TaxTMI 
TaxTMI 
1996 (3) TMI 158
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.... 25,64,887 (Book Profit Rs. 22,07,540 + Foreign Exchange Fluctuation Rs. 3,57,347) 30% of which works out to Rs. 7,69,466, Issue Notice of Demand & Challan. " 4. Thereafter the CIT(A) passed an order on 13-11-1991 and held that the Foreign Exchange fluctuations of Rs. 3,57,347 could not be added to the book profits for the purpose of section 115J of the Act. The relevant extract is given below :-- "Before me, it has been pointed out that the book profit is only Rs. 22,07,540 and the Assessing Officer is not justified in adding foreign exchange fluctuation of Rs. 3,57,347 because section 115J does not provide for it. I have gone through the aforesaid section and noted that there is no provision under section 115J by which this amount can be added in book profit and therefore, I direct that the Assessing Officer to compute 30% profit under section 115J on book profit of Rs. 22,07,540 and not on foreign exchange fluctuation of Rs. 3,57,347 and work out the resultant relief to the appellant. " 5. Later on the CIT went through the case records and asked the assessee to show cause why the assessment should not be held to be erroneous in-so-far as it was prejudicial to the interest of....
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.... 8. The ld. counsel for the assessee raised a preliminary objection before us contained in ground of appeal No. 2. According to him, the assessment order dated 27-3-1991 had merged in the order of the CIT(A) dated 13-11-1991 and therefore, the CIT had no jurisdiction to invoke the provisions of section 263. Reliance was placed on a decision of the Allahabad High Court in J. K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344 at 349 and 350. 9. In reply to a query from the Bench, the ld. counsel for the assessee clarified that the above judgment had been given on 7-5-1974. Attention was thereafter invited to Explanation (c) below section 263(1) of the Act substituted by the Finance Act, 1988 with effect from 1-6-1988. Where the assessment order had been the subject-matter of appeal, the powers of the CIT under section 263(1) shall extend to " such matters as had not been considered or decided in such appeal ". The ld. counsel for the assessee thereafter submitted that even thereafter, there was merger of the assessment order with the order of the CIT(A), because the CIT(A) had considered the provisions of section 115J and to that extent, there was merger. 10. The ld. D.R. on the ot....
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.... to it, land, building, plant & machinery of the Cotton Textile Unit were revalued as on 1-1-1985 resulting in increase in the book value of the assets by Rs. 15,66,23,093. This amount was transferred to re-valuation reserve in 1985. Provision for depreciation for the year had been calculated on the respective revalued figures at the rates calculated as per the straight line method over the residual life of such assets. An amount of Rs. 26,52,877 had been transferred during the year from Revaluation Reserve to profit & loss account, represent difference in depreciation on revalued amount and depreciation on the original cost of such assets calculated in accordance with section 205(2)(b) of the Companies Act, 1956. 14. The treatment of the above sum of Rs. 26,52,877 in the profit & loss account had been done in the following manner, after ascertaining profit after depreciation at Rs. 22,07,540 : Rs.  ....
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....; Amount available for Appropriation 61,76,370 " 15. The ld. counsel for the assessee submitted that the CIT was in error in adding transfer from re-valuation reserve to the book profits and relied for this submission on Memorandum explaining the provisions of the Finance Bill, 1989. According to it, under the existing provisions certain adjustments were made to the net profit as shown in the profit & loss account for the purpose of section 115J. One such adjustment stipulates that the net profit is to be reduced by the amount withdrawn from reserves or provisions if any such amount is credited to the profit & loss account. Some companies had taken advantage of this provision by reducing their net profit by the amount withdrawn from the reserve credited or provision made in the same year itself, though the reservation when created was not added to the book profit. With a view to counteract such a tax avoidance device, it was proposed to reduce the "book profit" by the amount withdrawn from reserve or provisions in two situations namely :-- " (i) if the reserves have b....
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....spute before us insofar as the provisions of law have been stated so far. 22. The dispute relates to certain adjustments to "book profit" permitted in the Explanation below section 115J(1A). It is laid down therein inter alia that the "book profit" prepared in accordance with section 115J(1A) will be reduced by the amount withdrawn from reserve if such amount is credited to the profit & loss account. 23. If we look for a credit in the assessee's profit & loss account, we will not find any such entry of revaluation reserve. However, the profit as per profit & loss account comes to Rs. 22,07,540. This is the amount taken as the book profit by the CIT(A). There is an addition to this profit, being transfer from revaluation reserve, Rs. 26,52,877. Thus, the entry amounts to a credit in the profit & loss account and the book profit prima facie should be increased by this amount, as has been directed by the CIT in his order under section 263. 24. However, the CIT has not taken into account the Explanation (i) below section 115J(1A), according to which the book profit is to be reduced by the amount withdrawn from reserves if any such amount is credited to the profit & loss account. He ....