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TMI Blog2005 (2) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Explanation to sub-section (2) of section 115JA. There is nothing before us to suggest that the accounts of the assessee-company prepared and submitted before the Assessing Officer were either rejected or modified by the authorities under the Companies Act or were not approved/adopted in the Annual General Meeting of the assessee-company. Thus, the book profit as shown in the accounts of the assessee-company stood not only certified by the statutory auditors of the assessee-company but also accepted by all concerned under the Companies Act. In other words, the book profit as shown in the accounts of the assessee was book profit for all intent and purposes under the Companies Act. In the case before us, the accounts as also the book profits shown therein are duly certified by the statutory auditors of the assessee-company and the impugned adjustments sought to be made by the Assessing Officer are also not authorized by Explanation to sub-section (2) of section 115JA which is similar to Explanation to section 115J. Hence, the adjustments made by the Assessing Officer to the book profit shown by the assessee in the Profit Loss Account cannot be sustained in law. Thus, in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act, 1961. As far as the treatment of gains arising on sale of shares under the Income-tax Act is concerned, the long-term capital gain after indexation worked out to Rs. 52,92,160 as against which the assessee had invested Rs. 57,13,631 in equity shares of Reliance Port Terminal Limited, which were the specified securities for claiming exemption from capital gains tax under section 54EA. It was further claimed that the capital gain realized on sale of the said shares was exempt under section 54EA to the extent of Rs. 52,92,160 and therefore no capital gains tax was chargeable. In nutshell, the assessee did not reflect the capital gain arising on sale of shares as part of book profit in the Profit Loss Account for three main reasons: one, there was no profit on sale of shares as the shares were sold at the revalued price and hence the same was not included in the book profit as shown in the Profit Loss Account prepared in terms of Parts II and III to Schedule VI to the Companies Act, 1956; two, there was no capital gain on the sale of shares as the sale proceeds stood invested in specified securities under section 54EA of the Income-tax Act and hence there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o find out as to whether it was prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 and, once he found that it was not so prepared, he could recast the profit loss account by making suitable adjustments as done by the Assessing Officer in the case before us to work out the book profit for the purposes of section 115JA. He took us through the provisions of sub-section (2) of section 211 of the Companies Act which provides that "every profit loss account of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable to......". Referring to sub-section (6) of section 211 of the Companies Act, he submitted that any reference to a balance sheet or profit loss account shall include any notes thereon or documents annexed thereto, giving information required by the Companies Act or allowed by the said Act to be given in the form of such notes or documents. On the strength of these provisions, he contended that the jurisdiction of the Assessing Officer extended to examine whether the book profit shown by the assessee for the purposes of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as part of book profit under section 115JA. According to him the action of the Assessing Officer was in conformity with the law laid down in the said case. 11. Learned DR referred to various Accounting Standards ( viz. , IAS 5 and 13) laid down by the Institute of Chartered Accountants of India and submitted that profit on sale of shares was required, in terms of the aforesaid Accounting Standards, to be shown in the Profit Loss Account of the assessee-company. If the profit shown in the Profit Loss Account was not in conformity with the Accounting Standards, the Assessing Officer could, according to the learned DR, determine the correct book profit for the purposes of section 115JA as it was the duty of the Assessing Officer to see that the profit and loss account prepared by the assessee was in accordance with Parts II and III of Schedule VI to the Companies Act. He contended that the aforesaid position was clearly discernible on a reading of the judgment in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 1 (SC). In support of his submission, the learned DR relied on the following observations made at page 25 of the book on "Minimum Alternate Tax", June 2004 (Edn.) brought out by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tative for the assessee ( AR in short) supported the order of the learned CIT(A) and submitted that, after the judgment of the Hon ble Supreme Court in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 1 and Hon ble Bombay High Court in Kinetic Motor Co. Ltd. v. Dy. CIT [2003] 262 ITR 330 2 , it was no longer open to the Assessing Officer to rescrutinise the company s accounts and satisfy whether they have been maintained in accordance with the provisions of the Companies Act. Referring to the decision in Veekaylal Investment Co. (P.) Ltd. s case ( supra ), the learned AR submitted that the assessee in that case itself had shown capital gains in the Profit Loss Account and treated them as part of book profit . In Veekaylal, the plea of the assessee that capital gain was not includible in the book profit was rejected by the Hon ble High Court as the assessee itself had shown the capital gain in the Profit Loss Account and treated the same as part of book profit. The learned AR took us through the factual matrix of the case in Veekaylal Investment Co. (P.) Ltd. s case ( supra ) and the case before us and submitted that the material facts were altogether different in Veekaylal Investment Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be liable to be included in the total income under the Income-tax Act but that does not ipso facto mean that the same must be included as profit in the accounts of the assessee. Likewise, a receipt or an item of income may not be liable to be included in the total income under the Income-tax Act but that does not mean that the same cannot be included as profit in the accounts of the assessee. Computation of total income for the purposes of regular assessment under the Income-tax Act, 1961 is conceptually different from the computation of net profit in the accounts of the assessee under the Companies Act which alone is required to be taken into account for the purposes of MAT under section 115JA of the Income-tax Act, 1961. In the case before us, we are concerned with section 115JA which brings "book profits", and not "total income", to the charge of Minimum Alternative Tax. Explanation to sub-section (2) of section 115JA defines "book profits" to mean "net profits as shown in the profit and loss account for the relevant previous year prepared under sub-section (2)", as increased or decreased by the amounts mentioned therein. It is clear that no discretion is available to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-company have not certified the correctness of the net profit shown in the profit and loss account of the assessee. Two, the explanations appended to the audited accounts are intended to explain and disclose material facts to the stake-holders. They do not per se indicate the incorrect nature of the audited accounts or the position reflected therein. Three, there is nothing on record to indicate that the audited accounts were not accepted by the statutory authorities under the Companies Act or in the Annual General Meeting of the assessee-company. Four, the auditors of the assessee-company have not qualified their audit report stating that certain income which was to be included in profit and loss account was not so included but directly taken to reserve. The auditors were aware of the correct accounting position. They realized that there was no profit (or, so to say, commercial profit) to the assessee upon revaluation of shares and hence they did not object to or even adversely comment upon the accounting treatment given by the assessee by the difference between the revalued price and the book value of shares being transferred, to the Investment Revaluation Reserve in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er provided by the Companies Act and the same to be scrutinised and certified by the statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the Assessing Officer to rescrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the Revenue on sub-section (1A) of section 115J of the Income-tax Act in support of the above contention is misplaced. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... III of Schedule VI to the Companies Act, 1956. In the case of Apollo Tyres Ltd. [2002] 255 ITR 273, the Apex Court held that while computing the income under section 115J of the Income-tax Act, the Assessing Officer has only power to examine whether the books of account were certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. It is further held that the Assessing Officer thereafter has limited powers of making increases and reductions as provided for in the Explanation to the said section. The Apex Court further held that the Assessing Officer does not have the jurisdiction to go beyond the net profits shown in the profit and loss account, except to the extent provided in the Explanation to section 115J of the Income-tax Act. In the instant case, the accounts maintained by the assessee are certified by the auditors. Under the circumstances, the book adjustment made by the Assessing Officer being contrary to the decision of the Apex Court, question No. 1 is answered in the negative and in favour of the assessee." [Emphasis supplied] 21. The above decisions, in our view, settle the issue authoritatively in tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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