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TMI Blog2019 (5) TMI 1258X X X X Extracts X X X X X X X X Extracts X X X X ..... not germane to the issue under consideration in the facts and circumstances of the assessee s case. The issue as to whether the transfer pricing addition made by the ld. TPO had to be added back while computing book profits u/s 115JB was the subject-matter of adjudication by the Coordinate Bench of the Delhi Tribunal in the case of M/s Cash Edge India (Pvt.) Ltd. vs. ITO [ 2016 (1) TMI 598 - ITAT DELHI] This decision of the Delhi Tribunal was duly brought to the attention of the ld. CIT while giving reply to show cause notice issued u/s 263 and the ld. CIT conveniently ignored the same and does not whisper about the same in his final finding while proceeding to treat the order of the ld. A.O as erroneous and prejudicial to the interest of the revenue. CIT had only mentioned in Para 5 of his order that the transactions with related parties and associated enterprises require elaborate examination by A.O by conducting detailed enquires and verifications in the light of provisions of Companies Act, relevant accounting standards and income tax Acts. We find that the ld. CIT had not specifically pointed out any exact error committed by the ld. A.O while framing the assessment. Instead, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. A.O also computed the book profit of the assessee u/s 115JB at ₹ 1,38,79,44,213/-. The ld. CIT sought to revise this assessment u/s 263 of the Act on the ground that the ld. A.O erred in not making addition of ₹ 1,72,04,492/- being the adjustment made to arm's length price while computing book profit u/s 115JB of the Act. The ld. CIT observed that ld. A.O did not make any enquiry on this aspect as to whether the transfer pricing addition made by ld. TPO would have to be added back while computing book profits u/s 115JB of the Act. The ld. CIT also observed that ld. A.O had not verified the compliance of provisions of section 297 of the Companies Act, 1956 by the assessee together with compliance of accounting standards issued by ICAI namely AS-18, AS-21 & AS-23. The ld. CIT observed that the ld. A.O had not verified the related party transactions of the assessee which would have a bearing in determining the correct net profit as per Companies Act. Accordingly, he treated the order of the ld. A.O as erroneous in as much as it is prejudicial to the interest of the Revenue. The relevant operative portion of the order of the ld. CIT is reproduced hereunder: "5. As r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act was not added by the ld. A.O in the computation of book profits u/s 115JB of the Act. In this regard, it would be pertinent to note that Explanation 1 to section 115JB(2) of the Act clearly specifies the list of items that could be added to net profit as per profit & loss a/c to arrive at the book profits. For the sake of convenience the relevant provisions are reproduced hereinbelow: Explanation 1.-For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves, by whatever name called, other than a reserve specified under section 33AC; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed ; or (f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 (SC) held as under: "The Assessing Officer, while computing the book profits of a company under section115J of the Income-tax Act, 1961, 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 section 115J. The Assessing Officer does not have the jurisdictional to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words "in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act" in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period of Debentures was ₹ 3679.84 lacs. c) In our opinion, the rate of interest and other terms and conditions of the aforesaid loans taken by the Company are prima facie not prejudicial to the interest of the Company. d) In respect of the aforesaid loan, the Company was regular in repaying the principal amount and was also regular in payment of interest as stipulated. v) a). To the best of our knowledge and belief and according to the information and explanations given to us, we are of the opinion that the particulars of the contracts or arrangements that need to be entered in the register maintained under section 301 of the Companies Act, 1956, have been so entered. b) In our opinion and according to the information and explanation given to us, the Company has not entered into any transactions during the year exceeding ₹ 5,00,000/- in pursuance of contracts of arrangements entered in the register maintained under section 301 of the Companies Act, 1956. As the Company has not entered into any transaction as aforesaid, Clause (v)(b) of the order is not applicable. xviii) To the best of our knowledge and according to the information and explanations g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompliance to any accounting standards. Hence, the entire observations of the ld. CIT with regard to verification of compliance of provisions of section 297 of the Companies Act, compliance to accounting standards i.e. AS-18, AS-21 and AS-23 are totally irrelevant and not germane to the issue under consideration in the facts and circumstances of the assessee's case. 11. We find that the issue as to whether the transfer pricing addition made by the ld. TPO had to be added back while computing book profits u/s 115JB of the Act was the subject-matter of adjudication by the Coordinate Bench of the Delhi Tribunal in the case of M/s Cash Edge India (Pvt.) Ltd. vs. ITO; ITA No.64/Del/2015 dated 23.09.2015 for Assessment Year 2010-11 wherein it was held as under: "36. We have considered the rival submissions and perused the material on record. It is settled law that except for adjustments provided in Explanation 1 Section 115JB(2) of the Act, no other adjustment can be made to book profits under Section 115JB of the Act. We find that that transfer pricing adjustment is not one of the adjustments contemplated under Explanation 1 Section 115JB(2) of the Act and, therefore, could not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Companies Act, relevant accounting standards and income tax Acts. We find that the ld. CIT had not specifically pointed out any exact error committed by the ld. A.O while framing the assessment. Instead, the ld. CIT only directed the ld. A.O to make detailed and roving enquires through the route of invoking revisional jurisdiction u/s 263 of the Act. At the cost of repetition, we hold that the ld. A.O is not empowered to make any addition or deletion to the net profit as per Profit & Loss A/c prepared in accordance with Part II & Part III of Schedule VI of Companies Act 1956 and relevant accounting standards thereon, other than those items specifically mentioned in Explanation 1 to section 115JB(2) of the Act. Reliance in this regard is also placed on the decision of Hon'ble Supreme court in the case of CIT vs. HCL Comnet Systems and Services Ltd. reported in (2008) 305 ITR 409 (SC). There is no absolute allegation that the annual accounts of the assessee company were not passed/approved by the shareholders in the General Body Meeting. 13. In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we hold that the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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