SUMER BUILDERS P. LTD, MUMBAI V. DCIT CEN CIR-36, MUMBAI

ITA 2512/MUM/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59690 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 28-12-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 20-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: VIPUL B JOSHI
• Keywords: Capital asset; Business income; Depreciation; Question of law; Cost of acquisition; Difference of opinion
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE APPELLATE APPELLATE APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A.NOS.2512, 2513 & 2514/MUM/2009 A.YRS. 2003-04, 2004-05 & 2005-06 M/S SUMER BUILDERS PVT. LTD., 220, COMMERCE HOUSE, 140, N.M.ROAD, FORT, MUMBAI 400 023. PAN: AAACS 7847 P VS. DY. COMMISSIONER OF I.T., CENTRAL CIRCLE 36, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIPUL B. JOSHI. RESPONDENT BY : SHRI JITENDRA YADAV. DATE OF HEARING: 28-12-2011. DATE OF PRONOUNCEMENT: 13-01-2012 O R D E R PER T.R.SOOD, AM: IN ALL THESE APPEALS COMMON ISSUE ARISES WHETHER TH E LD. CIT(A) WAS CORRECT IN CONFIRMING THE ADDITION MADE BY THE AO U/S.115JB OF THE I.T.ACT. THE LD. COUNSEL OF THE ASSESSEE SUBMIT TED THAT THERE IS NO DISPUTE IN FACTS AND IN ALL THE APPEALS THE ONLY DI SPUTE IS REGARDING COMPUTATION OF PROFITS U/S.115JB. 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD SOLD 4,50,000 SHARES OF M/S GAYATRI FINLEASE INVESTMENT PVT. LTD. FOR RS.4,70,80,000/-. THE COST OF ACQUISITION WAS RS.4, 40,00,000/-. THUS, THERE WAS A PROFIT OF RS.30,80,000/-. AO FURTHER OB SERVED THAT ITA NOS.2512 TO 2514 OF 09 2 ASSESSEE HAS NOT ROUTED THIS TRANSACTION THROUGH PR OFIT & LOSS ACCOUNT AND HAS DIRECTLY CREDITED THE CAPITAL RESERVE ACCOU NT. ACCORDINGLY, ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY BOOK PROFIT S SHOULD NOT BE COMPUTED AS PER THE PROVISIONS OF SEC.115JB OF THE ACT. IN RESPONSE, IT WAS STATED AS UNDER: .SINCE THE RECEIPT ON THIS ACCOUNT ARE NOT REGU LAR BUSINESS RECEIPTS AND SINCE THE ASSESSEE COMPANY FOLLOWED ME THOD OF ACCOUNTING SUCH RECEIPTS ON SALE OF INVESTMENT DIRE CTLY TO THE BALANCE SHEET, AS A MATTER OF CONSISTENCY IN FOLLOWING METH OD OF ACCOUNTING, THE SAME WERE DIRECTLY TAKEN TO THE BALANCE SHEET. THE AO OBSERVED THAT AS PER SUB-SEC.[2] OF SEC.115J B ASSESSEE WAS REQUIRED TO PREPARE THE PROFIT & LOSS ACCOUNT IN AC CORDANCE WITH PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1 956. HE FURTHER OBSERVED THAT PART II AND PART III OF SCHEDULE VI O F THE COMPANIES ACT, 1956, CLEARLY PROVIDE VARIOUS ITEMS RELATING TO INC OME AND EXPENDITURE TO BE DISCLOSED IN THE PROFIT & LOSS ACCOUNT AND, A CCORDINGLY, PROFIT ON SALE OF SHARES SHOULD HAVE BEEN PART OF THE PROFIT & LOSS ACCOUNT. ACCORDINGLY, HE COMPUTED THE BOOK PROFIT U/S.115JB AS UNDER: PARTICULARS AMOUNT IN RS. NET PROFIT AS PER PROFIT & LOSS A/C AFTER TAX (97, 172) ADD: PROFIT ON SALE OF SHARES 3.080,000 BOOK PROFIT (A) 2.87,S28 THUS, TAX PAYABLE AS PER SECTION 115JB (7.5% OF (A) 224,087 WE FURTHER FIND THAT IN A.YRS. 2004-05 AND 2005-06 THE ASSESSEE HAD EARNED PROFIT ON SALE OF A FLAT WHICH WAS HELD AS I NVESTMENT AND THESE TRANSACTION HAVE NOT BEEN ROUTED THROUGH PROFIT & L OSS ACCOUNT AND THE ITA NOS.2512 TO 2514 OF 09 3 PROFIT HAS BEEN DIRECTLY TAKEN TO CAPITAL RESERVE A CCOUNT. IN THESE TWO YEARS ALSO THE AO AFTER REFERRING TO PART II AND PA RT III OF SCHEDULE VI OF THE COMPANIES ACT, 1956 COMPUTED THE BOOK PROFIT U/S.115J. 3. ON APPEAL BEFORE THE CIT(A) IT WAS MAINLY STATED THAT ASSESSEES BOOKS WERE SUBJECT TO STATUTORY AUDIT AN D PROFIT & LOSS ACCOUNT WAS DULY CERTIFIED BY THE AUDITORS WHICH GA VE TRUE AND CORRECT PICTURE OF THE PROFITS EARNED BY THE ASSESSEE. IT W AS SUBMITTED THAT ACCOUNTS WERE DULY CERTIFIED TO HAVE BEEN PREPARED BY THE AUDITORS IN ACCORDANCE WITH PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956 AND, THEREFORE, AO HAD NO JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT & LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED UNDER EXPLANATION TO SUB SEC.