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2012 (4) TMI 395 - AT - Income TaxMAT - Addition made by the AO u/s. 115JB - capital gain have not been routed through profit & loss account - held that - the Act has recognised that there may be cases where F.Y of the company may be different from the previous year and if the financial accounts are adopted in the previous year then such accounts must have similar Accounting Policies and Accounting Standard etc. - Now, who is going to check this aspect? Obviously, the Registrar of Companies is not concerned with these aspects whether accounts adopted for the previous year are same or not because the Registrar of Companies at best is concerned whether the accounts adopted and laid before the annual general meeting are in accordance with the requirements of Part II and Part III of Schedule VI of the Companies Act, 1956. Therefore, in view of these enlarged requirements, we are of the view that AO has powers to go behind the accounts and see whether same have been prepared in accordance with the requirements of Part II and Part III of Schedule VI of the Companies Act, 1956. Atleast u/s.115JB AO has power to go behind the accounts. - it is clear that book profits have to include the profits earned from capital gains. - assessee had earned certain profit on sale of shares and some industrial units which admittedly have not been credited to the profit & loss account which is contrary to the significant accounting policy of the assessee itself as well as against the requirements of Accounting Standard AS-13 and requirements of Part II and Part III of Schedule VI of the Companies Act, 1956. Therefore, in our opinion, AO has rightly brought these items to taxation under the MAT provisions of sec. 115JB. - Decided against the assessee.
Issues Involved:
1. Whether the CIT(A) was correct in confirming the addition made by the AO under Section 115JB of the I.T. Act. 2. Whether the AO had the authority to go behind the accounts to see if they were prepared in accordance with Part II and Part III of Schedule VI of the Companies Act, 1956. Detailed Analysis: Issue 1: Confirmation of Addition under Section 115JB The primary issue in these appeals was whether the CIT(A) was correct in confirming the addition made by the AO under Section 115JB of the I.T. Act. The AO observed that the assessee had sold shares and credited the profit directly to the capital reserve account instead of routing it through the profit & loss account. The AO computed the book profit under Section 115JB by adding the profit on the sale of shares to the net profit as per the profit & loss account. The CIT(A) upheld the AO's decision, stating that the assessee failed to disclose the profits earned from the sale of investments in the profit & loss account, as required by Part II and Part III of Schedule VI of the Companies Act, 1956. The CIT(A) relied on the decision of the Hon'ble Bombay High Court in CIT v. Veekaylal Investment Co. P. Ltd., which held that capital gains must be considered in the computation of book profits. Issue 2: AO's Authority to Review Accounts The second issue was whether the AO had the authority to go behind the accounts to ensure they were prepared in accordance with Part II and Part III of Schedule VI of the Companies Act, 1956. The assessee argued that the accounts were certified by statutory auditors and approved in the Annual General Meeting, and therefore, the AO had no jurisdiction to question them. The assessee relied on the Supreme Court decision in Apollo Tyres Ltd. v. CIT, which stated that the AO has no jurisdiction to see whether accounts have been maintained as per Part II and Part III of Schedule VI of the Companies Act, 1956. However, the AO and CIT(A) argued that the requirement to prepare accounts as per Part II and Part III of Schedule VI was incorporated in Section 115JB, which mandates that all items of income should be included in the profit & loss account. The Special Bench of the Tribunal in Rain Commodities Ltd. v. Dy. CIT held that the AO has the power to alter the net profit if it is discovered that the profit & loss account is not drawn up in accordance with Part II and Part III of Schedule VI to the Companies Act. The Tribunal noted that the requirement for preparation of accounts under Section 115JB is more elaborate than under Section 115J. The Tribunal concluded that the AO has the authority to go behind the accounts to ensure they comply with the requirements of Part II and Part III of Schedule VI of the Companies Act, 1956. Conclusion: The Tribunal upheld the CIT(A)'s decision, confirming the addition made by the AO under Section 115JB. The Tribunal found that the AO had the authority to review the accounts to ensure they were prepared in accordance with Part II and Part III of Schedule VI of the Companies Act, 1956. The appeals were dismissed.
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