Account Statement Must For Section 115-J

The Supreme Court has ruled that an assessing officer, while examining the accounts of a company under Section 115-J of the Income Tax Act, cannot question the correctness of the profit and loss account prepared by the company and certified by its auditors as having been prepared in accordance with the provisions of the Companies Act. The provision does not empower the officer to start a fresh inquiry into the entries made in the books of account of the company.

The judgment delivered by a Bench comprising Chief Justice S P Bharucha, Justice Santosh Hegde and Justice D M Dharma-dhikari thus allowed the appeal of Apollo Tyres against the ruling of the Kerala High Court.

The company, while determining its net profit, had provided for arrears of depreciation in its profit and loss account, which according to the authorities was not in accordance with Schedule VI of the Companies Act.

Therefore, the officer recomputed the profit and loss account so as to exclude the provisions made for arrears of depreciation.

The company challenged the action of the officer before the Income-Tax Appellate Tribunal. It held that the assessing officer had no authority to reopen the accounts of a company which was certified by the auditors of the company as having been maintained according to the provisions of the Companies Act. The accounts have also been accepted by the general meeting and the registrar of the company.

The High Court, however, did not accept this stand. It held that the assessing officer had the authority to examine whether the accounts of the company have been maintained in accordance with the requirement of Section 115-J. If the officer finds that the accounts were not in accordance with the provisions of the Companies Act, he could make the necessary changes before proceeding to assess the company.

Section 115-J was introduced in the Income-Tax Act because some companies were adjusting their accounts in a manner as to attract no tax or very little tax. The provision brought in a deeming provision which made the company liable to pay tax on at least 30 per cent of its book profits as shown in its account. For this purpose, Section 115-J made the income reflected in the company