[2] OF SEC.115JB. RELI ANCE WAS ALSO PLACED ON CERTAIN DECISIONS OF THE TRIBUNAL. THE LD . CIT(A) DID NOT AGREE WITH THE SUBMISSIONS AND DECIDED THE ISSUE AG AINST THE ASSESSEE VIDE PARAS 4.3 & 4.4 WHICH ARE AS UNDER: 4.3 1 HAVE CONSIDERED THE FACTS OF THE ISSUE AS WE LL AS WRITTEN SUBMISSIONS MADE BY THE AR BUT DO NOT FIND MERIT IN THEM. THE AO HAS CLEARLY BROUGHT OUT THAT THE NET PROFIT ARRIVED AT BY THE APPELLANTS, IN EACH OF THESE YEARS, WAS NOT IN CONSONANCE WITH PART II AND III OF SCHEDULE VI OF THE COMPANIES ACT 1956 WHICH EXPLICI TLY REQUIRED THE DISCLOSURE OF PROFIT OR LOSS ON INVESTMENTS. CLEARL Y, THE APPELLANTS FAILED IN DISCLOSING THE PROFITS EARNED FROM SALE O F INVESTMENTS IN IMMOVABLE PROPERTIES IN THE PROFIT AND LOSS ACCOUNT S RESULTING IN THE AO CARRYING OUT THE IMPUGNED ADJUSTMENTS. THUS THER E IS NO REASON TO INTERFERE IN THE ORDERS OF THE AO. 4.4 IN ARRIVING AT THIS CONCLUSION, RELIANCE IS ALS O PLACED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VEEKAVYAL INVESTMENT CO. P. LTD [2001] 249 ITR 597 (BORN). IN THIS CASE IT WAS HELD BY THE COURT THAT SINCE CAPITAL GAINS HAS TO B E CONSIDERED IN THE COMPUTATION OF INCOME, IT CANNOT FAIL TO BE RECKONE D IN COMPUTATION OF BOOK PROFITS AS WELL. THE COURT HELD THAT IN THE CIRCUMSTANCES ONE FAILS TO UNDERSTAND AS TO HOW IN COMPUTING BOOK PROFITS UNDER THE COMPANIES ACT, THE ASSESSEE-COMPA NY CANNOT ITA NOS.2512 TO 2514 OF 09 4 CONSIDER CAPITAL GAINS FOR COMPUTING BOOK PROFITS U NDER SECTION 115JB OF THE ACT. THE HIGH COURT ALSO FELT THAT IT WOU LD BE INAPPROPRIATE TO DIRECTLY TRANSFER SUCH AMOUNTS TO CAPITAL RESERVES AND THAT THEY ARE REQUITED TO BE SHOWN VIDE CLAUSES (2)(B) AND (3)(XI I) OF PART II OF SCHEDULE VI OF THE COMPANIES ACT. 4. BOTH THE PARTIES WERE HEARD IN DETAIL. BOTH PAR TIES HAVE ALSO FILED SYNOPSIS OF THE ARGUMENTS AFTER HEARING OF TH E CASE WHICH HAVE ALSO BEEN CONSIDERED BY US. THE MAIN SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE IS THAT STATUTORY AUDITORS HAVE CERTIF IED THAT ACCOUNTS WERE DRAWN IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956 AND THE ACCOUNTING STANDARD. THE ACCOUNTS WERE APPROVED IN THE ANNUAL GENERAL MEETING OF THE COMPANY. THE PROFIT & LOSS ACCOUNT AND THE BALANCE SHEET WERE FILED BEFORE THE REGISTRAR O F COMPANIES AND THE SAME HAVE NOT BEEN ADVERSELY COMMENTED UPON OR MODI FIED OR WITHDRAWN BY THE AUDITORS OR THE REGISTRAR OF COMPA NIES. THEREFORE, AO HAD NO AUTHORITY TO GO BEHIND THE ACCOUNTS TO SE E WHETHER SAME ARE PREPARED AS PER PART II AND PART III OF SCHEDUL E VI OF THE COMPANIES ACT, 1956. RELIANCE HAS BEEN MAINLY PLACE D ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES VS. CIT [235 ITR 273] WHEREIN IT WAS CLEARLY OBSERVED THAT AO HA S NO JURISDICTION TO SEE WHETHER ACCOUNTS HAVE BEEN MAINTAINED IN ACCORD ANCE WITH PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1 956. THE LD. COUNSEL READ OUT THE HEAD NOTE AS WELL AS VARIOUS P ARAS OF THIS DECISION. HE ALSO RELIED ON VARIOUS DECISIONS OF TH E TRIBUNAL WHEREIN FOLLOWING THIS DECISION IT HAS BEEN HELD IN IDENTIC AL CIRCUMSTANCES THAT EVEN IF PROFIT ON ACCOUNT OF SHARE IS TAKEN TO CAPI TAL RESERVE, AS LONG AS ITA NOS.2512 TO 2514 OF 09 5 THE ACCOUNTS ARE CERTIFIED BY THE AUDITORS, SAME CA NNOT BE TINKERED WITH BY THE AO. THE LD. COUNSEL ALSO VEHEMENTLY ARG UED THAT RELIANCE PLACED BY THE FIRST APPELLATE AUTHORITY ON THE DECI SION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VEEKAYLAL INVESTMENT CO. P. LTD. [249 ITR 597] IS NOT CORRECT BECAUSE THE RATIO OF THIS DECISION IS NO MORE GOOD LAW AFTER THE DECISION OF THE HON'BLE SUP REME COURT IN THE CASE OF APOLLO TYRES [SUPRA]. THIS POSITION STANDS CLARIFIED BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT ITSELF IN THE CASE OF CIT VS. AKSHAY TEXTILE TRADING & AGENCIES PVT. LTD. [304 IT R 401], WHEREIN THE QUESTION REFERRED SPECIFICALLY CONTAINED THE RE FERENCE TO THE DECISION OF CIT VS. VEEKAYLAL INVESTMENT CO. P. LTD . [SUPRA]. HOWEVER, THE HON'BLE HIGH COURT ANSWERED THE QUESTION AGAINS T THE REVENUE BY HOLDING THAT THE SAME IS COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES [SUPRA]. HE ALSO RELIED ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN TH E CASE OF CIT VS. VIJAYASHREE FINANCE & INVESTMENT CO. PVT. LTD. [2 D TR 38], WHEREIN PROFIT ON SALE OF LAND WAS DIRECTLY CREDITED TO THE CAPITAL RESERVE BUT IT WAS HELD BY THE COURT THAT AO DOES NOT HAVE JURISDI CTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT & LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED FOR IN EXPLANATION TO SEC.115J. 5. ON THE OTHER HAND, LD. DR SUBMITTED THAT FIRST O F ALL REQUIREMENT TO PREPARE ACCOUNTS AS PER PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956 WAS INCORPORATED IN SUB-SEC.(1A ) OF SEC.115J ITSELF WHICH HAS UNDERGONE CHANGES AND MORE ELABORA TE REQUIREMENT ITA NOS.2512 TO 2514 OF 09 6 WAS INCORPORATED IN SECTIONS 115JA, 115AA AND FINAL LY 115JB. THE PRESENT CASE HAS TO BE CONSIDERED U/S.115JB AND AS PER SUB-SEC.