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TMI Blog2012 (4) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - IT APPEAL NOS. 2512 TO 2514 (MUM.) OF 2009 - - - Dated:- 13-1-2012 - T.R. SOOD, VIJAY PAL RAO, JJ. Vipul B. Joshi for the Appellant. Jitendra Yadav for the Respondent. ORDER T.R. Sood, Accountant Member In all these appeals common issue arises whether the Ld. CIT(A) was correct in confirming the addition made by the AO u/s. 115JB of the I.T. Act. The Ld. Counsel of the assessee submitted that there is no dispute in facts and in all the appeals the only dispute is regarding computation of profits u/s.115JB. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect picture of the profits earned by the assessee. It was submitted that accounts were duly certified to have been prepared by the auditors in accordance with Part II and Part III of Schedule VI of the Companies Act, 1956 and, therefore, AO had no jurisdiction to go behind the net profit shown in the profit loss account except to the extent provided under Explanation to sub sec. [2] of sec. 115JB. Reliance was also placed on certain decisions of the Tribunal. The ld. CIT(A) did not agree with the submissions and decided the issue against the assessee vide paras 4.3 4.4 which are as under: "4.3 1 have considered the facts of the issue as well as written submissions made by the AR but do not find merit in them. The AO has clearly brought out that the net profit arrived at by the appellants, in each of these years, was not in consonance with Part II and III of Schedule VI of the Companies Act 1956 which explicitly required the disclosure of profit or loss on investments. Clearly, the appellants failed in disclosing the profits earned from sale of investments in immovable properties in the profit and loss accounts resulting in the AO carrying out the impugned adjustments. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the auditors, same cannot be tinkered with by the AO. The Ld. Counsel also vehemently argued that reliance placed by the First Appellate Authority on the decision of the Hon'ble Bombay High Court in the case of CIT v. Veekaylal Investment Co. (P.) Ltd. [2001] 249 ITR 597/116 Taxman 104 is not correct because the ratio of this decision is no more good law after the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. ( supra ). This position stands clarified by the decision of the Hon'ble Bombay High Court itself in the case of CIT v. Akshay Textiles Trading Agencies (P.) Ltd. [2008] 304 ITR 401/167 Taxman 324, wherein the question referred specifically contained the reference to the decision of Veekaylal Investment Co. (P.) Ltd. ( supra ). However, the Hon'ble High Court answered the question against the revenue by holding that the same is covered by the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. ( supra ). He also relied on the decision of the Hon'ble Madras High Court in the case of CIT v. Vijayashree Finance Investment Co. (P.) Ltd. [2008] 216 CTR 191 wherein profit on sale of land was directly credited to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd., [2009] 33 DTR 59 (Mum.) and pointed out that this decision was u/s.115JB and the issue was identical, i.e. profits on sale of immovable properties were directly routed through balance sheet but the same was held to be includible in the book profits even after considering the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. [ supra ]. 6. He also made detailed submissions that as per Part II and Part III of Schedule VI of the Companies Act, 1956, all items of income are required to be included in the profit loss account and the same prescription has been made even under Accounting Standard. It has been pointed out in the written synopsis that during the assessment proceedings Authorised Representative of the assessee had accepted that profit on sale of assets should have been routed through profit loss account as per Part II and Part III of Schedule VI of the Companies Act, 1956, and in this regard a copy of the noting sheet of assessment proceedings dated 18-7-08 has been filed. The copy of the letter of assessee's Authorised Representative wherein profit loss account and balance sheet have been recasted as per the requirements of Part II an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra. The first set of decisions relied on by the Ld. Counsel of the assessee is as under: 1. Sanatan Textrade (P.) Ltd. for A. Y. 1998 - 99 [I.T. Appeal No. 1510/M/02] 2. Swadee Chemicals (P.) Ltd. for A. Y. 1998 - 99 [I.T. Appeal No. 1466/M/02] 3. Shrusti Trading (P.) Ltd. for A. Y. 1998 - 99 [I.T. Appeal No. 1511/M/02] 4. Ranjana Traders (P.) Ltd. for A. Y. 1998 - 99 [I.T. Appeal No. 4749/M/03] 5. Dainty Investments Leasings (P.) Ltd. for A. Y. 1998 - 99 [I.T. Appeal No. 1793/M/02] 6. Vasishtha Tradecom (P.) Ltd. for A. Y. 1998 - 99 [I.T. Appeal No. 1449/M/02] 7. Rachana Merchandise (P.) Ltd. for A. Y. 1998 - 99 [I.T. Appeal No. 1114/M/02] The decisions at Sr.Nos.1 to 3 and 5 to 7 have basically