in this section referred to as the relevant previous year) is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. (2) Every assessee, being a company, shall, for the purpose of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) ; - Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer is well settled and the Assessing Officer cannot re-scrutinize the account at all. This judgment of the Apex Court in Apollo Tyres Ltd. s case (supra) which interpreted the provisions of section 115J(A) of the Act is equally applicable to sections 115JA(2) and 115JB(2) of the Act since identical provision was enacted by the Parliament in sections 115JA(2) and 115JB(2). This is obvious from the judgment of Apex Court in HCL Comnet Systems Services Ltd. s case (supra ). Moreover, in section 115JA(2) or 115JB(2) also, the Legislature use the words in accordance with provisions of Part II and III of Schedule VI to the Companies Act . Therefore, the two provisions in section 115JA(2) and 115JB(2) would not differentiate section 115JA and 115JB from section 115J as far as computation of book profit was concerned. In other words, section 115J(1A), 115JA(2), 115JB(2) are in pari materia. 17. The next reason of the Bombay Bench of this Tribunal for distinguishing the judgment in the case of Apollo Tyres Ltd. (supra) is that in the case before the Apex Court the accounts of the Company was prepared in accordance with the requirement of Part II and Part III of Schedule VI t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id profit and loss account of the company so as to exclude the provision made for arrears of depreciation. The said action of the Assessing Officer in questioning the correctness of the accounts maintained by the company was challenged by the company before the Income-tax Appellate Tribunal ( the Tribunal ) which among other things held that the Assessing Officer has no authority to reopen the accounts of a company which is certified by the auditors of the company as having been maintained in accordance with the provisions of the Companies Act and which account has been accepted in the general meeting of the company as well as by the Registrar of Companies. This view of the Tribunal was not accepted by the High Court which held that the Assessing Officer has the authority to examine whether the accounts of the company have been maintained in accordance with the requirement of sub-section (1A) of section 115J and in that process if he finds that the accounts of the company are not in accordance with the provisions of the Companies Act, he could make the necessary changes before proceeding to assess the company for tax under the Explanation to section 115J of the Income-tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this court unless, on an appeal, the operation of the judgment is suspended. It is not permissible for the authorities and the Tribunals to ignore the decisions of this court or to refuse to follow the decisions of this court on the pretext that an appeal is filed in the Supreme Court which is pending or that steps are being taken to file an appeal. If any authority or the Tribunal refuses to follow any decision of this court on the above grounds, it would clearly guilty of committing contempt of this court and is liable to be proceeded against. In view of the above discussion, the Assessing Officer has no authority or jurisdiction to re-scrutinize the accounts once it is certified by the auditor, as having been prepared under Part II III of Schedule VI to Companies Act. 20. Let us now examine whether the so-called capital gain due to repossession of the vessel has to be added back to the book profit in view of Explanation 1(b) to section 115JB of the Act. Explanation 1(b ) clearly says that the amount credited to any reserve by whatever name called other than a reserve specified under section 33AC shall be increased provided the said reserve is debited to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auses (a) to (h) is debited to the profit and loss account, and as reduced by, - We find merit in this civil appeal. On reading Explanation 1, quoted above, it is clear that to make an addition under clause (b) two conditions must be jointly satisfied : (a)There must be a debit of the amount to the profit and loss account (b)The amount so debited must be carried to the reserve. Since the amount of AAD is reduced from sales, there is no debit in the profit and loss account, the amount did not enter the stream of income for the purposes of determination of net profit at all, hence clause (b) of Explanation 1 was not applicable. Further reserve as contemplated by clause (b) of Explanation 1 to section 115JB of the 1961 Act is required to be carried through the profit and loss account. At this stage, it may be stated that there are broadly two types of reserves, viz., those that are routed through the profit and loss account and those which are not carried via the profit and loss account, for example, a capital reserve such as share premium account. AAD is not a reserve. It is not an appropriation of profits. AAD is not meant for an uncertain purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
