TaxTMI 
TaxTMI 
2003 (12) TMI 261
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....; 81,626 Provisions for gratuity : 2,02,475 Rs. 2,84,101 ---------- -------------- Rs.66,98,857 30% of the above profits : Rs. 20,09,658 As against this the Department at the time of processing the case under section 143(1)(a) and thereafter under section 154 worked out profits under section 115J as under: Net profits: ....
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....rofits; Rs. 3,21,08,584 30% of the above......Rs. 96,32,575" 4. The assessee challenged the processing of return under section 143(1)(a) and the learned CIT(A) in his order upheld the computation in which the re-valuation reserve was added, with which we are concerned in the present appeal. The relevant facts further show that the said order of the CIT(A) was reversed by the Tribunal in ITA No. 735(ASR.)/1993 by holding that it was a debatable issue and no prima facie adjustment could have been made. In the regular assessment under section 143(3), the assessee was called upon to show as to why the transfer of Rs. 2,54,09,727 from the revaluation reserve be not added to the figure of net profit for the computation of book profits. It was stated on behalf of the assessee that the assessee's factory building, plant and machinery were revalued in the year under consideration and the amount of enhancement in valuation was at Rs. 8,97,35,695 (Rs. 74,82,740 on account of factory building an....
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....of fixed assets. It was contended that the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR, 273 has clearly laid down that the Assessing Officer had no power to scrutinize the profit and loss account of the Company, which is prepared in accordance with Schedule VI of the Companies Act. The learned counsel further relief on the Tribunal order of SRF Ltd's case and contended that it was passed in relation to the assessment year 1989-90 in which it was held that the withdrawal from the revaluation reserve in such circumstances could not be added to the figure of profits to arrive at the book profits under section 115J. 8. We have considered the rival submissions in extenso in the light of the material placed before us and precedents relied upon. It is obvious that the assets of the Company were revalued in the year under consideration to the tune of Rs. 8.97 crores Depreciation was claimed inter alia, on the said enhancement at the specified rates which amounted to Rs. 2,54,09,727. The said amount of depreciation together with the depreciation on the historical cost of the assets of the company was debited in the profit and loss account and an amount of....
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.... Officer had accepted the authenticity of the accounts and had not, in any manner, disturbed the Profit and Loss account which was stated to be prepared in accordance with the Parts II and III of the Schedule VI of Companies Act. He had not gone into the verification of figure of depreciation shown in the profit and loss account. Rather he had simply not reduced the figure of Rs. 2.54 crores from net profits, in accordance with the requirements of the Explanation to section 115J. Their Lordships of the Supreme Court in this case have categorically held that the Assessing Officer, "thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J." 9. What remains to be examined is as to whether the action of the Assessing Officer in not reducing Rs. 2,54,09,727, namely, the amount transferred from revaluation reserve to the credit side of the Profit and Loss Appropriation Account, is in accordance with the requirement of Explanation to section 115J(IA). It would be apposite to extract the relevant portion of this Explanation as under: "Explanation.- For the purposes of this section, "book profit" means the net profit as sh....
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....rease the book profits in any year when the provisions of section 115J of the Income-tax Act were applicable. 24.5 This amendment will come into force with effect from 1st April, 1988 and will accordingly apply in relation to the assessment year 1988-89 and subsequent years." Prior to the aforesaid amendment, this proviso was not there and the assessee was entitled to reduction of the amount withdrawn from reserve if such amount was credited to the profits and loss account. As a result of the amendment, by way of insertion of the proviso, the assessee became entitled to reduce the amount withdrawn from reserve only in two situations, as noted above in the circular read with the provision. 10. It is found that the case of the assessee cannot be considered in the aforesaid situation (i) for the reason that the revaluation reserve was not made in any assessment years prior to 1988-89. Hence it needs to be examined in the situation (ii) only which, in turn states that the reduction from the book profits for the amount withdrawn from the reserve is permissible only if such reserve was made in the assessment year 1988-89 or thereafter and it has gone to increase the book profits....