[2] OF THIS SECTION THE ASSESSEE IS NOT ONLY REQUIRED TO M AINTAIN ACCOUNTS AS PER PART II AND PART III OF SCHEDULE VI OF THE COMP ANIES ACT, 1956 BUT IS ALSO REQUIRED THAT ACCOUNTING POLICIES AND ACCOU NTING STANDARD ADOPTED SHALL REMAIN SAME FOR THE PURPOSE OF THE CO MPANIES ACT. IN ANY CASE, THE ISSUE WHETHER AO HAD POWER TO GO BEYO ND THE ACCOUNTS TO SEE WHETHER SAME HAVE BEEN PREPARED IN ACCORDANC E PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956, WAS CONSIDERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF RA IN COMMODITIES LTD. VS. DCIT 40 SOT 265 (S.B). HE READ OUT THE HEAD N OTE AND VARIOUS PARAS OF THE DECISION AND POINTED OUT THAT IT WAS C LEARLY HELD AFTER CONSIDERING THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF APOLLO TYRES [SUPRA], THAT IT WAS OPEN TO THE AO TO SEE WH ETHER ACCOUNTS HAVE BEEN PREPARED AS PER THE REQUIREMENTS OF PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. HE ALSO POI NTED OUT THAT IN THE SPECIAL BENCH EVEN THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. AKSHAY TEXTILE TRADING & AGE NCIES PVT. [SUPRA] WAS CONSIDERED AND IT WAS OBSERVED THAT IT CANNOT B E SAID THAT THIS DECISION HAS OVER RULED THE EARLIER DECISION OF THE DIVISION BENCH OF THE HIGH COURT IN THE CASE OF CIT VS. VEEKAYLAL INVESTM ENT CO. P. LTD. [SUPRA]. HE ALSO RELIED ON THE DECISION OF THE KERA LA HIGH COURT IN THE CASE OF N.J.JOSE & CO. (P) LTD. VS. ACIT & ANR. [32 1 ITR 132] WHEREIN IT WAS CLEARLY HELD THAT IT COULD NOT BE ARGUED THA T SINCE INCOME UNDER ITA NOS.2512 TO 2514 OF 09 7 THE HEAD CAPITAL GAIN WAS EXEMPT U/S.54E THEREFORE SAME COULD NOT BE INCLUDED IN THE BOOK PROFITS. HE ALSO RELIED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS . BOMBAY DIAMOND CO. LTD., 33 DTR (MUM) (TRIB) 59 AND POINTE D OUT THAT THIS DECISION WAS U/S.115JB AND THE ISSUE WAS IDENTICAL, I.E. PROFITS ON SALE OF IMMOVABLE PROPERTIES WERE DIRECTLY ROUTED THROUG H BALANCE SHEET BUT THE SAME WAS HELD TO BE INCLUDIBLE IN THE BOOK PROFITS EVEN AFTER CONSIDERING THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF APOLLO TYRES [SUPRA]. 6. HE ALSO MADE DETAILED SUBMISSIONS THAT AS PER PA RT II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956, ALL ITEMS OF INCOME ARE REQUIRED TO BE INCLUDED IN THE PROFIT & LOSS ACCOUN T AND THE SAME PRESCRIPTION HAS BEEN MADE EVEN UNDER ACCOUNTING ST ANDARD. IT HAS BEEN POINTED OUT IN THE WRITTEN SYNOPSIS THAT DURIN G THE ASSESSMENT PROCEEDINGS AUTHORISED REPRESENTATIVE OF THE ASSESS EE HAD ACCEPTED THAT PROFIT ON SALE OF ASSETS SHOULD HAVE BEEN ROUT ED THROUGH PROFIT & LOSS ACCOUNT AS PER PART II AND PART III OF SCHEDUL E VI OF THE COMPANIES ACT, 1956, AND IN THIS REGARD A COPY OF T HE NOTING SHEET OF ASSESSMENT PROCEEDINGS DATED 18-7-08 HAS BEEN FILED . THE COPY OF THE LETTER OF ASSESSEES AUTHORISED REPRESENTATIVE WHER EIN PROFIT & LOSS ACCOUNT AND BALANCE SHEET HAVE BEEN RECASTED AS PER THE REQUIREMENTS OF PART II AND PART III OF SCHEDULE VI OF THE COMPA NIES ACT, 1956 HAS ALSO BEEN FILED AND IT IS STATED THAT ITSELF SHOWS THAT ASSESSEE HAD NOT MAINTAINED THE ACCOUNTS AS PER THE REQUIREMENTS OF PART II AND PART III ITA NOS.2512 TO 2514 OF 09 8 OF SCHEDULE VI OF THE COMPANIES ACT, 1956. FINALLY A NOTE ON SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUN TS FURNISHED BY ASSESSEE THE DURING THE ASSESSMENT PROCEEDINGS HAVE ALSO BEEN FILED AND IT HAS BEEN POINTED OUT THAT IN RESPECT OF INVE STMENT IT IS CLEARLY STATED THAT INCOME FROM SUCH INVESTMENT IS BEING CR EDITED TO THE REVENUE ACCOUNT, WHEREAS INCOME FROM SHARES AS WELL AS PROPERTY HAS NOT BEEN CREDITED TO THE REVENUE ACCOUNT. THEREFORE , IT IS A CLEAR CASE WHERE REQUIREMENTS OF PART II AND PART III OF SCHED ULE VI OF THE COMPANIES ACT, 1956 HAVE NOT BEEN COMPLIED WITH AND ACCORDINGLY AO HAS THE RIGHT TO LOOK BEHIND THE ACCOUNTS AND COMPU TE THE BOOK PROFITS. HE ALSO STRONGLY RELIED ON THE ORDER OF TH E CIT(A) AND POINTED OUT THAT THE FIRST APPELLATE AUTHORITY HAS CORRECTL Y RELIED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. VEEKAYLAL INVESTMENT CO. P. LTD. [SUPRA] WHICH AS P ER THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF RA IN COMMODITIES LTD. VS. DCIT [SUPRA] IS STILL VALID. 7. IN THE REJOINDER, LD. COUNSEL OF THE ASSESSEE SU BMITTED IN THE DECISION OF DCIT VS. BOMBAY DIAMOND CO. LTD. [SUPRA ], TRIBUNAL HAS NOT CONSIDERED A BINDING DECISION OF HON'BLE JURISD ICTIONAL HIGH COURT IN THE CASE OF CIT VS. AKSHAY TEXTILE TRADING & AGENCI ES PVT. [SUPRA]. HE ALSO SUBMITTED THAT IT SHOULD BE APPRECIATED THAT I N SPECIAL BENCH DECISION IN RAIN COMMODITIES LTD. VS. DCIT [SUPRA], THE ASSESSEE HAD ITSELF CREDITED THE PROFIT & LOSS ACCOUNT WITH THE SURPLUS INCOME WHICH HAS RESULTED FROM THE SALE OF ASSETS OF SUBSIDIARY COMPANY AND ITA NOS.2512 TO 2514 OF 09 9 ASSESSEE HAD CLAIMED THAT SUCH SURPLUS BEING EXEMPT U/S.47[IV], COULD NOT BE INCLUDED IN THE BOOK PROFITS. IT WAS THE DEP ARTMENT WHICH RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CAS E OF APOLLO TYRES [SUPRA] AND THIS DECISION WAS RELIED BY THE SPECIAL BENCH AND ULTIMATELY IT WAS HELD THAT IN THE ABSENCE OF ANY P ROVISION FOR EXCLUSION OF EXEMPTED CAPITAL GAIN IN THE COMPUTATION OF BOOK PROFITS UNDER THE PROVISIONS CONTAINED IN SEC.115JB, THE ASSESSEE IS NOT ENTITLED TO THE EXCLUSION THEREOF. