TMI Blog1996 (3) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 115J of the Act by making the following observations :-- " Actual Book Profit as per section 155J is taken at Rs. 25,64,887 (Book Profit Rs. 22,07,540 + Foreign Exchange Fluctuation Rs. 3,57,347) 30% of which works out to Rs. 7,69,466, Issue Notice of Demand Challan. " 4. Thereafter the CIT(A) passed an order on 13-11-1991 and held that the Foreign Exchange fluctuations of Rs. 3,57,347 could not be added to the book profits for the purpose of section 115J of the Act. The relevant extract is given below :-- "Before me, it has been pointed out that the book profit is only Rs. 22,07,540 and the Assessing Officer is not justified in adding foreign exchange fluctuation of Rs. 3,57,347 because section 115J does not provide for it. I have gone through the aforesaid section and noted that there is no provision under section 115J by which this amount can be added in book profit and therefore, I direct that the Assessing Officer to compute 30% profit under section 115J on book profit of Rs. 22,07,540 and not on foreign exchange fluctuation of Rs. 3,57,347 and work out the resultant relief to the appellant. " 5. Later on the CIT went through the case records and asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT thereafter set aside the assessment order with a direction to reframe the same after taking into consideration the above observations. 8. The ld. counsel for the assessee raised a preliminary objection before us contained in ground of appeal No. 2. According to him, the assessment order dated 27-3-1991 had merged in the order of the CIT(A) dated 13-11-1991 and therefore, the CIT had no jurisdiction to invoke the provisions of section 263. Reliance was placed on a decision of the Allahabad High Court in J. K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344 at 349 and 350. 9. In reply to a query from the Bench, the ld. counsel for the assessee clarified that the above judgment had been given on 7-5-1974. Attention was thereafter invited to Explanation (c) below section 263(1) of the Act substituted by the Finance Act, 1988 with effect from 1-6-1988. Where the assessment order had been the subject-matter of appeal, the powers of the CIT under section 263(1) shall extend to " such matters as had not been considered or decided in such appeal ". The ld. counsel for the assessee thereafter submitted that even thereafter, there was merger of the assessment order with the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten down value based on actual cost. Our attention was invited to Notes on the accounts contained in Schedule 15 of the balance-sheet. According to it, land, building, plant machinery of the Cotton Textile Unit were revalued as on 1-1-1985 resulting in increase in the book value of the assets by Rs. 15,66,23,093. This amount was transferred to re-valuation reserve in 1985. Provision for depreciation for the year had been calculated on the respective revalued figures at the rates calculated as per the straight line method over the residual life of such assets. An amount of Rs. 26,52,877 had been transferred during the year from Revaluation Reserve to profit loss account, represent difference in depreciation on revalued amount and depreciation on the original cost of such assets calculated in accordance with section 205(2)(b) of the Companies Act, 1956. 14. The treatment of the above sum of Rs. 26,52,877 in the profit loss account had been done in the following manner, after ascertaining profit after depreciation at Rs. 22,07,540 : Rs. Rs. " Profit after depreciation 22,07,540 Less : Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also placed for the above submission or a decision of the Delhi Bench of the Tribunal in SRF Ltd. v. Asstt. CIT [1993] 47 ITD 504 at 507. 18. It was further submitted that Accounting Standard Six (AS6) issued by the Council of the Institute of Chartered Accountants of India on depreciation accounting dealt with the accounting for depreciation. It was stated therein that in case the depreciable assets are revalued, the provision for depreciation is based on the re-valued amount on the estimate for the remaining useful life of such assets. The provision for depreciation in such cases should be based on revalued amount and on the estimate of the remaining useful life of such assets. This is what had been done by the assessee and therefore, there was full justification for doing so. 19. The ld. D.R. on the other hand, supported the order under section 263. He submitted that the addition of revaluation reserve of Rs. 26,52,877 was only part of the profit and not just an adjustment and therefore, the directions of the CIT were fully justified. 20. We have considered the rival submissions. Section 115J of the Income-tax Act contains special provisions relating to certain compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to profit loss account relating to earlier years should have been added. For this purpose, he relied upon the decision of the Nagpur Bench of the Tribunal in Bastar Wood Products Ltd. v. Dy. CIT [1995] 78 Taxman 126 (Tax-Mag.) where one of us (A.M.) was a party. 26. The ld. D.R. on the other hand, relied on the order under section 263. 27. We have considered the rival submissions carefully. In the case of Bastar Wood Products Ltd., one question which arose was whether "while computing the income for the purpose of deduction under section 115J losses of earlier years are to be deducted under the provisions of section 205(1) of the Companies Act, 1956. The Tribunal observed that the purpose of introduction of section 115J was to bring to tax some income where the company was inter alia, able to declare substantial dividends while managing its affair in such a way as to avoid payment of income-tax. In the circumstances, it was quite logical that the computation of "book profits" for the purpose of section 115J should be linked with the provisions in the Companies Act for computation of profits for the purpose of declaration of dividends. The Tribunal noticed that the C.B.D.T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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