TMI Blog2003 (12) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.66,98,857 30% of the above profits : Rs. 20,09,658 As against this the 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by the Delhi Bench of the Tribunal in the case of SRF Ltd. v. Asstt. CIT [1993] 47 ITD 504. It was further held that revaluation reserve did not represent the real income and hence any amount transferred from fictitious income could not form part of the book profit of the company. Accordingly, the action of the Assessing Officer was overturned to this extent. 6. Before us, the learned D.R. strongly opposed the impugned order by pointing that the Assessing Officer had rightly enhanced the book profits. 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.R. is not tenable in view of the fact that the Assessing Officer had, at no stage, disputed or disturbed the claim of depreciation. What he, in fact, did was to reduce the amount of revaluation reserve of Rs. 2,54,09,727 credited to the Profit and Loss Appropriation Account in terms of proviso to clause (i) of the aforenoted explanation. We are at loss to appreciate as to how the Assessing Officer could be said to have embarked upon a fresh enquiry in regard to the entries made in the account books which is 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken the advantage of this provision by reducing their net profit by the amount withdrawn from the reserve created or provision made in the same year itself, though the reserve when created had not gone to increase the book profits. Such adjustments lead to unintended lowering of profits and consequently the quantum of tax payable gets reduced by amending section 115J with a view to counteract such a tax avoidance device, it has been provided that the "book profits" will be allowed to be reduced by the amount withdrawn 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." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such amount would be allowed to be deducted in arriving at book profit. It can be clearly seen that the SRF Ltd.'s case falls in category (i) of para 24.4 of the above noted Circular No. 550 because the reserve in that case was created before the assessment year 1988-89. On the contrary, in the instant case, revaluation reserve was created in the assessment year under consideration i.e., 1990-91, namely, category (ii) and the reduction could have been availed only if such reserve had gone to increase the book profits. 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 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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