High Court Of Punjab & Haryana
Sterling Steels & Wires Ltd. vs. DCIT
Section 115J(1A), Expln.
Asst. Year 1990-91
N.K. Sud & S.S. Grewal, JJ.
IT Appeal No. 259 of 2004
9th September, 2004
Counsel Appeared :
Y.K. Kapoor, for the Appellant : None, for the Respondent
JUDGMENT
N.K. Sud, J. :
The assessee has filed this appeal under s. 260A of the IT Act, 1961 (for short “the Act”), against the order of the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar (for short “the Tribunal”), dt. 30th Dec., 2003, pertaining to the asst. yr. 1990-91. The assessee had filed its return of income on 28th Dec., 1990. The book profits under s. 115J of the Act were computed at Rs. 66,98,857 and the income was declared at 30 per cent of the book profits at Rs. 20,09,658. During the course of assessment proceedings, the assessee was called upon to show as to why the amount of Rs. 2,54,09,727 transferred from the revaluation reserve be not added to the figure of net profit for the computation of book profits under s. 115J of the Act. The assessee explained that its factory building, plant and machinery were revalued in the year under consideration and the amount of enhancement in valuation was worked out at Rs. 8,97,35,695. Accordingly, a notional reserve to this extent was created to balance both sides of the balance sheet. Depreciation on the figure of enhancement was claimed at Rs. 2,54,09,727 which was included in the claim of total depreciation debited in the P&L a/c. An equal amount of Rs. 2,54,09,727 was transferred out of the reserve of Rs. 8,97,35,695 and credited to the P&L Appropriation a/c. It was, thus, claimed that the said amount could not be added to the net profit for computing the book profits as the said reserve represented merely notional income and not the real income. The AO, however, held that in view of the proviso to cl. (i) of the Explanation to s. 115J(1A) of the Act, the amount of Rs. 2,54,09,727 transferred from the revaluation reserve account was liable to be added while computing the book profits for the purpose of s. 115J of the Act.
The assessee preferred an appeal before the CIT(A), Bathinda, who vide his order dt. 19th Nov., 1996, accepted the claim of the assessee and held that since the revaluation reserve did not represent the real income, any amount transferred from such fictitious income could not form part of the book profits of the company. Against the order of the CIT(A), the Revenue filed an appeal before the Tribunal. The Tribunal has upheld the plea of the Revenue that in view of the clear provisions of the proviso to cl. (i) of the Explanation to s. 115J(1A) of the Act, the amount transferred from the revaluation reserve could not be reduced from the book profits as the book profits of the year under consideration had not been increased by the said reserve which had admittedly been created during the year itself. Mr. Y.K. Kapoor, the advocate, appearing on behalf of the appellant-assessee, contended that since the revaluation reserve created by the assessee did not represent the real income, it had to be excluded from the book profits. He further placed reliance on the judgment of the Supreme Court in Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC), to contend that the AO had no power to scrutinise the P&L a/c of the company prepared in accordance with Sch. VI to the Companies Act, 1956. There is no merit in the contention raised by counsel for the appellant. The issue involved in the present case is not as to whether the revaluation reserve represents real income or not. The issue is as to whether the amount transferred from the said reserve to the P&L Appropriation a/c is to be added to the net profit for the purpose of computation of book profits under s. 115J of the Act or not. For this purpose, the relevant provisions of the Explanation to s. 115J(1A) of the Act be first noticed, which read as under : “Explanation.—For the purposes of this section, ‘book profit’ means the net profit as shown in the P&L a/c for the relevant previous year prepared under sub-s. (1A), as increased by—…….. and as reduced by,— (i) the amount withdrawn from reserves (other than the reserves specified in s. 80HHD) or provisions, if any such amount is credited to the P&L a/c : Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1988, shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation, or”
7. The aforesaid proviso was inserted by the Finance Act, 1989, with retrospective effect from 1st April, 1988. As per cl. (i) above, the amount withdrawn from the reserve and credited to the P&L a/c is to be deducted from the net profit for the computation of book profit. However, the proviso makes it clear that the amount withdrawn from any reserve created during any previous year relevant to the assessment year commencing on or after 1st April, 1988, cannot be reduced from the book profits unless it is shown that the book profits of the year in which the said reserve (out of which the said amount was withdrawn) had been increased by those reserves. In the present case, the undisputed facts are that the reserve had been created in the previous year relevant to the asst. yr. 1990-91 which had commenced after 1st April, 1988. It is also not disputed that the book profits of the asst. yr. 1990-91 had not been increased by the said reserve. Thus, the withdrawal made by the assessee from the revaluation reserve was clearly hit by the proviso to cl. (i) of the Explanation to s. 115J of the Act. The Tribunal was, therefore, right in holding that the amount transferred from the revaluation reserve could not be deducted out of the net profit while computing the book profits for the purpose of s. 115J of the Act.
8. Reliance placed by counsel for the appellant on the judgment of the Supreme Court in the case of Apollo Tyres Ltd. (supra) is totally misplaced. In the said case, the apex Court has held that the AO has limited power of making increases and reductions as provided for in the Explanation to s. 115J(1A) of the Act. The AO does not have the jurisdiction to go behind the profits shown in the P&L a/c except to the extent provided for in the Explanation. In the present case, the AO has not doubted the correctness of any of the entries in the P&L a/c nor has attempted to go behind the net profit shown in the account. All that he has done is that he has made the adjustment in the net profit in accordance with cl. (i) of the Explanation to s. 115J(1A) of the Act. Such a power, even as per the Supreme Court, the AO has.
9. In view of the above, we are satisfied that the order of the Tribunal is clearly in accordance with the provisions of law and no cause for interference has been made out by this Court. The provisions of cl. (i) of the Explanation to s. 115J(1A) of the Act are totally unambiguous and have no scope for any other interpretation. Resultantly, the appeal being without any merit is dismissed in limine.
[Citation : 271 ITR 260]
