TMI Blog2002 (2) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation of fixed assets made in earlier years Rs. 8,03,39,668 (ii) Reserve on account of valuation of fixed assets made in the current year Rs. 1,96,28,861 --------------- Rs. 9,99,68,529 --------------- During the assessment proceedings, Assessing Officer noted that the amount transferred from reserve consists of two parts - one from a reserve created prior to the beginning of current previous year (i.e., prior to 1-4-1988) and the other out of reserve created during the current previous year (i.e., ended 31st March, 1989). While the Assessing Officer excluded Rs. 8,03,39,668, from computation of book profit for section 115J, on the ground that such amount was covered by Explanation (i) to sub-section (1A) of section 115J which provides that "the amount withdrawn from reserves [(other than the reserves specified in section 80HHD)] or provisions, if any such amount is credited to the profit and loss account" is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts withdrawn from such reserves to the profit and loss account, to enhance the net profit, but claim deduction for same in computation of book profit by resorting to adjustment under proviso to paragraph (i). In plain words, while no adjustment to net profit is made for creation of reserve, even though net profits are affected by such a creation of reserve, transfer from such reserves to the profit and loss account, which results in increase of net profit, are neutralised by the adjustment to book profit under Explanation (i) to section 115J(1A). These are the cases, according to learned counsel, which resulted in amendment in question. Learned counsel has further stated, using the phraseology employed in the memorandum explaining the amendment, that it is this "undue lowering" of the profits, used as a "tax avoidance device", which admittedly is the mischief sought to be remedied by this amendment. It is then submitted that, unlike a revenue reserve, "revaluation reserve" is not made by appropriating profits from the profit and loss account, and, therefore, creation of revaluation reserve inherently cannot result in "undue lowering" of the profits. It is submitted that since reval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in connection with the same. Sub-section (1A) of section 115J provides as follows : "Section 115J (1A) Every assessee, being a company, shall, for the purposes of this section, repair 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) Explanation: For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (1A), as increased by (a) the amount of income-tax paid or payable, and the provision therefor ;or (b) the amounts carried to any reserves (other than the reserves specified in section 80HHD), [or sub-section (1) of section 33AC] by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; or (g) the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... underlined relevant portion. 6. We find that in the relevant previous year, assessee had, by transfer from revaluation reserve account, credited a sum of Rs. 1,96,28,861 to the profit and loss account while admittedly, on account of creation of related revaluation reserve - which also took place within the relevant previous year itself, the book profit was not increased. If we look at the plain words of the statute, when the book profit was not increased on account of creation of reserve, the book profit can also not be decreased on account of transfer from such a reserve to the profit and loss account. Shri Bajoria's thought provoking arguments, however, urge us to take a deeper look. 7. We may first refer to the memorandum explaining the amendment to the relevant proviso, which explains the backdrop of this provision and which had been relied upon by the assessee : "Under the existing provisions certain adjustments are made to the net profit as shown in the profit loss account. One such adjustment stipulates that the net profit is to be reduced by the amount withdrawn from the reserves or provisions, if any, such amount is credited to the profit loss account. Some com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er alia the amounts carried to any reserves, other than the reserves specified in section 80HHD or subsection (1) of section 33AC - by whatever name called, if the same is debited to the profit and loss account. In other words, according to the assessee, when the reserve is not created by debiting the profit and loss account, there cannot be an occasion to add the same to the book profit. In this regard, reliance was placed on certain observations of a co-ordinate bench of this Tribunal, in the case of SRF Ltd. We may, however, mention that as far as assessee's reliance on the case of SRF Ltd. is concerned, the revaluation reserve in this case was admittedly created before 1st April, 1988. The case is therefore not directly applicable on the facts of this case. 10. Let us now come back to the facts of this case and key question which requires adjudication by us. There is no dispute that, as far as transfer of Rs. 1,96,28,861 is concerned, when related revaluation reserve was created during the relevant previous year itself, no addition in respect of the same was made to the book profit. We are also conscious to the fact that the reserve was not created by debit to the profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Teja Singh [1959] 35 ITR 408, at page 414 'a statute is designed', observed Lord Dunedin in Whitney v. IRC [1925] 10 Tax Cas. 88 'to be workable, the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable'." 12. We must, therefore, confine ourselves to plain and unambiguous meaning of the words employed in the statute and resist the temptation of resorting to creative interpretation canvassed by the learned counsel. Accordingly, we reject the same. 13. We have also noticed that in the present case admittedly revaluation reserve has been created directly by way of debit to the revalued assets, and not through the profit and loss account. However, if it is a bona fide revaluation, it does result in capital profits and, according to the scheme of Schedule VI of the Companies Act, Capital profits are also required to be reflected in the profit and loss account. Part II of Schedule VI, dealing with requirements as to the profit and loss account, inter alia states as follows : "2. The profit and loss account (a) shall be so made out as clearly to disclose the result of working of the company dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perspective, book profit is affected by creation of revaluation reserve directly be debit to the revalued assets, because profit on revaluation has not been brought to the profit and loss account at all, whereas, according to the scheme of the Schedule VI of the Companies Act, such a profit should have been reflected in the profit and loss account. Whether an amount is not credited to the profit and loss account, which should have been so credited, or the amount is debited to the profit and loss account, has the same impact and purpose. We are, therefore, of the considered view that even in case of revaluation of assets, profits on revaluation of assets are first required to be credited to the profit and loss account and the assessee not having done so, book profits of the assessee stand unduly lowered. In this view of the matter also, we do not think that the interpretation being given by the learned counsel is an acceptable interpretation. For this reason also, we must confine ourselves to the plain and unambiguous expression in the statute. 16. In the light of these discussions also, we agree with the authorities below that when the book profit was not increased on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the depreciation on tube-well and generator, installed at registered office of the company. 24. We find that this issue is also covered, in favour of the assessee, by various orders (in assessee's own case for the assessment years 1987-88, 1988-89 and 1990-91) by the co-ordinate benches which have upheld the assessee's contentions. We see no reasons to take any contrary view. Accordingly, we direct the Assessing Officer to give necessary relief in the matter. Ground No. 6 is, thus, allowed. 25. In ground No. 7, assessee is aggrieved that the learned CIT(A) erred in not allowing the deduction of Rs. 2,90,423 being the prospecting expenses incurred for Spong Iron and Hydrogen Peroxide Projects. 26. We find that this issue is also covered, this time against the assessee though, by order dated 31-1-2000 passed by a co-ordinate bench, in assessee's own case for the assessment year 1988-89. Respectfully following the aforesaid order, we decline to interfere in the matter and dismiss the ground No. 7. 27. In ground No. 8, assessee is aggrieved that the CIT(A) erred in not allowing the deduction for Rs. 99,801 in respect of investment in shares of M/s. Associate Jute Bleache ..... X X X X Extracts X X X X X X X X Extracts X X X X
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