THE DCIT CIR 3(1), MUMBAI V. M/S. BOMBAY DIAMOND CO. LTD, MUMBAI

ITA 7488/MUM/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1546 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2009
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 17-12-2007
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Speculation loss; Set aside
• Section: 115JB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JM & SHRI R.K. PANDA, AM I.T.A. NO. 7488/MUM/07 (ASSESSMENT YEAR 2004-05) DCIT, CIRCLE 3(1) ROOM NO. 607, 6 TH FLOOR, AAYAKAR BHAVAN MUMBAI-400 020 VS. M/S. BOMBAY DIAMOND CO. LTD. SU-RAJ HOUSE, 73-C CROSS ROAD MIDC MAROL, ANDHERI (EAST) MUMBAI-400 093 PAN:AAACB0495K APPELLANT RESPONDENT APPELLANT BY: SHRI S.S. RANA RESPONDENT BY: SHRI DILIP J. THAKKAR SHRI RAJESH P. SHAH O R D E R DATE OF HEARING: 22.09.2009 DATE OF ORDER: 30.11.2009 PER R.K. PANDA, AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 29.9.2007 OF THE CIT(A)-XXVII, MUMBAI RELATIN G TO ASSESSMENT YEAR 2004-05. 2. GROUNDS OF APPEAL NO. 1 BY THE REVENUE READS AS UND ER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN TREATING THE LOSS INCURRED ON CANCELLATION OF FOREIGN EXCHANGE FORWARD CONTRACT A S BUSINESS LOSS. 3. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSESSING OFFICER TREATED THE LOSS ON CANCELLATION OF FOREIGN EXCHANGE FORWAR D CONTRACT AT RS.25,75,000 AS SPECULATION LOSS AND ADDED TO THE T OTAL INCOME OF THE ASSESSEE. 4. IN APPEAL, THE LEARNED CIT(A) FOLLOWING THE DECISIO N OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ITO VS. B ADRADAS GAURIDU PVT. LTD. REPORTED IN 261 ITR 256 (BOM) AND THE GUIDELINES IS SUED BY RBI WITH I.T.A. NO. 7488/MUM/07 M/S. BOMBAY DIAMOND CO. LTD. ====================== 2 REFERENCE TO FEMA, 1999 HELD THE TRANSACTION AS BUS INESS LOSS AS AGAINST SPECULATION LOSS TREATED BY THE ASSESSING OFFICER. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFOR E US. 5. THE LEARNED DR FAIRLY CONCEDED THAT THE ISSUE IS AG AINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWORD GOVER NOR (I) PVT. LTD., REPORTED IN 294 ITR 481. IN VIEW OF THE ABOVE SUBM ISSION OF THE LEARNED DR, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. 6. GROUNDS OF APPEAL NO. 2 BY THE REVENUE READS AS UND ER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F INTEREST AMOUNTING TO RS.82,49,728/-. 7. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE HAS DEBITED A SUM OF RS.82,49,728 BEING INTEREST PAID ON BORROWED FUN DS AND CLAIMED THE SAME AS BUSINESS EXPENDITURE. THE ASSESSING OFFICE R OBSERVED THAT THE FUNDS ON WHICH THE INTEREST HAS BEEN PAID WERE UTIL ISED FOR THE PURPOSE OF MAKING INVESTMENT FROM WHICH THE INCOME HAS TO BE C OMPUTED U/S. 45 OF THE INCOME-TAX ACT, 1961 (THE ACT) AND NOT U/S. 28 OF THE ACT. SINCE THE ASSESSEE HAS NOT UTILISED THE BORROWED FUNDS FOR TH E PURPOSE OF ITS BUSINESS, THEREFORE, THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS OF SECTION 36(1)(III) OF THE ACT FOR ALLOWING THE SAID EXPENSE S FROM THE BUSINESS INCOME. HE ACCORDINGLY DISALLOWED THE AMOUNT OF R S.82,49,728. 