AO has to levy tax only on book profit as per Balance Sheet

AHMEDABAD. ITAT vide a significant ruling AIT-2008-52-ITAT has ruled that Assessing Officer has to levy the tax only on the book profit as per the Balance Sheet, which is not found to be incorrect by any of the authorities under the Companies Act.

The original assessment in this case was made determining the book profit u/s 115JA at Rs. 7,44,47,214/-The AO thereafter observed from the records that while computing the said book profit, following two mistakes have been crept:

(i) Provision made for obsolescence loss of Rs.51,92,565/- is not added back; and

(ii)  Reduction due to change in method of inventory of Rs.98,09,000/-is not added back.

AO concluded that to arrive at the book profit, the net profit is to be increased by the amount carried to any reserve, by whatever name called or the amount set-aside to the provisions made for meeting liabilities, other than ascertained liabilities. According to him, these two amounts were to be increased as per the Explanation to section 115JA of the Act. He, therefore, added the same by invoking the provisions of section 154 of the Act.

ITAT held that any provision made by the assessee for diminution in value of assets could not be increased, which is though a provision under the Companies Act, is not covered under clause (c) of the Explanation to Sec.115JA of the Act. In our opinion, therefore the provision made for obsolescence loss for plant and machinery can not be increased to arrive at the book profit provided u/s 115JA of the Act. The Revenue authorities were not justified in adding the same.

The Tribunal ruled that the Assessing Officer does not have the jurisdiction to go beyond the net profit as per Profit & Loss account except as provided in Explanation to Sec.115JA of the Act, these two items are not covered by the exception provided under the definition of book profit u/s.115JA. The Assessing Officer has to levy the tax only on the book profit as per the Balance Sheet, which is not found to be incorrect by any of the authorities under the Companies Act.

(Source: Allindiantaxes)

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