TaxTMI 
TaxTMI 
2018 (11) TMI 477
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....sed by the learned assessing officer under section 143(3) of the Act is erroneous and prejudicial to the interests of revenue. 2. Ground No. 2: No adjustment to 'Book Profit' permitted apart from those specified in Explanation 1 to section 115JB of the Act 2.1.On the facts and in the circumstances of the case and in law, the learned Pr. CIT erred in adding notional interest income of INR 12,80,00,000 while computing Book Profits for the purpose of section 115JB of the Act even though such adjustment is neither covered within the adjustments specified under Explanation 1 to section 115JB of the Act nor permitted as per the principles upheld by the Supreme Court and various High Court judgements, which were clearly binding on the learned Pr. CIT. 2.2. On the facts and in the circumstances of the case and in law, the learned Pr. CTT erred in coming to the conclusion that the audited financial statements of the Appellant company as approved by the Board of Directors and the shareholders, inspite of being drawn up in accordance with Part II of schedule VI to the Companies Act, 1956 and applicable Accounting Standards, were erroneous in so far as they d....
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....f group companies of IAL, which owned certain land parcels. However, the transaction could not fructify and as a result the Assessee asked for the refund of the entire amount advanced to IAL. However due to financial difficulties, IAL was not able to repay such advance. * According, since there was significant uncertainty of ultimate collection of principal itself, so in accordance with Accounting Standard 9 on revenue recognition ('AS 9'} issued by institute of Chartered Accountants of India ('ICAl'), the Assessee has not recognised any notional interest income on such advance in its audited financial statements. * Further, during the financial year 2016-17, due to non-recovery of advance given to IAL, the Assessee has written off 70% of the principal amount advanced to IAL. * The books of accounts of the Assessee have been audited by a reputed Audit Firm and has been adopted by the Board of Directors and shareholders of the Assessee. * This accounting treatment is not only in fullest consonance with the accounting principles and practice laid down but also in fullest consonance with the provisions of section 145. * The ....
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....invoked. (b) Section 1L5JB is separate code in itself- No authority to Assessing Officer to make any addition/reduction to the net profit as per audited Profit and loss account (prepared in accordance with Part II of Schedule VI to the Companies Act, 1956) other than those specifically listed under Explanation (1) to sect on 115JB. * Section 115JB is a separate code in itself having overriding effect over other provisions of the Act. * As per Explanation 1 to section 115J8, 'book profits' means 'profits' as per profit and loss account prepared in accordance with Part II of schedule VI to the Companies Act, 1956 as increased/reduced by the specific adjustment listed therein. * No other adjustments are permitted to be made to such profits other than those listed in Explanation 1 to section 115JB. * The Assessing Officer does not have power to examine the net profit shown in profit and loss account and has limited powers to make adjustments only to the extent of items specifically listed under Explanation 1 to section 115JB. * In the given case, since the recovery of loan itself was extremely doubtful at the materia....
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....profit and loss account in accordance with the Accounting Standards prescribed by the ICAI and accepted by the AO, the Commissioner could not invoke revision proceedings under section 263 to add back such loss for computation of book profit under section 115JB. At Para 20 and 21 on page 475, "reliance placed on the authoritative pronouncement laid down by the Apex Court in Apollo Tyres Ltd: vs. CIT [2002] 255 ITR 273 (SC) and held that Once it is realized that the assesses had correctly debited the profit and loss account for the loss arising out of the transfer of investment o vision, there remains no difficulty in realizing that the Commissioner proceeded on a wrong premise which was responsible for exercise of jurisdiction under section 253" * Hindustan Construction Co. Ltd. vs. DCIT [2006] 25 SOT 359 (Mumbai Tribunal) Where double taxation relief has been rightly allowed by the A.O. while computing taxability under section 115JB of the Act, it has been held at para 6.4 on page 367 that "the order of A.O. is neither erroneous no prejudicial to the interest of the revenue and therefore the CIT is not correct in invoking section 263. * Apolloy T....
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....t on advance to IAL to the book profit u/s. 115JB. 8. Against the above direction, the assessee is in appeal before us. 9. We have heard both the counsel and perused the records. We find that the assessee has not accounted for interest income in the books of account on advance to IAL. The reason for this was that recovery of principal as well as interest was unascertain. The ld. CIT(A) himself has noted the contention of the assessee that the assessee had given an advance of Rs. 160 Crores to International Amusement Limited ('IAL') for purchase of shares of group companies of IAL, which owned certain land parcels. However, the transaction could not fructify and as a result the Assessee asked for the refund of the entire amount advanced to IAL. It was further been submitted that due to financial difficulties, IAL was not able to repay such advance. Accordingly, since there was significant uncertainty of ultimate collection of principal itself, so in accordance with Accounting Standard 9 on revenue recognition ('AS 9') issued by Institute of Chartered Accountants of India (MCAI'), the Assessee has not recognized any notional interest income on such advance i....
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.... on a matter which is the basis of the alleged escapement of income that was taxable. Infact, in this case we find that the assessment orders passed in regular assessment proceedings do refer to examining the computation of income filed alongwith the Return of Income. Moreover, the Assessment order in regular assessment proceedings in terms disallowed some of the claims made for deduction under Section 143(3) of the Act. Therefore, in the present facts, we are prima-facie of the view that, the Assessing Officer has by necessary implication allowed the claim. Moreover, the basic document for completing the assessment under Section 143(3) of the Act is the computation of income. Therefore, to the extent the claims made for deduction in the computation of come, were disallowed by the Assessing Officer, discussion on the same is found in the assessment order. It is an accepted position that the assessment orders would necessarily deal only with the claims being disallowed and not with the claims being allowed. This is for the reason as observed by the Gujarat High Court in CIT Vs. Nirma Chemicals Ltd 309 ITR 67, that if the Assessing Officer was to deal with all the claims which were t....
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....t shown in the profit and loss account except to the extent provided in the Explanation to section 115J." In this regard, it observed that the aforesaid judgment is not applicable in the case of the assessee as it has been discussed in the preceding paragraphs (para 5) that the accounts of the assessee has not been prepared in accordance with provisions of Part II to Schedule VI to the Companies Act. 12. From the above, it is amply evident that the Hon'ble Apex Court has expounded that once the accounts have been certified by the auditors and adopted in the annual general meeting, the A.O. has only the power of examining whether the books of account are certified by the authorities under the Act as having been properly maintained in accordance with the companies act. The A.O. thereafter has a limited power to make adjustments as provided for in the explanation of the said section. From the above exposition, it is amply clear that the Hon'ble Apex Court has duly held that the A.O. does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extend provided in the Explanation to section 115J. 13. We find that the exposition by th....