8. IN APPEAL THE CIT(A) HELD THAT THE FINANCIAL STATEM ENTS OF THE ASSESSEE DO NOT SHOW ANY INVESTMENT MADE BY THE ASS ESSEE DURING THE YEAR. RATHER THE ASSESSEE HAS AVAILED THE LOAN AND PAID TO THE CREDITORS AND THE AMOUNT HAS NOT BEEN UTILISED FOR ANY NON BU SINESS PURPOSES. HE OBSERVED THAT THE LIABILITY ON SUNDRY CREDITORS IS REDUCED IN COMPARISON TO THE PREVIOUS YEAR AND, THEREFORE, THE BORROWED F UNDS ARE UTILISED FOR PAYMENT OF SUNDRY CREDITORS. HE ACCORDINGLY ALLOWE D THE CLAIM OF THE ASSESSEE HOLDING THAT THE INTEREST PAYMENTS ARE ALL OWABLE U/S. 36(1)(III) I.T.A. NO. 7488/MUM/07 M/S. BOMBAY DIAMOND CO. LTD. ====================== 3 OF THE ACT. AGGRIEVED WITH SUCH ORDER OF THE CIT(A ), THE REVENUE IS IN APPEAL BEFORE US. 9. AFTER HEARING BOTH THE SIDES, WE FIND THE CIT(A) HA S GIVEN A FINDING THAT NO INVESTMENT HAS BEEN MADE DURING THE YEAR AN D THE BORROWED FUNDS ARE UTILISED FOR MAKING PAYMENTS TO THE SUNDR Y CREDITORS. THE FACTUAL FINDINGS GIVEN BY THE CIT(A) COULD NOT BE C ONTROVERTED BY THE LEARNED DR. THEREFORE, WE FIND MERIT IN THE SUBMIS SION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSING OFFICER DISALLOWED THE INTEREST EXPENDITURE ONLY ON MERE PRESUMPTION WITHOUT BRINGI NG ANY MATERIAL OR EVIDENCE ON RECORD. IN ABSENCE OF ANY MATERIAL BRO UGHT BEFORE US TO CONTROVERT THE FACTUAL FINDINGS GIVEN BY THE LEARNE D CIT(A) THAT NO FRESH INVESTMENT HAS BEEN MADE DURING THE YEAR, THEREFORE , THIS GROUND BY THE REVENUE BEING DEVOID OF MERIT IS DISMISSED. 10. GROUNDS OF APPEAL NO. 3 BY THE REVENUE READS AS UND ER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.10,38,13,765/- BEING THE SURPLUS FROM THE SALE O F RIGHTS IN THE PREMISES MADE BY THE AO TO THE BOOK PROFIT U/S. 115JB. 11. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE HAS MADE INVESTMENT IN THE RIGHTS IN BOOKED PREMISES AT BHAR AT DIAMOND BOURSE IN THE PRECEDING YEARS. THE SAID RIGHTS WERE SOLD DUR ING THE YEAR AND THE ASSESSEE EARNED A PROFIT OF RS.10,38,13,765 WHICH WAS TAKEN DIRECTLY TO THE BALANCE SHEET AS CAPITAL RESERVE WITHOUT ROUT ING THE SAME THROUGH THE PROFIT AND LOSS A/C. THE ASSESSEE DID NOT CONS IDER THE ABOVE AMOUNT AS A PART OF BOOK PROFIT U/S. 115JB OF THE ACT. ON BEING QUESTIONED BY THE ASSESSING OFFICER IT WAS SUBMITTED THAT SINCE THE R IGHTS IN BOOKED PREMISES WERE HELD AS CAPITAL ASSET, THE PROFIT ARI SING FROM THE SALE THEREOF WAS NOT CREDITED TO THE PROFIT AND