INCOME TAX ACT, 1961

--MAT--Book profit under section 115JATreatment of amount/directly credited to capital reserved account in the balance sheet--Amount Rs. 1 crore received against good will and Rs. 5,00 crore toward non-compete agreement were credited directly to capital reserved account in balance sheet and nor credited to Profit and Loss Account. the assessing officer included the same to compute MAT liability. Held: assessing officer has to rely upon the Profit and Loss and balance sheet prepared according to Schedule VI of companies Act, 1956 in view of section 115JA(2). Thus, book profit has to be worked out as per Profit and Loss Account prepared only in accordance with section 115JA(2).

Sub-section (2) of section 115JA provides that for the purpose of section 115JA, the company shall prepare its P&L a/c for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956. Thus, the book profit has to be worked out as per the P&L a/c prepared in accordance with the provisions of sub-section (2) of section 115JA only and the assessing officer has to rely upon the statement of accounts of the company prepared in that manner only. The limited scope of the assessing officer is to examine as to whether the books of account have been certified by the authority under Companies Act having been properly maintained in accordance with the said Act. His scope is limited only for making increases and reductions as provided in the Explanation to the said section. [Para 19] In the present case, the assessing officer has heavily relied upon clause (b) of Explanation to section 115JA which provides that the amount carried to any reserve by whatever name called should be increased in the book profit. He has also referred to various dictionary meanings for the word 'P&L a/c'. The Explanation is very clear that the book profit means the net profit as shown in the P&L a/c which has been prepared in accordance with Parts II and III of Sch. VI to the Companies Act, 1956, and such net profit has to be increased and reduced in view of the provisions given in the explanation. Thus, the Explanation presupposes that the amount received should be debited to the P&L a/c and if the same has riot been debited and has been directly taken to the capital reserve account in the balance sheet, the same cannot be tinkered with so as to include it In the P&L a/c. Otherwise, it will enhance the scope of the assessing officer to rework the net profit arrived at by the company which has been certified by the prescribed authority and duly approved by the company in its general meeting and which has been filed before the RoC who has a satisfactory obligation to examine and satisfy that the accounts have been maintained in accordance with the requirement of Companies Act, 1956. Thus, in view of the ratio and the law laid down by the Hon'ble Supreme Court, we do not find any reason to deviate from the findings given by the Commissioner (Appeals) and, accordingly, the grounds taken by the Revenue stand dismissed. [Para 21]