Book profit under tax law cannot be adjusted beyond permitted limits when depreciation method changes are bona fide and accounted for.

While computing book profit under section 115J of the Income-tax Act, the Assessing Officer cannot go behind the net profit shown in the profit and loss account except to the limited adjustments expressly permitted by law. A bona fide change in depreciation method from Straight Line Method to Written Down Value Method, reflected in the accounts and accompanied by the resulting shortfall being charged to the profit and loss account, did not justify an addition for additional depreciation. The addition to book profit was therefore not sustainable.

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Issues: Whether the addition made to book profit on account of additional depreciation arising from a retrospective change in the method of providing depreciation was justified.

Analysis: The assessee changed its depreciation method from Straight Line Method to Written Down Value Method, and the resulting shortfall was charged to the profit and loss account for the relevant year. The Court followed the settled principle that, while computing book profit under section 115J of the Income-tax Act, 1961, the Assessing Officer cannot travel beyond the profit and loss account except to the limited extent permitted by the statutory adjustments. The change in accounting method was consistent with recognised accounting standards and did not justify interference with the book profit as shown in the accounts.

Conclusion: The addition to book profit on account of additional depreciation was not sustainable and the issue was answered in favour of the assessee.

Final Conclusion: The appeal failed and the order deleting the addition was sustained.

Ratio Decidendi: For computation of book profit under section 115J of the Income-tax Act, 1961, the Assessing Officer cannot go behind the net profit shown in the profit and loss account except to the limited adjustments expressly permitted by law, and a bona fide change in depreciation method reflected in the accounts cannot be disregarded.

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