LOSS A/C . IT WAS SUBMITTED THAT THE SURPLUS OF RS.10,38,13,765 ARISING ON THE SALE OF THE RIGHTS IN THE BOOKED PREMISES DID NOT CONSTITUTE TRADING PROFIT. IT WAS FURTHER SUBMITTED THAT THE ACCOUNTS OF THE ASSESSEE COMPANY WERE DULY CERTIFIED BY THE AUDITORS AND THE SAME HAS BEEN ADOPTED IN TH E AGM. THE SAID I.T.A. NO. 7488/MUM/07 M/S. BOMBAY DIAMOND CO. LTD. ====================== 4 AUDITED ACCOUNTS WERE FILED WITH ROC. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F APOLLO TYRES LTD. VS. CIT REPORTED IN 265 ITR 273 AND THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF KINETIC MOTOR CO. LTD. VS. DCI T REPORTED IN 262 ITR 340 AND IT WAS ARGUED THAT NO ADJUSTMENT CAN BE MAD E TO THE BOOK PROFIT OF THE ASSESSEE U/S. 115JB OF THE ACT ON ACCOUNT OF THIS PROFIT. 12. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCED WI TH THE ABOVE SUBMISSIONS OF THE ASSESSEE. REFERRING TO THE PROV ISIONS OF COMPANIES ACT, HE OBSERVED THAT EVERY COMPANY HAS TO PREPARE ITS ACCOUNTS IN THE MANNER PROVIDED IN PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT. HE EXTRACTED PART II AND PART III OF THE SCHE DULE VI TO THE COMPANIES ACT RELATING TO REQUIREMENT AS TO PROFIT AND LOSS A /C. IN THE ASSESSMENT ORDER AND OBSERVED THAT THE ASSESSEE COMPANY HAS CL EARLY VIOLATED THE PROVISIONS OF SUB-CLAUSE (XI)(A) OF CLAUSE (3) OF P ART II OF THE SCHEDULE VI. HE FURTHER HELD THAT THE ASSESSEE COMPANY HAD NOT P REPARED ITS PROFIT AND LOSS A/C. IN ACCORDANCE WITH THE PROVISIONS OF PART II AND PART II OF SCHEDULE VI TO THE COMPANIES ACT. HE ACCORDINGLY R ECOMPUTED THE BOOK PROFIT FOR THE PURPOSE OF SECTION115JB OF THE ACT A ND COMPUTED THE BOOK PROFIT AT RS.7,61,36,607/-. 13. IN APPEAL, THE CIT(A) FOLLOWING THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. (SUPRA), KIN ETIC MOTOR CO. LTD. (SUPRA) AND THE DECISION OF THE TRIBUNAL IN THE CAS E OF ORSON TRADING PVT. LTD. REPORTED IN 2 SOT 503 (MUM) HELD THAT THE ASSE SSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEYOND THE NET PROFIT S HOWN IN THE PROFIT AND LOSS A/C. EXCEPT TO THE EXTENT PROVIDED IN EXPLANAT ION TO SECTION 115JB OF THE ACT. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 14. THE LEARNED DR REFERRING TO THE PROVISIONS OF PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT SUBMITTED THAT THE PROFIT AMOUNTING TO RS.10,38,13,765 IS A MATERIAL AMOUNT WHICH HAS NOT BEEN ROUTED THROUGH I.T.A. NO. 7488/MUM/07 M/S. BOMBAY DIAMOND CO. LTD. ====================== 5 THE PROFIT AND LOSS A/C. RELYING ON THE DECISION O F THE HONBLE BOMBAY HIGH COURT IN THE CASE OF VEEKAY LAL INVESTMENT CO. PVT. LTD. REPORTED IN 249 ITR 597 HE SUBMITTED THAT THE DECISION OF THE J URISDICTIONAL HIGH COURT IS SQUARELY APPLICABLE TO THE FACTS OF THE