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY IN THE LIGHT OF THE JUDGMENTS CITED SUPRA. THE FIRST SET OF DECI SIONS RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE IS AS UNDER: 1. M/S. SANATAN TEXTRADE PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1510 / M / 02] 2. SWADEE CHEMICALS T. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1466 / M / 02] 3. SHRUSTI TRADING PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1511 / M / 02] 4. M/S. RANJANA TRADERS PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 4749 / M / 03] 5. M/S. DAINTY INVESTMENTS & LEASINGS PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1793 / M/ 02] 6. M/S. VASISHTHA TRADECOM PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1449 / M / 02] 7. M/S. RACHANA MERCHANDISE PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1114 / M / 02] THE DECISIONS AT SR.NOS.1 TO 3 AND 5 TO 7 HAVE BASI CALLY FOLLOWED THE DECISION AT SR.NO.4 I.E. M/S. RANJANA TRADERS PVT. LTD. IN THE CASE OF M/S RANJANA TRADERS PVT. LTD. FOLLOWING THE DECISIO N OF HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES [SUPRA] I T WAS HELD THAT AO HAS NO AUTHORITY TO GO BEHIND THE ACCOUNTS TO SEE W HETHER THE ITA NOS.2512 TO 2514 OF 09 10 ACCOUNTS HAVE BEEN MAINTAINED AS PER THE REQUIREMEN TS OF PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. THIS DECISION HAS BEEN RENDERED U/S.115J. 8.1 THE OTHER DECISIONS RELIED ON BY THE LD. COUNSE L OF THE ASSESSEE ARE AS UNDER: 1) M/S. VASISHTHA TRADECOM PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1449 / M / 02] 2) M/S. RACHANA MERCHANDISE PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1114 / M / 02] 2) M/S. ORSON TRADING PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1389 / M / 02] 3) M/S. MAXWELL DYES & CHEMICALS PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1390 / M / 02] 4) M/S. AGNI INVESTMENT & TRADING PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1822 / M / 02] 5) M/S. RHINO BAGS PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1047 / M / 02] 6) M/S. GUFUVAS TEXTILES PVT. LTD. FOR A. Y. 1998 99 [I.T,A. NO. 1789 / M / O2 7) MIS. LAZOR SYNTEX LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1809 / M / 02] 8) M/S. VIJAY FURNITURE MFG. CO. P. LTD. FOR AX. 2000 01 [I.T.A. NO. 7104 / M / 05] 9) DY. CIT V/S. ARUNDHATI TRADERS (P) LTD. A.Y. 2003 04 [(2009) 27 SOT 305 (MUM)] 10) NANABHOY JEEJEEBHOY PVT. LTD. FOR A. Y. 1998 99 [I.T.A. NO. 1520 / M / 03] 11) M/S. KUNJVAN TEXFAB PVT. LTD. FOR A. Y. 1998-99 [I.T.A.NO.1112/M/02) 12) REALM EXPORTS P. LTD. [I.T.A. NO. 5700 / M / 20 04; ORDER DATED 26.03.2008] IN ALL THESE DECISIONS, AGAIN PRINCIPALLY THE DECIS ION OF HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES [SUPRA] HAS BEEN FOLLOWED AND IN ONE OR TWO CASES EVEN THE DECISION CIT VS. AKSHAY TEXTI LE TRADING & AGENCIES PVT. [SUPRA] HAS BEEN FOLLOWED. EVEN THE D ECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. VI JAYASHREE FINANCE & ITA NOS.2512 TO 2514 OF 09 11 INVESTMENT CO. PVT. LTD. [SUPRA] HAS BEEN RENDERED U/S.115J. THE HON'BLE APEX COURT WAS CONCERNED WITH SEC.115J. 9. SEC.115J CONTAINED THE FOLLOWING PROVISIONS REGA RDING PREPARATION OF PROFIT & LOSS ACCOUNT [(1A) EVERY ASSESSEE, BEING A COMPANY, SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR TH E RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956. (1 OF 1956).] THIS REQUIREMENT HAS BEEN FURTHER AMENDED IN SEC.11 5JA AND THE EQUIVALENT PROVISION IS SUB-SEC.(2) WHICH READS AS UNDER: (2) EVERY ASSESSEE, BEING A COMPANY, SHALL, FOR TH E PURPOSES OF THIS SECTION PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI4 TO THE COMPANIES ACT, 1956. PROVIDED THAT WHILE PREPARING PROFIT AND LOSS ACCOUNT, THE D EPRECIATION SHALL BE CALCULATED ON THE SAME METHOD AND RATES WH ICH HAVE BEEN ADOPTED FOR CALCULATING THE DEPRECIATION FOR THE PU RPOSE OF PREPARING THE PROFIT AND LOSS ACCOUNT LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVISIONS O F SECTION 210 OF THE COMPANIES ACT, 1956 (1 OF 1956): PROVIDED FURTHER THAT WHERE A COMPANY HAS ADOPTED OR ADOPTS THE FINANCIAL YEAR UNDER THE COMPANIES ACT, 1956 (1 OF 1956), WHICH IS DIFFERENT FROM THE PREVIOUS YEAR UNDER THE ACT, THE METHOD AND RATES FOR CALCULATION OF DEPRECIATION SHALL CORRESPOND TO THE METHOD AND RATES WHICH HAVE BEEN ADOPTED FOR CALCULATING THE DEPRECI ATION FOR SUCH FINANCIAL YEAR OR PART OF SUCH FINANCIAL YEAR FALLI NG WITHIN THE RELEVANT PREVIOUS YEAR. AND THE SAME REQUIREMENTS REMAINED U/S.115JAA. THE REQUIREMENT FOR PREPARATION OF ACCOUNTS U/S.115JB IS PROVIDED IN SU B-SEC.