Facts

Assessee in its Profit and loss account provided for arrears of depreciation. Assessing officer while determining the book profit of the assessee for the purposes of section 115J of the Act excluded the provision for depreciation arrears and held that the Profit and loss account prepared by the assessee was not in accordance with Parts II and III of Schedule VI to the Companies Act, 1956.

Issue

Can the Assessing Officer while determining the book profits chargeable under section 115J of the Act question the correctness of the profit and loss account prepared by the assessee in accordance with the requirements of the Companies Act and certified by statutoryauditors of the company?

Views

Section 115J(1A) mandates every company to prepare its profit and loss account    in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. Explanation to section 115J defines the term ‘book profit’     to mean net profit asshown in the profit and loss account prepared under section 115J(1A). The said Explanation provides for certain items to be added to    or to be reduced from the net profit as shown in the profit and loss account.

Held

Supreme Court held that the Assessing Officer while computing the income under section 115J can only examine whether the books of accounts are certified  by the authorities under the  Companies Act  to  have been properly maintained in accordance with the Companies Act. The Assessing Officer cannot question the net profit shown in the profit and loss account. The limited power with the Assessing Officer is to make additions and reductions as provided for in the

Explanation to section 115J. (AY.  1988-89) (CA Nos. 6100 of 1998 and 2518 to19    of 1999 dt. 2-5-2002)

Editorial: Decision of the Kerala High Court in CIT v. Apollo Tyres  Ltd. [1999]  237 ITR 706 affirmed on this point.

“One must become as humble as the dust before he can discover truth.”

– Mahatma Gandhi