PR ESENT CASE AND HAS NOT BEEN OVERRULED BY THE HONBLE SUPREME COURT. REFER RING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. (SUPRA) HE SUBMITTED THAT THE HONBLE SUPREME COURT HAS DECIDE D THE ISSUE IN FAVOUR OF THE ASSESSEE IN A CASE WHERE THE ACCOUNTS WERE P REPARED AS PER PART II AND PART III TO SCHEDULE VI OF THE COMPANIES ACT WH EREAS IN THE INSTANT CASE, ADMITTEDLY, THE ACCOUNTS ARE NOT PREPARED AS PER THE PROVISIONS OF COMPANIES ACT. SIMPLY BECAUSE THE AUDITORS HAVE CE RTIFIED THE PROFIT AND LOSS A/C. IN VIOLATION OF THE PROVISIONS OF COMPANI ES ACT IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAS NO JURISDICTION TO G O BEYOND THE AUDITED ACCOUNTS ADOPTED IN THE AGM. HE FURTHER SUBMITTED THAT THE COMPANY APOLLO TYRES LTD. WAS A WIDELY HELD PUBLIC LIMITED COMPANY WHEREAS THE ASSESSEE IN THE INSTANT CASE IS A CLOSELY HELD COMP ANY. HE FURTHER SUBMITTED THAT THE VARIOUS DECISIONS RELIED ON BY T HE LEARNED COUNSEL FOR THE ASSESSEE WERE RENDERED IN THE CONTEXT OF THE PR OVISIONS OF SECTION 115J OR 115JA WHEREAS THE SECTION INVOLVED IN THE A PPEAL RELATES TO PROVISIONS U/S. 115JB. 15. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE ASSESSING O FFICER AND THE CIT(A) AND SUBMITTED THAT THE ASSESSEE COMPANY HAS CORRECTLY CREDITED THE ABOVE AMOUNT TO THE BALANCE SHEET INSTEAD OF PR OFIT AND LOSS A/C. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR HAS EARNED GROSS PR OFIT OF RS.10,38,13,765 ON ACCOUNT OF SALE OF ITS RIGHTS I N AN IMMOVABLE PROPERTY. THERE IS ALSO NO DISPUTE TO THE FACT THAT THIS INCO ME HAS NOT BEEN PASSED I.T.A. NO. 7488/MUM/07 M/S. BOMBAY DIAMOND CO. LTD. ====================== 6 THROUGH THE PROFIT AND LOSS A/C. BUT HAS DIRECTLY B EEN TAKEN TO THE BALANCE SHEET AS CAPITAL RESERVE. ACCORDING TO THE ASSESSING OFFICER SINCE THE ASSESSEE HAS NOT PREPARED ITS ACCOUNTS IN THE M ANNER PROVIDED IN PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT , THEREFORE, THE AMOUNT OF RS.10,38,13,765 HAVING NOT ROUTED THROUGH THE PR OFIT AND LOSS A/C. HAS TO BE ADDED TO THE BOOK PROFIT FOR THE PURPOSE OF P ROVISIONS OF SECTION 115JB. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF APOLLO TYRES LTD. (SUPRA), THE DECISION OF THE HONBLE BOMBAY HI GH COURT IN THE CASE OF KINETIC MOTOR CO. LTD. (SUPRA) AND THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ORSON TRADING PVT. LTD. (SUPRA) THE ASSESSING OFFICER HAS NO POWER TO GO BEYOND THE ACCOUNTS ADOP TED IN THE AGM. 17. WE FIND PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT READ AS UNDER: PART II REQUIREMENTS AS TO PROFIT AND LOSS ACCOUNT 1. THE PROVISIONS OF THIS PART SHALL APPLY TO THE I NCOME AND EXPENDITURE ACCOUNT REFERRED TO IN SUB-SECTION (2) OF SECTION 210 OF THE ACT, IN LIKE MANNER AS THEY APPLY TO A PROFIT A ND LOSS ACCOUNT, BUT SUBJECT TO THE MODIFICATION OF REFERENCES AS SPECIF IED IN THAT SUB- SECTION. 