2002 (9) TMI 37 - HC - Income Tax

Book profit - Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the book profits for the purpose of section 115J of the Income-tax Act, 1961, is to be computed after deducting the extra shift allowance relating to the earlier years and giving effect to clause (iv) of Explanation to section 115J ? the question is answered in favour of the assessee and against the Revenue.

Summary

Issues:
1. Computation of book profits for the purpose of section 115J of the Income-tax Act, 1961.
2. Allowability of extra shift allowance relating to earlier years.
3. Interpretation of relevant provisions of the Companies Act and the Income-tax Act.
4. Application of Supreme Court judgments in similar cases to the present dispute.

Issue 1: Computation of Book Profits:
The case involved a public limited company engaged in yarn manufacturing disputing the deduction of extra shift allowance from book profits for the assessment year 1990-91 under section 115J of the Income-tax Act. The Assessing Officer added back the allowance to the book profits, but the Tribunal directed the deduction of the allowance and application of Explanation 2 of section 115J. The issue was whether the Tribunal's decision was legally correct.

Issue 2: Allowability of Extra Shift Allowance:
The company had debited an extra shift allowance in the accounts for the relevant year, not claimed in earlier years. The Assessing Officer disallowed the allowance for the period not related to the accounting year. However, the Tribunal directed the deduction of the extra shift allowance of earlier years while computing the book profit, which was contested by the Revenue.

Issue 3: Interpretation of Relevant Provisions:
The court analyzed section 115J of the Income-tax Act and section 205 of the Companies Act concerning the set-off of unabsorbed depreciation against book profits. Referring to Supreme Court judgments, the court emphasized that the Assessing Officer's power is limited to examining certified accounts under the Companies Act and making specified adjustments under section 115J. The court highlighted that the Assessing Officer cannot recompute profits by excluding provisions like arrears of depreciation.

Issue 4: Application of Supreme Court Judgments:
The court cited the case of Surana Steels P. Ltd. v. Deputy CIT and Apollo Tyres Ltd. v. CIT to support its decision. It emphasized that the Assessing Officer cannot disregard provisions made in the profit and loss account unless permitted by the Explanation to section 115J. The court held that the Assessing Officer's authority is confined to verifying compliance with the Companies Act and making adjustments as specified in the legislation.

In conclusion, the court ruled in favor of the assessee based on the interpretation of relevant provisions and the application of Supreme Court precedents. The judgment clarified the limitations of the Assessing Officer's authority in computing book profits under section 115J of the Income-tax Act, emphasizing adherence to statutory requirements and certified accounts under the Companies Act.