TaxTMI 
TaxTMI 
2017 (10) TMI 638
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....der the normal provisions of the Act and reported negative 'Book Profits' at Rs.(-) 41,68,146/- u/s 115JB of the Income-tax Act, 1961 (in short 'the Act'). This return was processed u/s 143(1) of the Act and the case was subsequently taken up for scrutiny. The assessment was completed u/s 143(3) of the Act vide order dated 26/11/2010, wherein the loss under normal provisions was determined at Rs. 40,75,221/- and the Book profits computed by the assessee was accepted as returned. 2.2 On 18/12/2012, search and seizure operations u/s 132 of the Act were conducted at the assessee's premises. After conclusion of search operations, the Assessing Officer ('AO') issued notice u/s 153A of the Act dated 26/2/2014. In response thereto, the assessee filed return of income for asst. year 2008-09 on 30/4/2014 declaring Nil income as declared in the original return of income filed on 27/9/2008 for this asst. year. The AO completed the assessment u/s 143(3) r.w.s 153A of the Act vide order dated 30/3/2015 by determining the 'Book Profits' u/s 115JB of the Act at Rs. 2,37,38,520/- as against book loss of Rs. 41,68,146/- reported by the assessee. While computing the book profits the AO made an addi....
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.... year itself. The assessee replied that the interpretation of section 205 read with schedule XIV of the Companies Act,1956, was that the Board of Directors of the Company if in their wisdom deem fit to adopt higher rate of depreciation for an asset over and above the rate of depreciation in the Schedule XIV, then such rate can be adopted. Same has taken place in this case as per the assessee. Notable in this regard is that, as per Schedule XIV, during this year there was no prescribed rate of depreciation as per Companies Act for the Windmill . Further, it was erroneous on the part of the assessee to assume and claim that the Board of Directors was empowered to adopt any rate of depreciation for any asset. There is no such explicit provision in the Companies Act, 1956. In such a scenario, the assessee was supposed to claim depreciation as per AS-6 and claim it over a period of the useful life of the asset. Thus, it was clear that the profit and loss account of the company was not in conformity with Schedule VI of the companies Act. Thus, the A.O was correct in allowing only 1115th of the depreciation assuming that the windmill will be in operation for at least 15 years. The l....
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....f Hon'ble Apex court in the case of Apollo Tyres Ltd., (255 ITR 273) (SC). The ld AR also contended that the AO was not competent to re-compute the 'Book Profits' u/s 115JB of the Act in the absence of any seized materials found in the course of search proceedings u/s 153A of the Act in this regard. According to the ld AR, the scope of the assessment u/s 153A of the Act was a limited one and the AO, in the absence of any seized material, could not have re-visited issues that were already examined in the order of assessment earlier passed u/s 143(3) of the Act. 3.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the only issue for adjudication before us in this appeal is with regard to the computation of book profits u/s 115JB of the Act. From perusal of the records, it is seen that as per the return of income filed that the assessee had computed and declared the 'Book Profits' u/s 115JB of the Act at a loss of Rs.(-)41,68,196/-. The assessee has claimed an amount of Rs. 2,99,00,000/- as depreciation on windmill @ 100% of the cost of windmill. In the order of assessment, the....
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.... Court in Apollo Tyres (supra) which is rendered while dealing with an identical provision of Section 115J of the Act. It is held thus: "Therefore, we are of the opinion, the Assessing Officer while computing the income under section 1151 has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the .Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J." 12. In the subsequent Judgment of the Apex Court in HCL Comnet Systems (supra), following the Judgment of Apollo Tyres (supra), it is held that the adjustment required to be made to the net profit disclosed in the profit and loss account for the purpose of section 349 of the Companies Act are quite different from the adjustment required to be made under the explanation to be made under section 11 51A of the....
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....and balance sheet of the company shall comply with the accounting standards, where the profit and loss account and balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and the balance sheet the following mainly: (a) the deviation from the accounting standards; (b) the reasons for such deviation; and the financial effect, if any, arising due to such deviation. 15. For the purpose of Section (3C) of Sec.211 of the Companies Act, the expression "accounting standards" means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949) as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under subsection (1) of Section 210(A). 16. The proviso to the said Section 211(3)(C) of the Companies Act makes it clear that the standards of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the accounting standards until the accounting standards are prescribed by the Central Government un....
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....ever be the correctness or otherwise of the said view taken by the A.O., it is clear that the appellant has provided depreciation at 100% of the cost in the profit and loss account and has mentioned in the notes to accounts at point 4 to Schedule 17 of the financial statements that Depreciation on Windmills is provided at 100% of the cost" and the same is duly disclosed and accepted by the Statutory Auditors and the Shareholders in the AGM. Thus, the same cannot be called into question by the A.O. in the assessment proceedings in light of the judgment of the jurisdictional High Court supra. It is also relevant to notice here that the A.O. has relied upon 2 decisions of the Hon'ble ITAT in support of the-view that the A.O. is entitled to rework the book profits of the appellant in the event the same is not prepared in accordance with the provisions of the Companies Act. The appellant has distinguished these decisions of Hon'ble ITAT by pointing out that the subsequent judgment of the Hon'ble Bombay High Court in the case of ADBHUT TRADING CO. PVT Ltd., in 338 ITR 94 (Born.). At any rate, there is a judgment of the jurisdictional High Court in the case of HARIRAM HOTEL....
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....ductions as laid out in Explanation (1) to sec. 115JB of the Act. We find that the ld CIT(A) has also tested the claim of depreciation as per the provisions of Explanation (1) to sec. 115JB while coming to the view that the AO was not authorized to make the addition while re-working the extent of depreciation claimed by the assessee. The accounts of the assessee have been certified by the Statutory Auditors. The accounting policies followed by the assessee have not been found fault with by the Statutory Auditors or the authorities concerned under the Companies Act. In such cases, the AO is not permitted to make any variation by holding that the assessee has not followed the mandate of the Accounting Standards and the provisions of Companies Act while preparing its financial statements. The object of sec. 115JB of the Act is to bring to tax the book profits as shown by the company to its shareholders and keeping in view the aforesaid object behind sec. 115JB of the Act and the judicial pronouncements on the scope of the 'AO's powers computing the book profits, we do not find any reason to interfere with the impugned order passed by the ld CIT(A) on this issue and therefore uphold th....