Book profit under section 115JB cannot be expanded beyond permitted adjustments when excise duty subsidy is not a reserve.

Book profit under section 115JB cannot be recomputed by going beyond the profit and loss account except for adjustments expressly permitted by the Explanation. Where the assessee's accounts were not qualified by the auditors, the Assessing Officer could not treat excise duty subsidy credited in the accounts as a reserve carried to profit and loss account unless the entry satisfied clause (b) of Explanation 1. On the facts, the subsidy was not shown as such a reserve, so the proposed addition to book profit was unsustainable. The Calcutta HC therefore answered the issue against the Revenue.

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Issues: Whether excise duty subsidy credited in the accounts could be added back to book profit under section 115JB of the Income-tax Act, 1961 as an amount carried to reserve.

Analysis: The assessee's accounts were not qualified by the auditors. The question was whether the Assessing Officer could go behind the net profit shown in the profit and loss account while computing book profit under section 115JB. The governing principle applied was that the Assessing Officer's authority is confined to the adjustments specifically permitted by the Explanation to section 115JB, and he cannot traverse beyond the accounts except to the extent expressly authorised. On the facts, the subsidy amount was not shown as a reserve created by debiting the profit and loss account in the manner required by clause (b) of Explanation 1 to section 115JB.

Conclusion: The addition was not sustainable in the computation of book profit under section 115JB, and the question was answered against the Revenue.

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