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TMI Blog2007 (4) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... kes have crept in: (i) The provision made for obsolescence loss of Rs. 51,92,565 is not added back ; and (ii) The reduction due to change in method of inventory of Rs. 98,09,000 is not added back. Giving an opportunity of being heard to the assessee, the Assessing Officer concluded that to arrive at the book profit, the net profit is to be increased by the amount carried to any reserve, by whatever name called or the amount set-aside to the provisions made for meeting liabilities, other than ascertained liabilities. According to him, these two amounts were to be increased as per the Explanation to section 115JA of the Act. He, therefore, added the same by invoking the provisions of section 154 of the Act. The Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the 1st day of April, 1997 (but before the 1st day of April, 2001) (hereafter in this section referred to as the relevant previous year) is less than thirty per cent. of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent. of such book profit. (2) Every assessee, being a company, shall, for the purposes of this section prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956) : Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ‘reserve’ shall not, subject as aforesaid, include any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for any known liability.” Sub-clause (2) of clause 7 of Part III of Schedule VI to the Companies Act, further defines the term ‘provision’ as under : “(2) Where— (a) any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, not being an amount written off in relation to fixed assets before the commencement of this Act ; or (b) any amount retained by way of providing for any known liability ; is in excess of the amount which in the opinion of the directors is reasonably necessary fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be determined with substantial accuracy. However, the Income-tax Act has adopted only one part of this definition for increasing the net profit to determine the book profit and, that is “the amount set aside to provision for meeting liability, other than ascertained liabilities” under clause (c) of the Explanation below sub-section (2) of section 115JA. The 1st part of the definition of the term “provision” providing for amount set apart for depreciation, renewals or for diminution in the value of assets has not been enroped in this clause. Therefore any provision made by the assessee for diminution in value of assets could not be increased, which is though a provision under the Companies Act, is not covered under clause (c) of the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continued to be adopted consistently in the subsequent years. But for this change in the accounting policy, the net profit for the year would have been higher by Rs. 93.09 lakhs. (iii) By-products are valued at net realisable price. As stated above, this method is found to be more scientific and was continued to be adopted consistently in subsequent years. Even otherwise also, it would be a diminution in value of inventories and for the reasons stated it would increase the book profit under section 115JA of the Act. The order of the Commissioner of Income-tax (Appeals) on this point is accordingly upheld. Both these items are provided in the books of account as per the norms laid down in the Companies Act for preparing the profit and los ..... X X X X Extracts X X X X X X X X Extracts X X X X
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