2014 (4) TMI 558 - HC - Income Tax

Inclusion of Pre-operative expenses Re-computation u/s 115JB of the Act - Whether the Tribunal is right in directing the AO not to include the preoperative interest expenses while re-computing the book profit u/s.115JB of the Act Held that - The Tribunal had rightly held that the decision in Apollo Tyres Limited 2002 (5) TMI 5 - SUPREME Court followed - while assessing a company for income tax under section 115J the correctness of the P&L A/c. prepared by the assessee company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Part II and III of Scheduled VI to the Companies Act cannot be examined by the Assessing Officer. The AO does not have the jurisdiction to go behind the net profit shown in the P&L A/c. except to the extent provided in the Explanation to section 115J - for the purpose of section 115J of the Act, only those adjustments, which are specified in the explanation to section 115J can be made from the book profits and depreciation not being one of them and further the accounts of the company having been prepared in accordance with Schedule VI to the Companies Act, the AO was in error in disallowing the depreciation as claimed by the company thus, no substantial question of law arises for consideration Decided against Revenue.

Summary

Issues:
1. Interpretation of Section 115JB - Inclusion of preoperative interest expenses in computing book profit.
2. Jurisdiction of Assessing Officer to examine Profit and Loss Account prepared in accordance with Companies Act.

Interpretation of Section 115JB - Inclusion of preoperative interest expenses in computing book profit:
The case involved a dispute regarding the inclusion of preoperative interest expenses while computing book profit under Section 115JB of the Income Tax Act. The Assessing Officer had added preoperative interest and prior period expenses for computing book profit, but the Commissioner Income Tax and the Income Tax Appellate Tribunal had deleted these expenses. The Tribunal referred to judicial pronouncements, including the decision in the case of Apollo Tyres Limited, emphasizing that the Assessing Officer cannot examine the Profit and Loss Account prepared in accordance with the Companies Act unless specified adjustments are allowed under Section 115JB. Relying on precedent, the Tribunal directed the Assessing Officer not to include preoperative interest expenses and prior period expenses in the computation of book profit under Section 115JB.

Jurisdiction of Assessing Officer to examine Profit and Loss Account:
A Division Bench of the Court, in a separate case, emphasized that the Assessing Officer cannot vary the Profit and Loss Account of a company audited and prepared in accordance with the provisions of the Companies Act. Citing decisions of the Apex Court, the Bench reiterated that the Assessing Officer's jurisdiction is limited concerning the examination of the audited accounts prepared in compliance with the Companies Act. Consequently, the Court concluded that no substantial question of law arose in the Tax Appeal, leading to the dismissal of the appeal.

In conclusion, the judgments underscore the importance of adhering to the statutory requirements while computing book profit under Section 115JB and highlight the limited scope of the Assessing Officer's jurisdiction in examining audited accounts prepared in accordance with the Companies Act.