2003 (12) TMI 261 - AT - Income Tax

Summary

Issues Involved:
1. Inclusion of revaluation reserve in the computation of book profit under section 115J of the Income-tax Act.
2. Interpretation of the proviso to clause (i) of the Explanation to section 115J(1A).
3. Applicability of the decision in the case of Apollo Tyres Ltd. by the Supreme Court.
4. Reliance on the decision of the Tribunal in the case of SRF Ltd.
5. Interpretation of the Institute of Chartered Accountants of India guidelines.

Issue-wise Detailed Analysis:

1. Inclusion of Revaluation Reserve in Computation of Book Profit:
The core issue revolves around whether the amount transferred from the revaluation reserve should be included in the computation of book profit under section 115J. The assessee argued that the revaluation reserve amounting to Rs. 2,54,09,727 was not real income and hence should be excluded from the book profit. The Assessing Officer, however, included this amount in the book profits, stating it was not liable to be excluded as per the proviso to clause (i) of the Explanation to section 115J(1A).

2. Interpretation of the Proviso to Clause (i) of the Explanation to Section 115J(1A):
The proviso to clause (i) of the Explanation to section 115J(1A) stipulates that the amount withdrawn from reserves created in a previous year relevant to the assessment year commencing on or after April 1, 1988, shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves. The Tribunal noted that the revaluation reserve was created in the assessment year 1990-91, and it had not increased the book profits at the time of creation. Therefore, the reduction of Rs. 2,54,09,727 from the book profits was not permissible.

3. Applicability of the Decision in Apollo Tyres Ltd.:
The assessee relied on the Supreme Court's decision in Apollo Tyres Ltd., arguing that the Assessing Officer had no power to scrutinize the profit and loss account prepared in accordance with Schedule VI of the Companies Act. The Tribunal clarified that the Assessing Officer did not disturb the depreciation figures but merely adjusted the book profits as per the Explanation to section 115J, which is within the limited power granted by the Supreme Court in Apollo Tyres Ltd.

4. Reliance on the Decision of the Tribunal in SRF Ltd.:
The CIT(A) and the assessee relied on the Tribunal's decision in SRF Ltd., where it was held that withdrawals from revaluation reserves created before April 1, 1988, could be deducted from book profits. However, the Tribunal distinguished the present case, noting that the revaluation reserve was created in the assessment year 1990-91, falling under the category where the reduction is allowed only if the reserve had increased the book profits, which it had not.

5. Interpretation of the Institute of Chartered Accountants of India Guidelines:
The CIT(A) had relied on the guidelines of the Institute of Chartered Accountants of India, supported by the Supreme Court's decision in Challapalli Sugars Ltd. The Tribunal, however, emphasized that the legal provisions of the Act take precedence over accountancy practices. The Tribunal referred to the Supreme Court's decision in Tuticorin Alkali Chemicals & Fertilizers Ltd., which stated that accountancy practices cannot override the express provisions of the Act.

Conclusion:
The Tribunal concluded that the CIT(A) erred in directing the exclusion of the revaluation reserve amount from the book profits. The order of the CIT(A) was set aside, and the Assessing Officer's computation, which included the revaluation reserve in the book profits, was restored. The appeal of the Revenue was allowed.