- (1.) THE Court: The subject matter of challenge in this appeal is a judgment and order dated 18th December, 2003 by which the learned Tribunal reversed the order of the CIT(A) and allowed the appeal preferred by the Revenue. The learned Tribunal held as follows: 9......................................................................................................................... .............................. In the instant case, there is no dispute to the fact that the assessee has computed the depreciation as per Schedule XIV of the Companies Act but had not chosen to provide the same in its Profits & Loss A/c. and has shown the same as per the Notes on Accounts. The Profit & Loss A/c. prepared by the assessee as per Part II & III of Schedule VI of the Companies Act clearly shows that the Profit & Loss A/c. was prepared by the assessee was completely in accordance with the said provisions which laid down that depreciation could be charged to the Profit & Loss A/c. or could be provided for or also could not be provided for after making necessary mention about it the Notes and Schedules to the Profit & Loss A/c.. Once the assessee chooses not to provide for depreciation in its Profit & Loss A/c., it is not open to the assessee to make adjustment for the depreciation for which he is eligible while computing deemed income u/s. 115JA. The basic factor for arriving at deemed u/s. 115JA is the "book profit". Such book profit can be adjusted, i.e. reduced or increased only in terms of Explanation below Section 115JA. No adjustment has been provided in respect of depreciation which has not been charged to the Profit & Loss A/c. We had carefully gone through all the adjustments mentioned in the said explanation but do not find any such adjustment in the said explanation so as to entitle the assessee to further reduce its book profit as per the Notes on Accounts. 10. The Hon'ble Supreme Court in the case of Apollo Tyres -VS -CIT ( : 255 ITR 273) have held that while assessing a Company for Income Tax u/s. 115J, the correctness of the Profit & Loss A/c. prepared by the assessee -company and certified by the statutory auditors of the Company as having been prepared in accordance with the requirement of PART II & III of Schedule -VI of the Companies Act, cannot be examined by the A.O. and the A.O. 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 115JA. As a corollary, the assessee is also not empowered to tinker with the book profit shown in the Profit & Loss A/c. except the extent provided in the Exemption to Section 115J.
(2.) THE assessee has come up in appeal. Mr. Khaitan, learned Senior Advocate, appearing for the appellant, submitted that the learned Tribunal fell into a patent error in not appreciating that notes of account are a part of the balance sheet or profit and loss accounts, as the case may be, under sub -Section 6 of Section 211 of the Companies Act. He drew our attention to a judgment of the Delhi High Court in the case of CIT -vs. -Sain Processing And Weaving Mills P. Ltd., reported in : 325 ITR 565, wherein for reasons discussed in the judgment the Division Bench came to the following conclusion: 19. To our minds the use of the expression "net profit" makes it clear that depreciation not debited to the profit and loss account will have to be taken into account while determining the "book profit" under section 115J of the Act as long as it forms part of the prescribed accounts.
(3.) MR . Nizumuddin, learned Advocate, appearing for the Revenue, submitted that the Apex Court has already held in the case of Apollo Tyres Ltd. -VS -CIT, reported in : 255 ITR 273 that the assessing officer has limited power of making increases and reductions as provided for in the Explanation to Section 115JA. Therefore, the learned Tribunal was correct in taking the view it took. He submitted that the same Note was struck by the Delhi High Court in the case of CIT -VS. -C.J. International Hotels Ltd., reported in : 325 ITR 313 wherein the following views were expressed: ..... The fact that the Tribunal applied the decision of the Supreme Court in the case of Apollo Tyres Ltd. [2002] : 255 ITR 273 as well as Kovai Maruthi Paper and Board P. Ltd. [2007] : 294 ITR 57 cannot therefore be faulted. The Tribunal concluded as under: While the Assessing Officer would be well within his jurisdiction to compute depreciation under section 32 on the rates provided in Appendix I to the Income -tax Rules, 1962, for computing total income under other provisions of the Act, he cannot disturb the book profit, which has been certified to be drawn in the profit and loss account as per the Companies Act. Therefore, we are of the view that the order passed by the Assessing Officer was not erroneous, which is one of the pre -conditions for invoking jurisdiction under section 263 of the act. Since it was not erroneous, it could not have been termed to be prejudicial to the interest of the Revenue. In this view of the matter, we set aside the order of the learned Commissioner of Income -tax. In the result, ground No. 2 is allowed.;