2. THE PROFIT AND LOSS ACCOUNT (A) SHALL BE SO MADE OUT AS CLEARLY TO DISCLOSE TH E RESULT OF THE WORKING OF THE COMPANY DURING THE PERIOD COVERED BY THE ACCOUNT; AND (B) SHALL DISCLOSE EVERY MATERIAL FEATURE, INCLUDI NG CREDITS OR RECEIPTS AND DEBITS OR EXPENSES IN RESPECT OF NON-R ECURRING TRANSACTIONS OR TRANSACTIONS OF AN EXCEPTIONAL NATU RE. 3. THE PROFIT AND LOSS ACCOUNT SHALL SET OUT THE VA RIOUS ITEMS RELATING TO THE INCOME AND EXPENDITURE OF THE COMPANY ARRANG ED UNDER THE MOST CONVENIENT HEADS ; AND IN PARTICULAR, SHALL DI SCLOSE THE FOLLOWING INFORMATION IN RESPECT OF THE PERIOD COVE RED BY THE ACCOUNT: (I) . (II) . I.T.A. NO. 7488/MUM/07 M/S. BOMBAY DIAMOND CO. LTD. ====================== 7 (XI) (A) THE AMOUNT OF INCOME FROM INVESTMENTS, D ISTINGUISH- ING BETWEEN TRADE INVESTMENTS AND OTHER INVESTMENTS . (B) OTHER INCOME BY WAY OF INTEREST, SPECIFYING TH E NATURE OF THE INCOME. (C) THE AMOUNT OF INCOME-TAX DEDUCTED IF THE GROSS INCOME IS STATED UNDER SUB-PARAGRAPHS (A) AND (B) ABOVE. (XII) (A) PROFITS OR LOSSES ON INVESTMENTS SHOWING DISTINCTLY THE EXTENT OF THE PROFITS OR LOSSES EARNED OR INCUR RED ON ACCOUNT 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 ALSO BE GIVEN IN THE BALANCE SHEET UNDER THE RELEVANT PROVISION OR RESER VE ACCOUNT. (B) PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS O F A KIND, NOT USUALLY UNDERTAKEN BY THE COMPANY OR UNDERTAKEN IN CIRCUMSTANCES OF AN EXCEPTIONAL OR NON-RECURRING NATURE, IF MATER IAL IN AMOUNT. (C) MISCELLANEOUS INCOME. (XIII) (A) . (B) . (XIV) . (XV) . 18. FROM A BARE READING OF THE ABOVE IT IS CLEAR THAT T HE PROFIT AND LOSS A/C. OF A COMPANY SHALL DISCLOSE EVERY MATERIAL FEA TURE INCLUDING CREDITS OR RECEIPTS AND DEBITS OR EXPENSES IN RESPECT OF NO N-RECURRING TRANSACTIONS OR TRANSACTIONS OF EXCEPTIONAL NATURE ALSO. FURTHER THE COMPANY IS ALSO REQUIRED TO SET OUT THE VARIOUS ITE MS RELATING TO THE INCOME AND EXPENDITURE OF THE COMPANY ARRANGED UNDE R MOST CONVENIENT HEADS AND DISCLOSING PROFIT OR LOSS IN RESPECT OF T RANSACTIONS OF A KIND NOT USUALLY UNDERTAKEN BY THE COMPANY OR UNDERTAKEN IN CIRCUMSTANCES OF EXCEPTIONAL OR NON-RECURRING NATURE IF MATERIAL IN AMOUNT. 19. HOWEVER, IN THE INSTANT CASE WE FIND ALTHOUGH THE A SSESSEE HAS EARNED A PROFIT OF RS.10,38,13,765 FROM THE SALE OF RIGHTS IN AN IMMOVABLE PROPERTY THE SAME HAS NOT BEEN ROUTED THROUGH THE P ROFIT AND LOSS A/C. AND HAS DIRECTLY BEEN CREDITED TO THE BALANCE SHEET . THEREFORE, IN OUR OPINION, THE ACCOUNTS ARE NOT PREPARED IN ACCORDANC E WITH THE MANNER PROVIDED IN PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT. 20. THE VARIOUS