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TMI Blog2003 (12) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department at the time of processing the case under section 143(1)(a) and thereafter under section 154 worked out profits under section 115J as under: Net profits: Rs. 13,42,496 Add: i. Provision for doubtful debts Rs. 81,626 ii. Provision for gratuity Rs. 2,02,475 iii. Provision for tax Rs. 20,00,000 iv. Transfer to Investment Allowance reserve Rs. 30,72,260 v. Transfer from Investment Allowance reserve Rs. 2,49,250 vi. Re-valuation reserve Rs. 2,54,09,727 ----------------- Rs. 3,23,57,834 Less: Investment allowance reserve in view of Explanation (i) to section 115-J(1) Rs. 2,49,250 ----------------- Total book profits; Rs. 3,21,08,584 30% of the above......Rs. 96,32,575" 4. The assessee challenged the processing of return under section 143(1)(a) and the learned CIT(A) in his order upheld the computation in which the re-valuation reserve was added, with which we are concerned in the present appeal. The relevant facts further show that the said order of the CIT(A) was reversed by the Tribunal in ITA No. 735(ASR.)/1993 by holding that it was a debatable issue and no prima facie adjustment could have been made. In the regular assessment under section 143(3), the assessee was ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 7. In the opposition, the learned counsel for the assessee argued that the assessee had, in fact, claimed depreciation of Rs. 25409727 on the enhancement in the value of assets in accordance with the permission from the Company Law Board and if the claim of the Revenue is now accepted, it would amount to negating the effect of reduction in book profits as a result of depreciation on the enhancement in the value of fixed assets. It was contended that the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR, 273 has clearly laid down that the Assessing Officer had no power to scrutinize the profit and loss account of the Company, which is prepared in accordance with Schedule VI of the Companies Act. The learned counsel further relief on the Tribunal order of SRF Ltd's case and contended that it was passed in relation to the assessment year 1989-90 in which it was held that the withdrawal from the revaluation reserve in such circumstances could not be added to the figure of profits to arrive at the book profits under section 115J. 8. We have considered the rival submissions in extenso in the light of the material placed before us and precedents relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mandate of the Apex Court decision in the case of Apollo Tyres Ltd. on which the ld. A.R. has placed strong reliance. On the contrary, this decision is an authority for the proposition that the Assessing Officer is empowered to adjust the net profits as provided in the Explanation, which in reality, is the prescription of section 115J. Adverting to the facts of the instant case, it is found that the Assessing Officer had accepted the authenticity of the accounts and had not, in any manner, disturbed the Profit and Loss account which was stated to be prepared in accordance with the Parts II and III of the Schedule VI of Companies Act. He had not gone into the verification of figure of depreciation shown in the profit and loss account. Rather he had simply not reduced the figure of Rs. 2.54 crores from net profits, in accordance with the requirements of the Explanation to section 115J. Their Lordships of the Supreme Court in this case have categorically held that the Assessing Officer, "thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J." 9. What remains to be examined is as to whether the action of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn from reserves or provisions only in two situations namely: (i) if the reserves have been created or provisions have been made in a previous year relevant to the assessment year commencing before 1st April, 1988 or (ii) if the reserves have been created or provisions have been made in a previous year relevant to the assessment year commencing on or after 1st April, 1988 and have gone to increase the book profits in any year when the provisions of section 115J of the Income-tax Act were applicable. 24.5 This amendment will come into force with effect from 1st April, 1988 and will accordingly apply in relation to the assessment year 1988-89 and subsequent years." Prior to the aforesaid amendment, this proviso was not there and the assessee was entitled to reduction of the amount withdrawn from reserve if such amount was credited to the profits and loss account. As a result of the amendment, by way of insertion of the proviso, the assessee became entitled to reduce the amount withdrawn from reserve only in two situations, as noted above in the circular read with the provision. 10. It is found that the case of the assessee cannot be considered in the aforesaid situation (i) for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As the amount of revaluation reserve credited to the Profit & Loss Appropriation Account of company had not increased the book profits at the time of creation of reserves in any manner whatsoever, the benefit of reduction can also not be allowed. 12. During the course of arguments, our attention was drawn on behalf of the assessee towards findings contained in the impugned order to the effect that the stand taken by the assessee was in accordance with the view expressed by the Institute of Chartered Accountants of India. In holding so, the learned CIT(A) had relied upon the decision of the Supreme Court in the case of Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. We have gone through the facts of that case in which the subject-matter for consideration was "actual cost". It was observed that since this expression was not defined in the Act, it should be construed in the sense in which no commercial man would misunderstand. While deciding the issue, the Hon'ble Apex Court also took into consideration the view expressed by the Institute of Chartered Accountants of India. This case of Challapalli Sugars Ltd. (of two Judges) was considered subsequently by the Hon'ble Apex Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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