followed the decision at Sr. No. 4 i.e. Ranjana Traders (P.) Ltd. ( supra ) In the case of Ranjana Traders (P.) Ltd. ( supra ) following the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. [ supra ] it was held that AO has no authority to go behind the accounts to see whether the accounts have been maintained as per the requirements of Part II and Part III of Schedule VI of the Companies Act, 1956. This decision has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year." And the same requirements remained u/s.115JAA. The requirement for preparation of accounts u/s.115JB is provided in sub-sec. (2) which reads as under: (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 VI22 to the Companies Act, 1956 (1 of 1956) : Provided that while preparing the annual accounts including profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eck 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. In fact, this aspect has been considered by the Special Bench of the Tribunal in the case of Rain Commodities Ltd. ( supra ) particularly u/s. 115JB and it was held vide para-18 as under: "We have considered the rival submissions and perused the materials available on record and the case laws relied upon by both the parties. We have taken into consideration the ratio decidendi of all the decisions relied upon by the rival parties. The omission of reference to some of the cases in the order is either due to their irrelevance or to relieve the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation within the knowledge of income-tax authorities. " [Emphasis supplied] Thus, from the above it is clear that atleast u/s.115JB AO has power to go behind the accounts. Similar view has been taken by the coordinate Bench in the case of Bombay Diamond Co. Ltd. ( supra ) which has been also rendered u/s.115JB. This decision was distinguished by the Ld. Counsel that it has not considered the decision of the Hon'ble Bombay High Court in the case of CIT v. Akshay Textile Trading Agencies (P.) Ltd. ( supra ). The argument whether the decision of Hon'ble Bombay High Court in the case of Akshay Textile Trading Agencies (P.) Ltd. ( supra ) has over ruled the decision of Division Bench in the case of Veekaylal Investment Co. (P.) Ltd. ( supra ) or not, was also considered by the Special Bench in para-24. The relevant portion of para-24 reads as under: The decision of the Bombay High Court in the case of CIT v. Akshay Trading Agencies (P.) Ltd [2008] 304 ITR 401' the question referred to the High Court and the decision of the High Court, as reported are as under: C. Whether on the facts and the circumstances of the case and in law, the Hon'ble Income-tax Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income in accordance with the IT Act and if the total income is less than 30 per cent of the book profit then the assessee has to prepare a P L a/c for the previous year in accordance with Part II and III of Sch. VI to the Companies Act. In other words, a plain reading of s. 115J shows that if the assessee is a company and its total income under the IT Act is less than 30 per cent of its book profits then, fictionally, it will be deemed that its total income chargeable to tax would be an amount equal to 30 per cent of such book profits. Hence, in such a case, the total income of the assessee is first required to be computed under the IT Act and if the total income so computed is less than 30 per cent of the book profits then the P L a/c shall have to be prepared in accordance with Part II and Part III of Sch. VI of the Companies Act. The important thing to be noted is that while calculating the total income under the IT Act, the assessee is required to take into account income by way of capital gains under s. 45 of the IT Act. In the circumstances, one fails to understand as to how in computing the books profits under the Companies Act, the assessee-company cannot consider capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature. 3. The P L a/c shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads; and in particular, shall disclose the following information in respect of the period covered by the account: ( i ) to ( ii )** ** ** ( xi ) (a) The amount of income from investments and other investments. (b) Other income by way of interest, specifying the nature of the income. (C) The amount of income-tax deducted if the gross income is stated under sub paras (a) and (b) above. ( xii ) (a) Profits or losses on investments showing distinctly the extent of the profits or losses earned or incurred on account of membership of a partnership firm to the extent not adjusted from any previous provision or reserve. Note : Information in respect of this item should also be given in the balance sheet under the relevant provision or reserve account. (b) Profits or losses in respect of transactions of a kind, not usually undertaken by the company or undertaken in circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X
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