TaxTMI 
TaxTMI 
2011 (3) TMI 1087
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.... sheet and the loss of Rs. 1,44,000 was debited to profit and loss account. Assessing Officer asked the assessee to explain as to why book loss shown by the assessee should not be rejected and the entire gain of Rs. 92,70,858 should be added to the book profit. The assessee explained that the book profit had been computed on the basis of profit and loss account prepared under the provisions of Schedule VI of the Companies Act, 1956. There were no provisions for making any addition on account of revaluation reserve while computing the book profit under section 115JB. Therefore no addition could be made. The Assessing Officer however did not accept the explanation given. It was observed by him that the assessee had adopted a device to avoid tax by revaluing the property in the year of transfer and such device was not permitted in view of the judgment of Hon'ble Supreme Court in case of Mc Dowell & Co. Ltd. v. Commercial tax Officer [1985] 154 ITR 148/22 Taxman 11. He also referred to the judgment of Hon'ble High Court of Mumbai in case of CIT v. Veekaylal Investment Co. (P.) Ltd. [2001] 249 ITR 597/116 Taxman 104. In the said case the income from capital gain arising from sale of ass....
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....me Court (supra) the judgment of the High Court of Mumbai in case of Veekaylal Investment Co. (P.) Ltd. (supra) could not be followed. 3.1 The Learned DR on the other hand assailed the order of CIT(A). It was argued that in the decision of the Tribunal in case of the sister concern (supra) cited by the assessee the judgment of Hon'ble Supreme Court in case of Mc Dowell & Co. Ltd. (supra) had not been considered whereas in case of the assessee Assessing Officer had denied the claim following the said judgment. It was also submitted that the case of the revenue was supported by the judgment of Hon'ble High Court of Karnataka in case of CIT v. Brindavan Beverages Ltd. [2010] 321 ITR 197/186 Taxman 233 in which case the Hon'ble High Court had considered the judgment in case of Apollo Tyres (supra). It was submitted that the assessee had revalued the asset in the year of sale of the property only to avoid tax and such device has to be discouraged. He referred to the judgment of Hon'ble Supreme Court in case of Motibhai Fulabhai Patel and Co. v. R. Prasad (AIR 1970 SC 829) in which the Hon'ble Supreme Court has observed that no rule of law should interpreted so as to permit or encoura....
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.... ITR (Trib) 551/40 SOT 265 (Hyd.) (SB). As regards the judgment of Hon'ble High Court of Karnataka in case of Brindavan Beverages Ltd. (supra) it was submitted that the same was distinguishable on facts. 4. We have perused the records and considered the rival contentions carefully. The dispute is regarding addition of Rs. 92,70,858 being the gain from the sale of premises while computing the book profit under section 115JB. The assessee during the year had sold its premises at Nariman Point for Rs. 96 lacs. The book value of the property was Rs. 3,29,143 and therefore there was a gain of Rs. 92,70,858. The assessee however got the property revalued and as per the report of the registered valuer the value of the property was taken as Rs. 97,44,000. The gain in the book value of the property i.e., Rs. 94,14,857 was taken by the assessee to the balance sheet as revaluation reserve. The loss arising on sale i.e., Rs. 1,44,000 (97,44,000 - 96,00,000) was debited by the assessee to the profit and loss account. The Assessing Officer however held that revaluation of property made by the assessee was a device to reduce the book profit. He therefore rejected the computation of book profit....
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....planation. The use of the words "in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act" in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by statutory auditors and approved by the company in annual general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company." 4.2 It is thus clear that the Assessing Officer has to go by the accounts prepared in accordance with the provisions of Parts II and III ....
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....The Learned DR has also argued that revaluing of the property in the year of sale and taking the revaluation reserve to the balance sheet was a colourable device adopted by the assessee to reduce the book profit. Such device it has been argued has to be discarded. Reliance has been placed on the judgment of Hon'ble Supreme Court in case of Mc Dowell & Co. Ltd. (supra). However, after carefully considering the submissions made by both the parties we are unable to see any case of device. The Companies Act, 1956 requires that while preparing the accounts, the accounting standards have to be followed and para 13 of the accounting standard, (AS-10) allowed the assessee to revalue any property. Further para 13.7 of AS-10 also provides that any increase in net book value on account revaluation has to be taken to the capital account as revaluation reserve and is not available for distribution. The assessee has thus taken the revaluation reserve directly to the balance sheet in conformity with the accounting standard. The Learned DR pointed out that the assessee had made selective revaluation to avoid payment of tax which was not permitted. We find that para 13.5 of AS-10 provides that whil....