1997 (9) TMI 57 - HC - Income Tax

Summary

Issues:
- Interpretation of section 115J of the Income-tax Act, 1961 regarding computation of income for certain companies.
- Justification of adjustment of profit and loss account in accordance with the provisions of the Companies Act.
- Assessment of whether the Tribunal's decision to delete the addition of depreciation while computing income under section 115J was correct.

The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, involving questions of law referred by the Tribunal. The primary issue revolves around the interpretation of section 115J of the Act concerning the computation of income for certain companies. The case involved an assessee, a private limited company, which had filed its return of income showing a variance in income as per section 115J and without considering its provisions. The Assessing Officer made adjustments to the book profit under section 115J due to discrepancies in the depreciation claimed by the assessee. The Tribunal reversed the Assessing Officer's decision, prompting the Revenue to seek clarification on the legality of the adjustments.

Upon examination, the High Court analyzed section 115J, which mandates that the profit and loss account for the relevant year should adhere to the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. The Court emphasized that the assessee should have prepared the balance-sheet in accordance with the Companies Act, as required by the Income-tax Act. The Tribunal's failure to provide a satisfactory explanation for the deviation from the Companies Act's provisions led the Court to conclude that the Tribunal's decision was unjustified. The Court highlighted that section 115J was applicable during the relevant period, and the assessee should have followed the Companies Act guidelines for the entire profit and loss account preparation.

In light of the above analysis, the Court ruled in favor of the Revenue, stating that the Tribunal's decision to delete the addition of depreciation while computing income under section 115J was incorrect. The Court emphasized the mandatory application of the Companies Act provisions for computing income under section 115J and upheld the Revenue's position on the matter, thereby answering the questions of law in favor of the Revenue and against the assessee.

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