DECISIONS RELIED ON BY THE LEARNED COUN SEL FOR THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE PRE SENT CASE. IN THE CASE OF I.T.A. NO. 7488/MUM/07 M/S. BOMBAY DIAMOND CO. LTD. ====================== 8 APOLLO TYRES LTD. (SUPRA) THE QUESTION NO. I BEFORE THE HONBLE SUPREME COURT WAS AS UNDER: (I) CAN AN ASSESSING OFFICER WHILE ASSESSING A COM PANY FOR INCOME-TAX UNDER SECTION 115J OF THE INCOME-TAX ACT QUESTION THE CORRECTNESS OF THE PROFIT AND LOSS ACC OUNT PREPARED BY THE ASSESSEE COMPANY AND CERTIFIED BY T HE STATUTORY AUDITORS OF THE COMPANY AS HAVING BEEN PR EPARED IN ACCORDANCE WITH THE REQUIREMENTS OF PARTS II AND II I OF SCHEDULE VI TO THE COMPANIES ACT? 21. FROM THE ABOVE IT IS CLEAR THAT THE ISSUE BEFORE TH E HONBLE SUPREME COURT WAS UNDER THE PROVISIONS OF SECTION 1 15J AND WHEN THE ACCOUNTS OF THE COMPANY ARE PREPARED IN ACCORDANCE WITH THE REQUIREMENTS OF PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT. HOWEVER, IN THE INSTANT CASE THE ISSUE IS RELATING TO THE PROVISIONS OF SECTION 115JB AND THE ACCOUNTS ARE NOT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART II AND PART III OF SCHEDULE VI T O THE COMPANIES ACT. MERELY BECAUSE THE AUDITORS HAVE CERTIFIED THE ACCO UNTS WHICH APPARENTLY ARE NOT PREPARED IN ACCORDANCE WITH PART II AND PAR T III OF SCHEDULE VI TO THE COMPANIES ACT, THEREFORE, THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD., IN OUR OPINION IS NO T APPLICABLE TO THE FACTS OF THE PRESENT CASE. 22. SIMILARLY IN THE CASE OF KINETIC MOTOR CO. LTD. (SU PRA) THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.6,32,65,430 ON ACCOUNT OF DEPRECIATION ON THE BASIS OF WDV WHICH IS ONE OF THE PERMISSIBLE ME THODS UNDER THE COMPANIES ACT ALTHOUGH THE ASSESSEE USED TO PROVIDE THE DEPRECIATION ON THE STRAIGHT LINE METHOD IN ITS CORPORATE ACCOUNTS. THE ABOVE RESULTED IN A BOOK LOSS OF RS.1,64,49,937. THESE ACCOUNTS WERE CE RTIFIED TO BE TRUE AND FAIR BY THE AUDITORS. THE ASSESSING OFFICER TOOK T HE VIEW THAT THERE WAS NO JUSTIFICATION FOR THE ASSESSEE TO CHANGE THE BASIS OF PROVIDING DEPRECIATION AND REWORKED THE DEPRECIATION AND ARRIVED AT A BOOK PROFIT OF RS.2,22,10,525 AS AGAINST THE BOOK LOSS OF RS.1,64, 49,937 WHICH WAS CONFIRMED BY THE TRIBUNAL. ON FURTHER APPEAL TO TH E HIGH COURT, THE HONBLE HIGH COURT HAD HELD THAT UNDER THE COMPANIE S ACT BOTH STRAIGHT I.T.A. NO. 7488/MUM/07 M/S. BOMBAY DIAMOND CO. LTD. ====================== 9 LINE METHOD AND WRITTEN DOWN METHOD ARE RECOGNISED, THEREFORE, ONCE THE AMOUNT OF DEPRECIATION ACTUALLY DEBITED TO THE PROF IT AND LOSS A/C. AND WAS CERTIFIED BY THE AUDITORS IT WAS NOT PERMISSIBL E FOR THE ASSESSING OFFICER TO MAKE BOOK ADJUSTMENTS. 