(2) WHICH READS AS UNDER: (2) EVERY ASSESSEE, BEING A COMPANY, SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR TH E RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI22 TO THE COMPANIES ACT, 1956 (1 OF 1956) : ITA NOS.2512 TO 2514 OF 09 12 PROVIDED THAT WHILE PREPARING THE ANNUAL ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT, ( I ) THE ACCOUNTING POLICIES; ( II ) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARING SU CH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; ( III ) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURP OSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 210 OF THE COMPANIES ACT, 195 6 (1 OF 1956) : PROVIDED FURTHER THAT WHERE THE COMPANY HAS ADOPTED OR ADOPTS THE FINANCIAL YEAR UNDER THE COMPANIES ACT, 1956 (1 OF 1956), WHICH IS DIFFERENT FROM THE PREVIOUS YEAR UNDER THIS ACT, ( I ) THE ACCOUNTING POLICIES; ( II ) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARING SU CH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; ( III ) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, SHALL CORRESPOND TO THE ACCOUNTING POLICIES, ACCOUNTING S TANDARDS AND THE METHOD AND RATES FOR CALCULATING THE DEPRECIATION W HICH HAVE BEEN ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFI T AND LOSS ACCOUNT FOR SUCH FINANCIAL YEAR OR PART OF SUCH FINANCIAL Y EAR FALLING WITHIN THE RELEVANT PREVIOUS YEAR. THEREFORE, WHEN WE COMPARE THE PROVISIONS OF SEC.11 5J AS TO THE REQUIREMENT OF THE PREPARATION OF ACCOUNTS, WE SEE THAT ORIGINALLY THE REQUIREMENT WAS ONLY LIMITED THAT ACCOUNTS SHALL BE PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. BUT THIS REQUIREMENT HAS B EEN ENLARGED U/S.115JB. AS PER THE 1 ST PROVISO THE REQUIREMENT IS THAT WHILE PREPARING THE ACCOUNTS IT SHOULD BE ENSURED THAT AC COUNTING POLICIES AND ACCOUNTING STANDARD ETC., ADOPTED FOR PREPARING THE ACCOUNTS SHALL BE THE SAME AS PER THE ACCOUNTS LAID DOWN BEFORE TH E COMPANY IN ITS ANNUAL GENERAL MEETING. AS PER THE SECOND PROVISO I T HAS BEEN PROVIDED THAT IF THE COMPANY HAS ADOPTED THE F.Y WH ICH IS DIFFERENT FROM THE PREVIOUS YEAR, THEN IT SHOULD BE ENSURED T HAT WHILE ADOPTING SUCH ACCOUNTS SAME ACCOUNTING POLICIES AND ACCOUNTI NG STANDARD ETC. ITA NOS.2512 TO 2514 OF 09 13 ARE FOLLOWED. THUS, THE ACT HAS RECOGNISED THAT THE RE MAY BE CASES WHERE F.Y OF THE COMPANY MAY BE DIFFERENT FROM THE PREVIOUS YEAR AND IF THE FINANCIAL ACCOUNTS ARE ADOPTED IN THE PREVIO US YEAR THEN SUCH ACCOUNTS MUST HAVE SIMILAR ACCOUNTING POLICIES AND ACCOUNTING STANDARD ETC. 10. NOW, WHO IS GOING TO CHECK THIS ASPECT? OBVIOUS LY, THE REGISTRAR OF COMPANIES IS NOT CONCERNED WITH THESE ASPECTS WH ETHER ACCOUNTS ADOPTED FOR THE PREVIOUS YEAR ARE SAME OR NOT BECAU SE THE REGISTRAR OF COMPANIES AT BEST IS CONCERNED WHETHER THE ACCOUNTS ADOPTED AND LAID BEFORE THE ANNUAL GENERAL MEETING ARE IN ACCORDANCE WITH THE REQUIREMENTS OF PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. THEREFORE, IN VIEW OF THESE ENLARGED REQ UIREMENTS, WE ARE OF THE VIEW THAT AO HAS POWERS TO GO BEHIND THE ACC OUNTS AND SEE WHETHER SAME HAVE BEEN PREPARED IN ACCORDANCE WITH THE REQUIREMENTS OF PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. IN FACT, THIS ASPECT HAS BEEN CONSIDERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF RAIN COMMODITI ES LTD. VS. DCIT [SUPRA] PARTICULARLY U/S.115JB AND IT WAS HELD VIDE PARA-18 AS UNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD AND THE CASE LAWS RELIED UPON B Y BOTH THE PARTIES. WE HAVE TAKEN INTO CONSIDERATION THE RATIO DECIDEND I OF ALL THE DECISIONS RELIED UPON BY THE RIVAL PARTIES. THE OMI SSION OF REFERENCE TO SOME OF THE CASES IN THE ORDER IS EITHER DUE TO THE IR IRRELEVANCE OR TO RELIEVE THE ORDER FROM THE REPETITIVE NATURE OF THE DECISIONS. UNDER MINIMUM ALTERNATE TAX (MAT) PROVISIONS, THE ASSESSI NG OFFICER IS CONCERNED WITH THE ADJUSTMENTS TO BE MADE WITH THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT. ONE OF THE MO OT QUESTION RELEVANCE TO THE ISSUE BEFORE US IS WHETHER THE ASS ESSING OFFICER HAS POWER TO ALTER THE NET PROFIT ? IN OUR CONSIDERED O PINION, YES. WE AGREE ITA NOS.2512 TO 2514 OF 09 14 THAT IT IS SETTLED LAW THAT ASSESSING OFFICER HAS T HE POWER TO ALTERNATE, THE NET PROFIT. IN THE FOLLOWING TWO