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TMI Blog2018 (10) TMI 1303X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J. We are of the opinion that the losses can be determined only at the completion of the contract and even as per the accounting standards, there is a high degree of uncertainty in determining the future loss of a running contract. Clause (c) of Section 115J(1A) permits the Assessing Officer to add back the provisions made so as to reflect the correct profits and to determine the income as per Section 115J as has been noticed in Apollo Tyres(2002 (5) TMI 5 - SUPREME COURT). The provision was introduced to bring to tax companies who adjust their accounts in such a manner resulting in zero tax phenomenon. The attempt of such a computation, as made by the legislature, is to ensure payment of a minimum corporate tax on the profits as declared in its own accounts. The Explanation permits additions to be made so that the actual profits derived is taxed. What is not reflected for reasons only of provisions made with respect to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant that the accounting procedures by AS7 specifically speaks of such computation of profit and loss at every ascertainable stage of work in accordance with the accounting principles. The same has also been accepted by the Registrar of Companies. The Profit and Loss account has also been prepared under Part II and III of Schedule VI to the Companies Act. The Hon'ble Supreme Court in Apollo Tyres(supra) has categorically stated that the Assessing Officer under the Income Tax Act cannot go behind such profit and loss computed and embark upon a rowing enquiry into the various heads under which the monies have been apportioned to effectuate a reopening of the accounts of the Company, certified by the auditors, accepted at the annual general meeting of the Company as also the Registrar of Companies. Reliance also is placed on the decision of the Hon'ble Supreme Court in Bharat Earth Movers v.Commissioner of Income Tax [(2000) 245 ITR 428]. 4. The specific contention of the assessee as is noticed from the order of the Tribunal is that at the finalisation of accounts, the Company was aware of the loss going to be incurred on the completion of the existing contracts in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried out by the Assessing Officer nor does he go behind the computation made under the Companies Act. The addition made is on the basis of the Explanation under sub-section (1A) of Section 115J. We need only extract paragraph of the decision of Apollo Tyres(supra) which is as follows: 8. Therefore, we are of the opinion, the Assessing Officer while computing the income under Section 115-J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J. It is this limited power afforded to the Assessing Officer to make increases and reductions as provided for in the Explanation;that has been resorted to in the present case. Apposite here is Section 115J(1A); in which Explanation (c) reads as under: c. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contract and even as per the accounting standards, there is a high degree of uncertainty in determining the future loss of a running contract. Clause (c) of Section 115J(1A) permits the Assessing Officer to add back the provisions made so as to reflect the correct profits and to determine the income as per Section 115J as has been noticed in Apollo Tyres(supra). The provision was introduced to bring to tax companies who adjust their accounts in such a manner resulting in zero tax phenomenon. The attempt of such a computation, as made by the legislature, is to ensure payment of a minimum corporate tax on the profits as declared in its own accounts. The Explanation permits additions to be made so that the actual profits derived is taxed. What is not reflected for reasons only of provisions made with respect to contingent liabilities, are also brought to tax. 11. In this context we garner support from Bharat Earth Movers(supra) and the following paragraph. 4. The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should ..... X X X X Extracts X X X X X X X X Extracts X X X X
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