TaxTMI 
TaxTMI 
2008 (12) TMI 440
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 6248/Mum./2006)/Rs. 89,931 (in the case of ITA No. 6305/Mum./2006)/Rs. 3,860 (in the case of ITA No. 6303/Mum./2006)/Rs. 72,088 (in the case of ITA No. 6294/Mum./2006)/Rs. 14,03,319 (in the case of ITA No. 6295/Mum./2006)/Rs. 1,09,807 (in the case of ITA No. 6247/Mum./2006) in the profit and loss account for computing the income under section 115JB on account of profit earned by way of redemption of units of mutual funds which were directly taken by the assessee to the balance sheet as capital reserve without routing the same though profit & loss account. Thus, the ld. CIT(A) erred in relying on the decision in the case of Apollo Tyres Ltd. 255 ITR 273 in directing the Assessing Officer to delete this addition without appreciating the fact that Assessing Officer made this adjustment as the accounts prepared by the assessee were contrary to the mandatory accounting standards and the addition was justified in view of the decision in the case of Birla Jute Industries v. DCIT 85 ITD 400 (Calcutta). 2.The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. Further, it is prayed that even though the issue involved i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the assessee sought permission to file the copy of Audited Balance Sheet & Profit and Loss account for the year ending 31-3-2003. The matter was adjourned to 5-11-2008 at the oral request of the counsel for the assessee and was kept as a part-heard matter. 5. On the appointed date of hearing i.e., 5-11-2008, Mr. J.D. Mistry, learned counsel appeared on behalf of the assessee along with the counsel Smt. Amisha Gandhi appearing earlier. He raised the issue of appeal being not maintainable because the tax effect in all the appeals was less than Rs. 2 lakhs. However, it was pointed out to him that the matter was argued by the counsel as being covered by various decisions of the Appellate Tribunal and also judgment of Hon'ble Bombay High Court in Akshay Textiles Trading & Agencies (P.) Ltd.'s case (supra), on the last date of hearing and the paper book in that respect was also filed on the said date of hearing. The matter was adjourned for the limited purpose of filing the Audited Balance Sheet & Profit and Loss Account in order to point out the entries made in the books of account in respect of the Capital Gains earned on redemption of units of mutual funds. It was pointed out to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee stressed that in the merits of the case, the first proposition to be agitated upon is whether the Assessing Officer has power to disturb the profit and loss account while applying the provisions of section 115JB of the Act. The learned counsel further submitted that in view of the judgment of Hon'ble Supreme Court in Apollo Tyres Ltd.'s case (supra) the Assessing Officer has no power to disturb the profit and loss account other than under the Explanation 1 to section 115JB even if the accounts maintained by the assessee are wrong. The learned AR further pointed out that the said units were held by the assessee as investments and the gain arising from the said investment was directly taken through the Reserves Account in Balance Sheet. The said balance sheet was approved by the Auditors and were adopted by the shareholders of the company. After such approval and adoption of the balance sheet of income, the Assessing Officer is not the authority to correct the accounts under the Companies Act. The learned counsel drew our attention to the question raised before the Apex Court in Apollo Tyres Ltd.'s case (supra) at page 276 of the judgment. In respect of the Explanation to sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as the book profits are the deemed income of the assessee-company and the exemption contemplated under section 54EA only applies under the income-tax provisions. Our attention was drawn to the Notes of Accounts, wherein the Auditor had specified the treat-ment given to the interest arising on units of mutual funds. It is also pointed out by the learned AR that there was no difference between the provisions of sections 115JA to 115JB of the Income-tax Act. The learned DR in rejoinder submitted that looking at the Explanation 1 to section 115JB of the Act, it is clear that entries as contemplated in clause 'B' is a credit and all the other clauses i.e., clauses C to H, entries are debited to the profit and loss account and on this account the Assessing Officer was right in making the adjustment to the book profits under the provisions of section 115JB of the Act. 10. We have heard the rival submissions and perused the records. In the case of all the assessees whose appeals are listed before us, during the year under consideration there was gain on sale of units of mutual fund, which was not credited to the profit and loss account of the each company as on the close of the year. It ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct, 1956 disallowed the claim of the assessee. 13. Before Their Lordships of Hon'ble Supreme Court in Apollo Tyres Ltd.'s case (supra), the question raised was : "(i)Can an Assessing Officer while assessing a company for income-tax under section 115J of the Income-tax Act question the correctness of the profit and loss account prepared by the assessee-company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act ?" 14. In the facts of the case before the Hon'ble Supreme Court, the company while determining its net profit for the relevant year had provided for arrears of depreciation in its profit and loss account, which according to the Revenue was not in accordance with Parts II and III of Schedule VI to the Companies Act, 1956. The Assessing Officer while determining the book profits under section 115J of the Income-tax Act recomputed the said profit and loss account of the company so as to exclude the provision made for the arrears of depreciation. The accounts of the company was certified by the Auditors of the company as having been maintained in accordance w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the revenue that it is still open to the Assessing Officer to rescrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the revenue on sub-section (1A) of section 115J of the Income-tax Act in support of the above contention is misplaced. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the Income-tax Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the auth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n-inclusion of capital gains in the profits of the business while computing the deduction under section 115J of the Act arose before the Tribunal in Akshay Textiles Trading & Agencies (P.) Ltd.'s case (supra) relating to assessment year 1998-99 (wherein JM was one of the Members), it was held as under : "....We hold that once the Profit and Loss Account is prepared in accordance with Schedule VI to the Companies Act and certified by the auditors to that effect, it is not open to the Assessing Officer to make adjustments save and except adjustments permitted by section 115JA itself. Hence, following the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) and the decisions of Mumbai Tribunal in the cases of ITO v. Ranjana Traders (P.) Ltd. in ITA No. 4749/Mum./2003, dated 12-2-2004, ITO v. Orson Trading (P.) Ltd. In ITA No. 1389/Mum./2002, the ground of the revenue is dismissed." 18. The revenue appealed against the order of the Tribunal to the Hon'ble Bombay High Court in Akshay Textiles Trading & Agencies (P.) Ltd.'s case (supra), wherein it was held as under : "C.Whether, on the facts and in the circumstances of the case and in law, the Hon'ble Income....