3. Book profit – Accounts prepared and certified in accordance with the provisions of the Companies Act – has to be accepted – cannot be altered – Section 115JB Explanation .

[Asst CIT vs. Century  Textiles and Industries Ltd,. [ITA No. 3261/MUM/2009; Bench : C ; dated 13/09/2013 ; AY 2005-06, Mum. ITAT ]

During the course of assessment proceedings, the AO noticed that the assessee had debited to its Profit and Loss Account an amount of Rs.12.41 crore being the arrears of depreciation for the earlier A.Y 2000-01 and 2001-02. The AO called upon the assessee to explain why the depreciation relating to earlier AY should not be added back to the Book Profits. The assessee pointed out that its accounts had been prepared in accordance with the provisions of the Companies Act which were duly audited. Therefore, in view of the decision of the Apex Court in CIT vs. Apollo Tyres Ltd [255 ITR 273] wherein it has been stated that the book profit as prepared and certified in accordance with the provisions of the Companies Act, has to be accepted and cannot be altered to determine book profit for purpose of section 115JB of the Act except as provided in the Explanation thereto. Notwithstanding the above, the AO did not accept the same and added arrears of depreciation for the A.Y 2000-01 and 2001- 02 to the audited book profits to determine the book profits for the purpose section 115JB of the Act.

Being aggrieved, the assessee filed an appeal to the CIT(A). The appeal was allowed by the CIT(A) following the decision of Apollo Tyres Ltd (supra) .Thus deleted the addition made by the AO.

Being aggrieved the Revenue carried the issue in appeal to the Tribunal. The Tribunal referred to the judgment of Hon’ble High Court of Bombay in case of Kinetic Motor Company Ltd. (262 ITR 330) in which the High Court referred to the judgment of Hon’ble Supreme Court in case of Apollo Tyres Ltd. (Supra) and held that the accounts prepared and certified in accordance with part 2 and part 3 of schedule VI of the companies Act could not be tinkered with and AO had no jurisdiction to go beyond the net profit shown in the such accounts. The Tribunal, therefore, deleted the addition made.

On further appeal, the High Court held that the issue stands concluded by the decision of the Apex Court in Apollo Tyres Ltd. (supra) and the decision of this Court in Kinetic Motor Co. Ltd. (supra). The above decisions have held that it is not permissible to the AO to tinker with the profit declared in the audited account maintained in terms of Schedule VI of the Companies Act. As the order of the Tribunal has merely followed decision of the Apex Court in Apollo Tyres Ltd. (supra) question as formulated does not give rise to any substantial question of law.

The other grievance of the Revenue was that the clause (iia) was inserted only in Finance Act, 2006 w.e.f. 1st April, 2007 and is not applicable for the year under consideration. However, the court observed that the grievance of the revenue does not carry the issue in the present facts any further as the Tribunal has not allowed the claim of the respondent-assessee by relying upon clause (iia) of explanation to section 115JB of the Act. Further that this issue was not urged before the authorities under the Act. Therefore, in view of the decision in CIT vs. Tata Chemicals Ltd. [256 ITR 395], it cannot be urged before this Court for the first time.