CASES, THE ASS ESSING OFFICER CAN REWRITE THE PROFIT AND LOSS ACCOUNT, I.E., TO SAY T HAT ASSESSING OFFICER SHOULD RECALCULATE THE NET PROFIT AND THEN FOLLOW T HE ADJUSTMENTS OF MAT AS USUAL: (1) IF IT IS DISCOVERED THAT PROFIT A ND LOSS ACCOUNT IS NOT DRAWN UP IN ACCORDANCE WITH PART II AND PART III OF SCHEDULE VI TO THE2 COMPANIES ACT. HOWEVER, THE ASSESSING OFFICER CANNO T DISTURB THE NET PROFIT AS SHOWN BY THE ASSESSEE WHERE THERE ARE NO SUCH ALLEGATIONS, FRAUD OR MISREPRESENTATION BUT ONLY A DIFFERENCE OF OPINION AS TO WHETHER A PARTICULAR AMOUNT SHOULD BE PROPERLY SHOW N IN THE PROFIT AND LOSS ACCOUNT OR IN THE BALANCE SHEET. (2) IF ACCOUN TING POLICIES, ACCOUNTING STANDARDS NOT ADOPTED FOR PREPARING SUCH ACCOUNTS AND METHOD, RATE OF DEPRECIATION WHICH HAVE BEEN INCORR ECTLY ADOPTED FOR PREPARATION OF PROFIT AND 1059 ACCOUNT LAID BEFORE THE ANNUAL GENERAL MEETING. EXCEPT FOR THE ABOVE TWO CASES, THE ASSESS ING OFFICER HAS NO POWER TO ALTER THE NET PROFIT SHOWN L THE COMPANIES FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT. THUS, IT IS CLEAR THAT U NDER MAT, THE ASSESSING OFFICER SHOULD TAKE THE NET PROFIT AS COM PUTED BY THE ASSESSEE AND THEN MAKE THE ADJUSTMENTS UNDER SECTIO N 11 5JB OF THE ACT. IT IS COMMON THAT SOME COMPANIES FOLLOW AN ACC OUNTING YEAR UNDER THE COMPANIES ACT, 1956 WHICH IS DIFFERENT FR OM THE FINANCIAL YEAR UNDER INCOME-TAX ACT, 1961. THESE COMPANIES GE NERALLY PREPARE TWO SETS OF ACCOUNTS - ONE FOR COMPANIES ACT AND AN OTHER FOR INCOME- TAX ACT. THE REASON BEING DIFFERENT ACCOUNTING POLI CIES, STANDARDS, DEPRECIATION METHODS AND RATES ARE ADOPTED IN TWO S ETS OF ACCOUNT SO THAT HIGHER PROFIT IS REPORTED TO SHAREHOLDERS AND LOWER PROFIT FOR THE INCOME-TAX AUTHORITIES. TO CURB THE ABOVE PRACTICE ONLY THIS RECALCULATION OF NET PROFIT UNDER MAT WAS INCORPORA TED SO THAT THERE SHOULD BE A CONSISTENCY IN ACCOUNTING POLICIES, STA NDARDS, METHODS AND RATES OF DEPRECIATION WITHIN THE KNOWLEDGE OF INCOM E-TAX AUTHORITIES. THUS, FROM THE ABOVE IT IS CLEAR THAT ATLEAST U/S.1 15JB AO HAS POWER TO GO BEHIND THE ACCOUNTS. SIMILAR VIEW HAS BEEN TAKEN BY THE CO- ORDINATE BENCH IN THE CASE OF DCIT VS. BOMBAY DIAMO ND CO. LTD. [SUPRA] WHICH HAS BEEN ALSO RENDERED U/S.115JB. THI S DECISION WAS DISTINGUISHED BY THE LD. COUNSEL THAT IT HAS NOT CO NSIDERED THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. AKSHAY TEXTILE TRADING & AGENCIES PVT. [SUPRA]. THE ARGUMENT WHETH ER THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. AK SHAY TEXTILE TRADING & AGENCIES PVT. [SUPRA] HAS OVER RULED THE DECISION OF DIVISION ITA NOS.2512 TO 2514 OF 09 15 BENCH IN THE CASE OF CIT VS. VEEKAYLAL INVESTMENT C O. P. LTD. [SUPRA] OR NOT, WAS ALSO CONSIDERED BY THE SPECIAL BENCH IN PARA-24. THE RELEVANT PORTION OF PARA-24 READS AS UNDER: THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE O F CIT V. AKSHAY TRADING & AGENCIES (P.) LTD [2008] 304 ITR 401 THE QUESTIO N REFERRED TO THE HIGH COURT AND THE DECISION OF THE HIGH COURT, AS REPORT ED ARE AS UNDER: C. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HONBLE INCOME-TAX APPELLATE TRIBUNAL WAS CORRECT I N UPHOLDING THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN HOLDING THAT THE CAPITAL GAINS OF RS. 19,74,489 ARE NOT TO BE TAKEN INTO ACCOUNT WHIL E COMPUTING THE PROFITS LIABLE TO BE TAXED UNDER SECTION 11 5JA OF THE INCO ME-TAX ACT, 1961 AND THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CI T V. VEEKAYLAL LNVESTMENT CO. (P.) LTD. 249 ITR 597 WAS NOT APPLIC ABLE? INSOFAR AS QUESTION NO. OUR ATTENTION IS INVITED TO THE JUDGMENT OF THE SUPREME COURT IN APOLLO TYRES LTD V. C1T255 ITR 273. THE QU ESTION FRAMED THEREIN WHICH IS SIMILAR TO QUESTION NO. C HAS BEEN ANSWE RED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN THE LIGHT OF T HAT, THE QUESTION OF LAW AS FRAMED WOULD NOT ARISE. FROM THE ABOVE, IT IS DIFFICULT TO CONCLUDE THAT TH E DIVISION BENCH OF BOMBAY HIGH COURT IN THIS CASE HAS OVERRULED THE DECISION OF ANOTHER DIVISION BENCH WITHOUT EVEN A LINE OF DISCUSSION. THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF VEEKAYLAL LNVESTMENT CO. (P.) LTD. (SUP RA) HOLDING THAT THE BOOK PROFITS HAVE TO BE COMPUTED IN ACCORDANCE WITH PART S II AND IF OF SCHEDULE VI TO THE COMPANIES ACT. THIS IS IN LINE WITH THE DECI SION OF THE APEX COURT IN THE CASE OF APOLLO TYRES LTD. (SUPRA). THE MUMBAI H IGH COURT IN THE CASE OF AKSHAY TEXTILES TRADING & AGENCIES (P.) LTD. (SUPRA ) HAS HELD THAT THERE IS NO QUESTION OF LAW IN VIEW OF THE DECISION OF THE APEX COURT IN THE CASE OF APOLLO TYRES LTD. (SUPRA). FROM THIS WE ARE NOT ABLE TO IN FER THAT THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF VEEKAYLAL INVESTME NT CO. (P.) LTD. (SUPRA), IS NO LONGER GOOD IN LAW. THEREFORE, THIS CASE DOES NOT HELP THE ASSESSEE. THUS, FROM THE ABOVE IT IS CLEAR THAT SPECIAL BENCH HAS CLEARLY HELD THAT THE DECISION IN THE CASE OF CIT VS. AKSHAY TEXTILE TRADING & AGENCIES PVT. [SUPRA] HAS NOT OVER RULED THE DECISION OF CIT VS. VEEKAYLAL INVESTMENT CO. P. LTD. [SUPRA]. IN THE CASE OF CIT VS. VEEKAYLAL INVESTMENT CO. P. LTD. [SUPRA] IT WAS OBSERVED AS U NDER: WE FIND MERIT IN THIS APPEAL. ACCORDING TO S. 115J (1), IN THE CASE OF AN ASSESSEE BEING A COMPANY IF THE TOTAL INCOME IS LES S THAN 30 PER CENT OF ITS BOOK PROFITS THEN THE TOTAL INCOME OF SUCH COMP ANY SHALL BE DEEMED TO BE AN AMOUNT EQUAL TO 30 PER CENT OF SUCH BOOK-P ROFIT AND SUCH ITA NOS.2512 TO 2514 OF 09 16 INCOME SHALL BE CHARGEABLE TO TAX. THAT, THE ASSESS EE HAS TO FIRST COMPUTE THE TOTAL INCOME IN ACCORDANCE WITH THE IT ACT AND IF THE TOTAL INCOME IS LESS THAN 30 PER CENT OF THE BOOK PROFIT THEN THE ASSESSEE HAS TO PREPARE A P&L A/C FOR THE PREVIOUS YEAR IN ACCOR DANCE WITH PART II AND III OF SCH. VI TO THE COMPANIES ACT. IN OTHER W ORDS, A PLAIN READING OF S. 115J SHOWS THAT IF THE ASSESSEE IS A COMPANY AND ITS TOTAL INCOME UNDER THE IT ACT IS LESS THAN 30 PER CENT OF ITS BOOK PROFITS THEN, FICTIONALLY, IT WILL BE DEEMED THAT ITS TOTAL INCOME CHARGEABLE TO TAX WOULD BE AN AMOUNT EQUAL TO 30 PER CENT OF SUCH BOOK PROFITS. HENCE, IN SUCH A CASE, THE TOTAL INCOME OF THE ASSE SSEE IS FIRST REQUIRED TO BE COMPUTED UNDER THE IT ACT AND IF THE TOTAL IN COME SO COMPUTED IS LESS THAN 30 PER CENT OF THE BOOK PROFITS THEN THE P&L A/C SHALL HAVE TO BE PREPARED IN ACCORDANCE WITH PART II AND PART III OF SCH. VI OF THE COMPANIES ACT. THE IMPORTANT THING TO BE NOTED IS T HAT WHILE CALCULATING THE TOTAL INCOME UNDER THE IT ACT, THE ASSESSEE IS REQUIRED TO TAKE INTO ACCOUNT INCOME BY WAY OF CAPITAL GAINS UNDER S. 45 OF THE IT ACT. IN THE CIRCUMSTANCES, ONE FAILS TO UNDERSTA ND AS TO HOW IN COMPUTING THE BOOKS PROFITS UNDER THE COMPANIES ACT , THE ASSESSEE- COMPANY CANNOT CONSIDER CAPITAL GAINS FOR THE PURPO SES OF COMPUTING BOOK PROFITS UNDER S. 115J OF THE ACT. FURTHER, UND ER CL. (2) OF PART II OF SCH. VI TO THE COMPANIES ACT WHERE A COMPANY RECEIV ES THE AMOUNT ON ACCOUNT OF SURRENDER OF LEASEHOLD RIGHTS, THE CO MPANY IS BOUND TO DISCLOSE IN THE P&L A/C THE SAID AMOUNT AS NON-RECU RRING TRANSACTION OR A TRANSACTION OF AN EXCEPTIONAL NATURE IRRESPECTIVE OF ITS NATURE I.E. WHETHER CAPITAL OR REVENUE. THAT, IT WOULD BE INAPP ROPRIATE TO DIRECTLY TRANSFER SUCH AMOUNT TO CAPITAL RESERVE [SEE COMPAN IES ACT BY A. RAMAIYA, P. 1669 (FOURTEENTH EDN.]. SUCH RECEIPTS A RE ALSO COVERED BY CL. 2(B) OF PART II OF SCH. VI OF THE COMPANIES ACT WHICH, INTER ALIA, STATES THAT P&L A/C SHALL DISCLOSE EVERY MATERIAL F EATURE, INCLUDING CREDITS OR RECEIPTS AND DEBITS OR EXPENSES IN RESPE CT OF NON-RECURRING TRANSACTIONS OR TRANSACTIONS OF AN EXCEPTIONAL NATU RE. LASTLY, EVEN UNDER CL. 3(XII)(B) PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS NOT USUALLY UNDERTAKEN BY THE COMPANY OR UNDERTAKEN IN CIRCUMST ANCES OF EXCEPTIONAL OR NON-RECURRING NATURE SHOWS CLEARLY T HAT CAPITAL GAINS SHOULD BE INCLUDED FOR THE PURPOSES OF COMPUTING BO OK PROFITS. THAT, CAPITAL GAINS WOULD CERTAINLY BE ONE OF THE VARIOUS ITEMS WHOSE INFORMATION IS REQUIRED TO BE GIVEN TO THE SHARE HO LDERS UNDER THE SAID CL. 3(XII)(B). SO ALSO, THE DISCLOSURE IS REQUIRED TO BE MADE IN RESPECT OF INVESTMENT IN THE CAPITAL OF A PARTNERSHIP FIRM IF THE COMPANY IS A PARTNER ON THE DATE OF THE BALANCE SHEET (SEE P. 16 51 OF THE COMPANIES ACT BY A. RAMAIYA [FOURTEENTH EDN.]. SIMILARLY, PRO FITS OR LOSSES ON SUCH INVESTMENTS ARE ALSO REQUIRED TO BE DISCLOSED. [SEE CL. 3(XII)(A) OF PART II OF SCH. VI OF THE COMPANIES ACT]. THUS, FROM THE ABOVE IT IS CLEAR THAT BOOK PROFITS HAVE TO INCLUDE THE PROFITS EARNED FROM CAPITAL GAINS. ITA NOS.2512 TO 2514 OF 09 17 11. LET US EXAMINE THIS ISSUE FROM ANOTHER ANGEL. P ART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956 READ WAS UNDER: 1. THE PROVISIONS OF THIS PART SHALL APPLY TO THE I NCOME AND EXPENDITURE ACCOUNT REFERRED TO IN SUB-S. (2) OF S. 210 OF THE ACT, IN LIKE MANNER AS THEY APPLY TO A P&L A/C, BUT SUBJECT TO THE MODIFIC ATION OF REFERENCES AS SPECIFIED IN THAT SUB-SECTION. 2. THE P&L A/C (A) SHALL BE SO MADE OUT AS CLEARLY TO DISCLOSE THE RESULT OF THE WORKING OF THE COMPANY DURING THE PERIOD COVERED BY THE ACC OUNT; AND (B) SHALL DISCLOSE EVERY MATERIAL FEATURE, INCLUDIN G CREDITS OR RECEIPTS AND DEBITS OR EXPENSES IN RESPECT OF NON-RECURRING TRANSACTIONS OR TRANSACTIONS OF AN EXCEPTIONAL NATURE. 