TMI Blog1993 (5) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... and loss account, ie. above the line, at Rs. 1,90,94,437. He repeated the other adjustments as done in the return and arrived at the figure of adjusted book profit at Rs. 1,82,42,382. 30 per cent of this amount being Rs. 54,72,710 was subjected to tax under section 115J in the intimation under section 143(1)(a) prepared by the Assessing Officer on 18-6-1991. Additional tax of Rs. 5,47,271 was also charged under section 143(1A), in the said intimation. The assessee filed a rectification petition under section 154 of the Income-tax Act on 27-6-1991, in which it was claimed that the figure of book profit should have been considered at Rs. 5,13,210, as taken in the return, and not as Rs. 1,90,94,437, as adopted in the intimation under section 143(1)(a). The Assessing Officer, after making certain discussions about the facts of the case, rejected the said petition of the assessee and refused to carry on the rectification as asked for, in his order under section 154 dated 8-10-1991. The assessee preferred appeal against the said order of the Assessing Officer, which was dismissed by the Commissioner (Appeals) by his order dated 27-2-1992 after detailing out the facts of the case and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the provisions of sub-section (1A) of section 115J which states that the profit and loss account for the relevant previous year is only required to be taken into consideration. He argues that since the entries in the profit and loss appropriation account generally relate to adjustments in respect of earlier years, it is the figure of net profit as per the main profit and loss account only, ie. above the line, which is alone to be considered as book profit. 4. The expression "book profit" has not been defined or even tried to be illustrated anywhere in the Income-tax Act and not so even in section 115J of the said Act, wherein a specific mention has been made of this particular expression. On the other hand, sub-section (1A) of section 115J states as below : " 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). " It may thus be found that although the book profit has not exactly been defined in the Income-tax Act, it is, however, supposed to be the profit as shown in the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. These profits can only be those which, are assessable as income under the Act. It is now well settled that in the interpretation of statutes one has to adopt such a construction as will promote the general legislative purpose underlying the provision. In the present case as could be seen from the Finance Minister's speech and the Memorandum explaining the provisions, the intention was to make the company pay tax on income which would otherwise be reduced by reason of certain deductions available under the Act. As regards the question whether the Assessing Officer can recast the book profits, an implied mandate is given to the Assessing Officer to verify and satisfy himself whether the net profit was as shown in the profit and loss account for the relevant previous year and as to whether the profit and loss account was prepared in accordance with Part II and Part III of the Sixth Schedule to the Companies Act. If in case thc Assessing Officer finds that the net profit was not as shown by the profit and loss account or the profit and loss account was not prepared in accordance with Part 11 and Part III of the Sixth Schedule to the Companies Act. he is entitled to adjust the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriation account by making debit or credit entries according to the circumstances of the case, for income-tax purposes, however, many of these items will have to be allowed as expenses or added back as income by way of liabilities/income, although relating to earlier years, actually, however, accruing during the previous year under consideration. It is, therefore, not at all uncommon to compute taxable income of an assessee by taking into consideration fully or partially the figures of adjustments relating to earlier years shown in the profit and loss appropriation account. It would also be unfair to conclude that since these items have been shown below the line and taken into consideration in the profit and loss appropriation account only, they should not be considered for the purpose of arriving at the book profit for the year. In the instant case, the departmental representative raised a point that in the impugned order under section 154, the assessing officer clearly discussed that the liabilities in respect of the expenses being interest pertaining to earlier years to the extent of Rs. 80,30,301 did not exactly arise during the accounting year under consideration, but did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below : Net profit as per the profit loss account Rs. 1,90,94,437 Less: Prior period adjustments Rs. 80,37,301 ---------------------------- Actual book profit for the year Rs. 1,10,57,136 ---------------------------- 9. However, at the same time, we note that there is a special provision in section 115J for allowing the depreciation in respect of earlier years. This is provided in clause (iv) to the proviso to the Explanation to the section. In accordance with this clause, the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act, 1956, are applicable, will have to be deducted from the figure of book profit by way of one of the adjustments. Section 205 of the Companies Act states that no dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2) or out of the profits for any previous financial year or years arrived at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, we are not in a position to say to which year and in which way this amount represents the depreciation for the earlier years. It may be that for certain earlier years, depreciation was not actually provided in the accounts of the assessee company or that depreciation was provided in a less manner than as is required to be provided under the Income-tax Act. In any case, the allowance of the claim for loss or depreciation to the extent of Rs. 43,83,864 clearly shows that unabsorbed depreciation to the minimum extent of this amount has actually been carried forward in the books of the assessee from the earlier years. If the facts of the case be that, this new amount of Rs. 1,05,43,926 truly represents further amounts of unabsorbed depreciation for those earlier years and if the conditions relating to loss or depreciation for the earlier years to be taken into consideration in this year covers this amount of Rs. 1,05,43,926 also, then there is no doubt that this extra amount will also have to be allowed by way of adjustment under clause (iv) of the proviso to the Explanation to section 115J. As, however, we are not seized of the relevant materials and the facts and figures, we rest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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