2003 (1) TMI 47 - HC - Income Tax

Auditor-certified company accounts and s.115J book profit: tax officer barred from recomputing net profit beyond permitted Explanation items

Whether the AO can adjust 'book profit' under s.115J beyond the items permitted in the Explanation when the company's accounts are prepared and certified ... Book profit beyond authorized by law - definition of the expression 'book profit' given in Explanation to section 115J(1) - Whether it is open to the Assessing Officer to make adjustment to the book profits beyond what is authorised by the definition given in Explanation to section 115J of the Income-tax Act, if the accounts are prepared and certified to be in accordance with Parts II and III of Schedule VI to the Companies Act, 1956. - HELD THAT:- In the case of Apollo Tyres Ltd.[2002 (5) TMI 5 - SUPREME COURT], the apex court held that while computing the income under section 115J of the Income-tax Act, the Assessing Officer has only power to examine whether the books of account were certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. It is further held that the Assessing Officer thereafter has limited powers of making increases and reductions as provided for in the Explanation to the said section. The apex court further held that the Assessing Officer does not have the jurisdiction to go beyond the net profits shown in the profit and loss account, except to the extent provided in the Explanation to section 115J of the Income-tax Act. In the instant case, the accounts maintained by the assessee are certified by the auditors. Thus, the book adjustment made by the Assessing Officer being contrary to the decision of the apex court, question is answered in the negative and in favour of the assessee. Both the questions in the negative and in favour of the assessee. - Appeal is disposed. Issues:1. Whether Assessing Officer can make adjustments to book profit beyond authorized by lawRs.2. Whether authorities were justified in rejecting depreciation amount debited to profit and loss accountRs.Analysis:1. The case involved an appeal by an assessee against the Income-tax Appellate Tribunal's order. The issue was whether the Assessing Officer could adjust book profits beyond what is authorized by the law. The assessee, a public limited company, had changed its depreciation method from straight line to written down value. The Assessing Officer reworked the depreciation, resulting in a revised book profit figure. The Commissioner of Income-tax (Appeals) and the Tribunal upheld the Assessing Officer's decision. However, the High Court, referencing the apex court's decision in Apollo Tyres Ltd. case, held that the Assessing Officer cannot make adjustments beyond what is authorized by law if the accounts are prepared in accordance with the Companies Act. The court answered question 1 in the negative and in favor of the assessee.2. The second issue was whether the authorities were justified in rejecting the depreciation amount debited to the profit and loss account. The court noted that both straight line method and written down value method are recognized under the Companies Act. Since the amount of depreciation debited to the profit and loss account was certified by auditors, the court, following the apex court's decision, answered question 2 in the negative and in favor of the assessee. Therefore, both questions were answered in the negative and in favor of the assessee, leading to the disposal of the appeal with no order as to costs.