TaxTMI 
TaxTMI 
2011 (8) TMI 352
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....n 115J of the Act was furnished wherein an adjustment as contemplated in Item No. (iv) of Explanation to Section 115J(1A) was claimed by the assessee to the extent of an amount of Rs.13,85,66,479/- to reduce the adjusted book profit shown at Rs.4,57,78,389/- and in this way, the assessee had arrived at the book profit to nil. b) According to the assessee, there was no tax liability under Section 115J of the Act. However, the claim of adjustment under Clause (iv) of the Explanation to Section 115J (1A) was not accepted by the Assessing Officer, inasmuch as, in his opinion, an adjustment of Rs.2,61,04,656/- was only to be made under Clause (iv) of Explanation to Section 115J(1A) being the loss brought forward from the earlier year, i.e. the year ended on 31st March, 1989. c) In other words, according to the Assessing Officer, the loss of Rs.2,61,04,656/-, as appearing in the statutory profit and loss account prepared in accordance with Part-II and Part-III of Schedule VI of the Companies Act by the assessee, is only to be reduced from the net profit being lower than the unabsorbed depreciation of Rs.13,85,66,479/- as claimed in the profit and loss account for the ....
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....ing dissatisfied, the assessee has come up with the present appeal. 4. A Division Bench of this Court at the time of admission of the appeal formulated the following substantial questions of law: "(i) Whether on a true and proper interpretation of Section 115J(1A) and Clause (iv) of Explanation to Section 115J in determining the amount of loss or the depreciation what is required to be set off against the profit for the relevant previous year is the amount which according to the provisions of Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act is applicable in accordance with the alternative modes for such determination provided under the Companies Act. "(ii) Whether in view of the admitted position that for the previous year of the 15 months period ending 31.3.89 the loss of the appellant is Rs.16,48,74,073/- and for the same period the depreciation is Rs.13,85,66,473/-, the amount of depreciation therefore being less than the quantum of loss should be required to be set off in view of clause (iv) of the Explanation to Section 115J of the Act." 5. In order to appreciate the points involved in this appeal, it will ....
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....d in sub-section (4) of that section; (ha) the amount deemed to be the profits under sub-section (3) of Section 33-AC;] if any amount referred to in clauses (a) to (f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited to the profit and loss account, and as reduced by,- (i) the amount withdrawn from reserves (other than the reserves specified in Section 80-HHD) or provisions, if any such amount is credited to the profit and loss account: Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or (iii) the amounts [as arrived at afte....
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.... Act, 1960, then, the amount of the loss or an amount which is equal to the amount provided for depreciation for that year or those years whichever is less, shall be set off against the profits of the company for the year for which dividend is proposed to be declared or paid or against the profits of the company for any previous financial 9 year or years, arrived at in both cases after providing for depreciation in accordance with the provisions of sub-section (2) or against both; (c) the Central Government may, if it thinks necessary so to do in the public interest, allow any company to declare or pay dividend for any financial year out of the profits of the company for that year or any previous financial year or years without providing for depreciation: Provided further that it shall not be necessary for a company to provide for depreciation as aforesaid where dividend for any financial year is declared or paid out of the profits of any previous financial year or years which falls or fall before the commencement of the Companies (Amendment) Act, 1960. (1-A) The Board of Directors may declare interim dividend and the amount of dividend including interim dividen....
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....o the reserves in accordance with such rules as may be made by the Central Government in this behalf. (Emphasis supplied by us). 6. The Supreme Court in the case of Apollo Tyres Ltd. vs. CIT, reported in AIR 2002 SC 2131 had the occasion to consider the question whether an Assessing Officer while assessing a company for income tax under Section 115-J of the Income Tax Act can 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. In that context, the Apex Court made the following observations: ".For deciding this issue, it is necessary for us to examine the object of introducing Section 115-J in the IT Act which can be easily deduced from the Budget Speech of the then Hon. Finance Minister of India made in the Parliament while introducing the said Section which is as follows: "It is only fair and proper that the prosperous should pay at least some tax? The phenomenon of so-called "zero -tax" highly profita....
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....t is still open to the assessing officer to re-scrutinise 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 115-J of the IT Act in support of the above contention is misplaced. Sub-section (1A) of Section 115-J 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 IT 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 authority under the Income-tax Act to probe into the account accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of Section 115-J of ....
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....(b) of the proviso to Section 205 (1) is clear. It applies to those cases where the depreciation has been provided in accordance with the provisions of sub-section (1) of Section 205. The depreciation is provided for in the Profit and Loss Account. The loss is arrived at after taking into account the depreciation provided. It is therefore clear that the word loss as used in proviso, clause (b) to Section 205 (1) signifies the amount arrived at after taking into account the amount of depreciation and it has to be so read and understood in the context of Section 115-J of the Income-tax Act, 1961. We do not agree with the view taken by the High Court that in case there is profit in a year but after adjustment of depreciation it results in loss, no adjustment in the book profit under Section 115-J can be allowed. The view taken by the High Court would partially defeat the object sought to be achieved by Section 115-J of the Income-tax Act, 1961. We also do not agree with the High Court saying that having lifted Section 205 (1) (b) from the Companies Act into Section 115-J of the Income-tax Act, there is no occasion to refer to the Companies Act, 1956 at all." (Emphasis suppli....