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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 ..... book profit of the assessee is contrary to the principles of law laid down by the Apex Court in Appollo Tyres (2002 (5) TMI 5 - SUPREME Court) wherein 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 has no power to recompute the book profit and has to rely upon the authentic statements of accounts of the company, the accounts being scrutinized and certified by the statutory auditors though with a qualification, approved by the company in general body meeting and thereafter filed before the Registrar of Companies, who has a statutory obligation to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. - Decided in favour of assessee. - I.T.A. No. 53/2009 - - - Dated:- 16-12-2015 - Vineet Saran And S. Sujatha, JJ. For the Appellant : Sri A Shankar, Adv and M Lava, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies Act, 1956 ( Companies Act , for short), profit or losses in respect of transactions of an exceptional or non-recurring nature are to be disclosed. Thus, held that capital gains should be included for the purpose of computing book profit. On further appeal by the assessee before the ITAT, the Tribunal confirmed the orders passed by the authorities following the judgment of the Bombay High Court in Veekaylal s case (supra) and held that capital gains should be included for the purpose of computing book profit. This order passed by the ITAT is challenged in the present appeal. 5. Learned counsel Sri.S P Bhat appearing along with Sri C Basavaiah for the appellant submitted that the authorities under the Income Tax Act,1961 (hereinafter referred to as the Act for brevity) exceeded the jurisdiction in rescrutinising book profit, declared by the assessee and approved by the Registrar of Companies. The Assessing Officer has no power to disturb the profit shown by the assessee in compliance with the standard of accounting to be maintained under the Companies Act. The provisions of Companies Act do not require any capital gain to be disclosed in the profit and loss account as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IN COMPANY PVT LTD reported in 116 ITR 475. 8. On the other hand, Sri. E.R. Indra Kumar, learned Senior Counsel assisted by Sri. E.I. Sanmathi appearing for the Revenue contended that the assessee has not followed standard accounting system in maintaining the books of accounts as per the Companies Act. Clause 3[XII](b) of Part II of Schedule VI to the Companies Act, contemplates that profit or losses in respect of transactions of a kind, not usually undertaken by the company or undertaken in circumstances of an exceptional or non recurring nature if, material in amount and miscellaneous income as per Clause- 3(XII)(b) [c] has to be disclosed in the profit and loss account which is mandatory requirement, as set out in these provisions under Schedule VI of the Companies Act, having not been followed, the Income Tax Authorities are justified in rescrutinizing the book profit as per Sub-section (2) of Section 115JB of the Act. It is further contended that the Judgment of Veekaylal (supra) is squarely applicable to the facts of the case, as such the authorities are justified in following the said Judgment, that the capital gains should be included in the profit and loss account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be 7 % of such book profit. Thus, the assessee has to first compute the total income in accordance with the Act and if the total income is less than 7 % of the book profit, then the assessee has to prepare profit and loss account for the previous year, then fictionally, it will be deemed that its total income chargeable to tax would be an amount equal to 7 % of such book profit. The Income Tax Officer has computed the book profit and the regular income. As tax on regular income is more than tax on book profit, tax on regular income is adopted. The Authorities have consistently relied upon Clause 3 (XII[b]) of Part II of Schedule VI to the Companies Act, to come to a conclusion that capital gains has to be mandatorily taken into profit and loss account while computing the book profit. That having not been done by the Assessee, the authorities have recomputed the book profit. At this juncture, it would be beneficial to refer to the Judgment of the Apex Court in Apollo Tyres (supra) which is rendered while dealing with an identical provision of Section 115J of the Act. It is held thus: Therefore, we are of the opinion, the Assessing Officer while computing the income under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t disputed that this auditor s report is accepted by the General Body, the books of account and the balance sheet are filed before the Registrar of Companies. It is also noticed by us that Clause 3(XII)(b) and (c) of Part II of Schedule VI of the Companies Act provides that profit and losses in respect of transactions of a kind, not usually undertaken by the Company or undertaken by the company or undertaken in circumstances of an exceptional or non-recurring nature, if material in amount and miscellaneous income, are required to be disclosed in the profit and loss account. Considering, the capital gain income falling under these clauses, it is incumbent on the Company to disclose the said amount of capital gain in the profit and loss account. Section 211 of the Companies Act contemplates, form and contents of balance sheet and profit and loss account. Sub-sections 3(A),3(B) and 3(C) of Section 211 provides that every profit and loss account and balance sheet of the company shall comply with the accounting standards, where the profit and loss account and balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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