23. THUS FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE H AS DEBITED THE DEPRECIATION IN THE PROFIT AND LOSS A/C. AS PER ONE OF THE RECOGNISED METHODS. FURTHER THE ISSUE BEFORE THE HONBLE HIGH COURT WAS UNDER THE PROVISIONS OF SECTION 115J OF THE ACT. HOWEVER, I N THE INSTANT CASE THE ASSESSEE HAS BYPASSED THE PROVISIONS OF PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT AND DIRECTLY CREDITED THE PROF IT TO THE RESERVE ACCOUNT. THEREFORE, THE DECISION OF THE JURISDICTI ONAL HIGH COURT IS ALSO NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. S IMILARLY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F ORSON TRADING PVT. LTD. IS ALSO DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE IT RELATES TO THE PROVISIONS OF SECTION 115JA AND IT HAS NOT BEEN HELD THAT EVEN IF THE ACCOUNTS ARE NOT PREPARED IN THE MANNER PRESCRIBED AS PER PART II AND PART III OF SCHEDULE VI OF THE C OMPANIES ACT, 1956, THE ASSESSING OFFICER HAS NO POWER TO DISTURB THE BOOK PROFIT DECLARED BY THE ASSESSEE. 24. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LEARNE D CIT(A) IN HIS ORDER ARE ALSO NOT APPLICABLE. IN NONE OF THE CASE IT HAS BEEN HELD THAT EVEN WHERE THE ACCOUNTS ARE NOT PREPARED IN THE MAN NER PROVIDED AS PER PART II AND PART III OF SCHEDULE VI TO THE COMPANIE S ACT, 1956 THE ASSESSING OFFICER HAS NO POWER TO GO BEYOND THE BOO K PROFIT AS PER THE AUDITED ACCOUNTS. IN OUR OPINION, THE ASSESSING OF FICER CANNOT GO BEYOND THE BOOK PROFITS AS PER THE AUDITED ACCOUNTS PROVID ED THEY ARE PREPARED AS PER THE MANNER PROVIDED IN PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 AND ARE ADOPTED IN THE AGM. HO WEVER, IN THE INSTANT CASE, ADMITTEDLY THE ACCOUNTS ARE NOT PREPARED IN T HE MANNER PROVIDED IN PART II AND PART III OF SCHEDULE VI TO THE COMPANIE S ACT, 1956 SINCE THE PROFIT ON SALE OF INVESTMENTS AMOUNTING TO RS.10,38 ,13,765/- WHICH IS A I.T.A. NO. 7488/MUM/07 M/S. BOMBAY DIAMOND CO. LTD. ====================== 10 MATERIAL AMOUNT, HAS NOT BEEN ROUTED THROUGH THE PR OFIT AND LOSS A/C. THEREFORE, THE ASSESSING OFFICER, IN OUR OPINION HA S THE POWER TO RE-WORK THE BOOK PROFIT BY RECASTING THE ACCOUNTS IN THE MA NNER PROVIDED AS PER PART II AND PART III OF SCHEDULE VI TO THE COMPANIE S ACT, 1956. IN THIS VIEW OF THE MATTER, THE ORDER OF THE CIT(A) ON THIS ISSU E IS SET ASIDE AND THAT OF THE ASSESSING OFFICER IS RESTORED. 25. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED. ORDER PRONOUNCED ON 30 TH NOVEMBER, 2009. SD/- (D.K. AGARWAL) JUDICIAL MEMBER SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 30 TH NOVEMBER, 2009 COPY TO: (1) THE APPELLANT, (2) THE RESPONDENT, (3) THE CIT (A)-XXVII, MUMBAI, (4) THE CIT, CITY-3, MUMBAI, (5) THE DR, B BENCH, ITAT, MUMBAI. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI TPRAO