Book profit under MAT cannot be adjusted beyond statutory limits, and sick-company protection may survive on negative net worth alone.

Book profit under section 115JB must be computed from the audited profit and loss account, with only the statutory adjustments expressly permitted in the Explanation; profit on sale of a fixed asset taken directly to capital reserve, and not routed through the profit and loss account, could not be added back. The assessee was also entitled to sick industrial company protection against minimum alternate tax because its net worth was negative and accumulated losses exceeded net worth; a BIFR certificate was not required on these facts where the protective benefit remained available. The MAT adjustment was therefore not sustainable.

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Issues: (i) Whether profit arising on sale of a capital asset, directly carried to capital reserve without routing it through the profit and loss account, could be brought into computation of book profit under section 115JB of the Income-tax Act, 1961. (ii) Whether the assessee was entitled to the benefit of non-application of minimum alternate tax as a sick industrial company.

Issue (i): Whether profit arising on sale of a capital asset, directly carried to capital reserve without routing it through the profit and loss account, could be brought into computation of book profit under section 115JB of the Income-tax Act, 1961.

Analysis: Book profit under section 115JB is computed from the net profit shown in the profit and loss account, subject only to the specific adjustments permitted by the Explanation. The Assessing Officer cannot travel beyond the audited accounts except to the limited extent authorised by the statute. Where the profit on sale of a fixed asset was not credited to the profit and loss account but was directly taken to capital reserve, the adjustment proposed did not fall within the permissible statutory adjustments.

Conclusion: The addition to book profit on this count was not sustainable and was deleted.

Issue (ii): Whether the assessee was entitled to the benefit of non-application of minimum alternate tax as a sick industrial company.

Analysis: The assessee's net worth had become negative and the accumulated losses exceeded the net worth. The insistence on a certificate from BIFR was held to be unwarranted in the facts, as the statutory benefit for sick companies under the MAT provision was not taken away merely because the Sick Industrial Companies legislation stood repealed. The negative net worth condition was sufficient to treat the assessee as covered by the protective provision.

Conclusion: The assessee was entitled to the benefit available to a sick industrial company and the MAT adjustment could not be sustained on this ground either.

Final Conclusion: The lower authorities erred in making the MAT adjustment, and the assessee succeeded in full.

Ratio Decidendi: For computing book profit under section 115JB, the Assessing Officer is confined to the audited profit and loss account and the specific statutory adjustments permitted by the provision, and a company with negative net worth cannot be denied the sick-company protection merely for want of a BIFR certificate where the relevant statutory benefit survives.

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