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TMI Blog2015 (12) TMI 1419X X X X Extracts X X X X X X X X Extracts X X X X ..... Department for Rs. 26,60,000/-. The appellant borrowed unsecured loan of Rs. 24.00 lakhs from its directors for meeting the purchase consideration of the land. As the Appellant/company could not commence the hotel project in the said land, it was decided to sell the land and the same was sold for Rs. 1,22,50,000/- on 23.01.2003. In the books of accounts of the appellant, the loan was capitalized during the financial year ended on 31.03.2003. The appellant created the capital gain of Rs. 51,71,820/- arising out of the sale of the land directly to the capital reserve and not to the profit and loss account. The Assessing Officer took the view that the capital gains ought to have been included to the profit and loss account, according to the accounting standard referred to by him in the assessment order and hence, arrived at a conclusion that the profit shown in the profit and loss account should be increased by the amount of capital gain of Rs. 51,71,820/-. The assessee objected to the inclusion of capital gain to the book profit. However, the Assessing Officer confirmed that the capital gain has to be shown in the profit and loss account, it cannot be straight away credited to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trongly places reliance on the Judgment of the Apex Court inAPOLLO TYRES LTD. vs COMMISSIONER OF INCOME TAX (2002) 255 ITR 273. 6. It is vehemently contended that all these statutory obligations that were required to be followed by the assessee in accordance with the Companies Act were followed. The only objection raised by the Income Tax Authorities was that capital gains cannot be directly taken into the account of the capital reserve, first, it has to be included in the profit and loss account for the purpose of computing book profit under Section 115JB of the Act. The Act provides that income prepared in accordance with the Companies Act shall be 'deemed income' for the purpose of Section 115JB of the Act. The Assessing Officer while computing the income under Section 115JB of the Act has no power to rescrutinise the books of accounts certified by the authorities under the Companies Act. The Authorities as well as the Tribunal not properly appreciating the Judgment relied on by the Assessee in the case of Apollo Tyres (supra), which is subsequent to the Judgment of VEEKAYLAL (supra), wrongly held that the capital gains should be included in the profit and loss account for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d reliance on these reports to substantiate his contention that Clause[d] of the Auditor's report specifies that the profit and loss account and balance sheet referred to in the report complies substantially in all material respects, except as stated in Note-B[2] on accounts which refers to transferring of the capital gain amount of Rs. 51,71,819.20/- to capital reserve account instead of crediting to profit and loss account. Thus, it is argued that the books of accounts maintained by the assessee is not as per the standard of accounting to be maintained in accordance with the Companies Act as disclosed in the Auditor's report. In view of not maintaining the statutory accounts as per the Companies Act, the Income Tax Authorities have every right to rescrutinize the net profit as per the book profit. The Judgment passed by the Tribunal confirming the orders of the Authorities is in accordance with the provisions of the Act and the same cannot be faulted with. As such, he seeks for dismissal of the appeal answering the question of law in favour of the Revenue. 10. Heard the learned Counsel appearing for the parties and perused the record. 11. Section 115JB of the Act during the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent from the adjustment required to be made under the explanation to be made under section 115JA of the Act. For the purpose of section 115JA, the Assessing Officer can increase the net profit determined as per the profit and loss account prepared as per Parts II and III of Schedule VI to the Companies Act only to the extent permissible under the explanation thereto. 13. The explanation appended to Section 115JB provides certain Items which if debited to the profit and loss account can be added back to the net profit for computing the book profit. Clause (b) of the said explanation provides for the amount carried to any reserves by whatever name called. In the present case, it is true that the capital gains are directly taken to capital reserve without taking the said amount of capital gain to the profit and loss account however, no such capital gain is debited to the profit and loss account, as such, the said explanation is not applicable to the facts of the present case. 14. We have noticed the auditor's report, certified with a qualification that the profit and loss account and balance sheet referred to in the report comply substantially in all material respects with the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds until the accounting standards are prescribed by the Central Government under the subsection 3(C). The Assessing Officer has placed reliance on the accounting standards, vide No.9949 dated 25.1.1996 and has held that the transaction of sale property should have been brought into the profit and loss account as an extraordinary item since the assessee has failed to follow the accounting standards, determined the book profit after allowing the deduction towards cost as per provision to Section 115JB (2) of the Act. This order is confirmed by the appellate authority as well as by the ITAT. However, this exercise of the assessing authorities, in recomputing the book profit of the assessee is contrary to the principles of law laid down by the Apex Court in Appollo Tyres (supra). The Apex Court has held that the only power vested with the Assessing Officer is to make increases and deductions as provided in the explanation to Section 115JB of the Act. Assessing Officer has no power to embark upon a fresh enquiry in regard to the entries made in the books of accounts of the company. In the light of the judgment of Apollo Types (supra), we are of the opinion that the Assessing Officer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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