3. THE P&L A/C SHALL SET OUT THE VARIOUS ITEMS RELA TING TO THE INCOME AND EXPENDITURE OF THE COMPANY ARRANGED UNDER THE M OST CONVENIENT HEADS; AND IN PARTICULAR, SHALL DISCLOSE THE FOLLOW ING INFORMATION IN RESPECT OF THE PERIOD COVERED BY THE ACCOUNT: (I) -------- (II) ------- (XI) (A) THE AMOUNT OF INCOME FROM INVESTMENTS AND OTHER INVESTMENTS. (B) OTHER INCOME BY WAY OF INTEREST, SPECIFYING THE NATURE OF THE INCOME. (C) THE AMOUNT OF INCOME-TAX DEDUCTED IF THE GROSS INCOME IS STATED UNDER SUB PARAS (A) AND (B) ABOVE. (XII) (A) PROFITS OR LOSSES ON INVESTMENTS SHOWING DISTINCTLY THE EXTENT OF THE PROFITS OR LOSSES EARNED OR INCURRED ON ACCO UNT OF MEMBERSHIP OF A PARTNERSHIP FIRM TO THE EXTENT NOT ADJUSTED FROM ANY PREVIOUS PROVISION OR RESERVE. NOTE : INFORMATION IN RESPECT OF THIS ITEM SHOULD A LSO BE GIVEN IN THE BALANCE SHEET UNDER THE RELEVANT PROVISION OR RESER VE ACCOUNT. (B) PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS OF A KIND, NOT USUALLY UNDERTAKEN BY THE COMPANY OR UNDERTAKEN IN CIRCUMST ANCES OF AN EXCEPTIONAL OR NON-RECURRING NATURE, IF MATERIAL IN AMOUNT. (C) MISCELLANEOUS INCOME. (XIII) (A) ------ (B) -------- (XIV) -------- (XV) -------- THE ABOVE AS PER CLAUSE (2) MAKES IT CLEAR THAT PRO FITS FROM INVESTMENT WERE REQUIRED TO BE CREDITED TO THE REVENUE ACCOUNT . APART FROM THE ABOVE, EVEN AS PER ACCOUNTING STANDARD 13 [ISSUED B Y THE INSTITUTE OF ITA NOS.2512 TO 2514 OF 09 18 CHARTERED ACCOUNTANTS OF INDIA] WHICH DEALS WITH AC COUNTING FOR INVESTMENT RECOMMEND VIDE PARA-34 AS UNDER: 34. DISPOSAL OF INVESTMENTS ON DISPOSAL OF AN INVESTMENT, THE DIFFERENCE BETWEE N THE CARRYING AMOUNT AND NET DISPOSAL PROCEEDS SHOULD BE CHARGED OR CREDITED TO THE PROFIT AND LOSS STATEMENT. THUS PARA-34 MAKES IT CLEAR THAT PROFITS FROM INVES TMENT HAVE TO BE CREDITED TO THE PROFIT & LOSS ACCOUNT. AS OBSERVED EARLIER SEC.115JB MANDATE THAT ANNUAL ACCOUNTS MUST BE PREPARED IN AC CORDING WITH THE ACCOUNTING POLICIES AND ACCOUNTING STANDARDS WHICH HAVE BEEN FOLLOWED FOR PREPARING ACCOUNTS WHICH WERE LAID BEF ORE THE COMPANY FOR ANNUAL GENERAL MEETING. AS FAR SIGNIFICANT ACCO UNTING POLICIES ARE CONCERNED, LD. DR HAS FILED SCHEDULE OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNT ANNEXED TO AND FORMIN G PART OF THE ACCOUNTS FOR THE YEARAR ENDED 31ST MARC H, 2005 ADOPTED BY THE ASSESSEE COMPANY IN RESPECT O F INVESTMENTS STATES AS UNDER: INVESTMENTS INVESTMENTS IN IMMOVABLE PROPERTIES & SHARES IN COM PANIES ARE MADE TO DERIVE REGULAR INVESTMENT INCOME THEREFROM. THES E INVESTMENTS ARE HELD AS CAPITAL ASSETS ON LONG TERM BASIS AND THERE FORE, THEY ARE STATED AND VALUED AT COST. THE COST OF INVESTMENTS COMPRIS E ITS PURCHASE PRICE, COST OF CONSTRUCTION, ANY ATTRIBUTABLE COST OF IMPROVEMENT ARID INCIDENTAL EXPENSES OF ACQUISITION AND IMPROVEMENT. NO PROVISION FOR DIMINUTION/APPRECIATION IN THE VALUE OF INVESTMENTS IN BEING MADE. THE CAPITAL PAINS/LOSS ON SALE OF INVESTMENTS IS DEALT WITH AT THE TIME OF ACTUAL TRANSFER THEREOF BY ANY MODE. (F) INCOME FROM INVESTMENTS - INCOME FROM INVESTMENTS INDUCING INCOME FROM LET CH IT INVESTMENT IMMOVABLE PROPERTY IS CREDITED TO THE REVENUE ACCOU NT IN THE SEAR IT IS RECEIVED BY THE COMPANY BY STATING THE INCOME IN LU LL WITH THE TAX DEDUCTED THEREON BEING ACCOUNTED FOR UNDER THE HEAD TAXATION PAYMENTS. ITA NOS.2512 TO 2514 OF 09 19 THUS, THE POLICY OF THE COMPANY ITSELF STATES THAT INCOME FROM INVESTMENTS WAS TO BE CREDITED TO THE REVENUE ACCOU NT. NOW, IF THIS POLICY IS NOT FOLLOWED NATURALLY THE AO CAN GO BEHI ND THE ACCOUNTS AND RECAST THE ACCOUNTS OR CONSIDER THE ITEMS WHICH ARE REQUIRED TO BE CONSIDERED AS PER THE REQUIREMENTS OF ACCOUNTING PO LICIES, ACCOUNTING STANDARD AND PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. 12. IN THE CASE BEFORE US ASSESSEE HAD EARNED CERTA IN PROFIT ON SALE OF SHARES AND SOME INDUSTRIAL UNITS WHICH ADMITTEDL Y HAVE NOT BEEN CREDITED TO THE PROFIT & LOSS ACCOUNT WHICH IS CONT RARY TO THE SIGNIFICANT ACCOUNTING POLICY OF THE ASSESSEE ITSELF AS WELL AS AGAINST THE REQUIREMENTS OF ACCOUNTING STANDARD AS-13 AND REQUI REMENTS OF PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT , 1956. THEREFORE, IN OUR OPINION, AO HAS RIGHTLY BROUGHT THESE ITEMS TO TAXATION UNDER THE MAT PROVISIONS OF SEC.115JB. ACCORDINGLY, WE FI ND NOTHING WRONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SA ME. 13. IN THE RESULT, ASSESSEES APPEALS ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 3/1/2012. SD/- SD/- (VIJAY PALRAO) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 13/12012. P/-* ITA NOS.2512 TO 2514 OF 09 20