I have always understood that under Apollo Tyres the Assessing Officer cannot touch audited accounts. He says s.115JB is wider than s.115J and that our profit and loss account was not drawn in accordance with our own stated revenue recognition policy. Is there anything in that?
There is, but note at once how the point comes down: the High Court dismissed the Revenue's appeal holding that no substantial question of law arose, so the proposition below is the reasoning of the CIT(A), confirmed by the Tribunal and left undisturbed, and not the High Court's own. The Apollo Tyres bar is not absolute under s.115JB: the net profit can be altered where the profit and loss account was not drawn up in accordance with Parts II and III of Schedule VI to the Companies Act, and where the accounting policies and accounting standards were not correctly adopted for the accounts laid before the annual general meeting. On these facts the amount actually recovered had to be recognised as revenue under the company's own stated policy, and Rs.16.01 crores was rightly added to book profit — but the balance of Rs.78.1 crores, not being recovered, was not.
Decided by the High Court (Biren Vaishnav J and Bhargav D. Karia J (High Court of Gujarat at Ahmedabad)) on 2023-10-03, reported as R/Tax Appeal No.202 of 2023 (C/TAXAP/202/2023), oral order dated 3 October 2023; appeal against ITAT Ahmedabad order dated 26 May 2022 in ITA No.1770/AHD/2012 for AY 2004-05. It bears on section 115JB, section 115J, section 143(3), section 199, section 260A of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Evidence & Burden of Proof matters.
This is the side of the s.115JB line the library was not carrying. Most of the reported law explains why the Assessing Officer cannot go behind the accounts; this shows when he can, and it matters because s.115JB(2) goes further than the old s.115J did — its provisos require that the accounting policies, the accounting standards and the method and rates of depreciation adopted for the s.115JB accounts be the same as those adopted for the accounts laid before the annual general meeting, and the Registrar of Companies is not concerned with that comparison. The trap here is a familiar one: a company states a conservative revenue recognition policy in its significant accounting policies, then does not follow it in a year when following it would raise book profit. That is the fact that opened the door, not any general power of review. Note the balance in the outcome — the same reasoning that let in Rs.16.01 crores kept out the remaining Rs.62 crores, because the unrecovered amount should not have been recognised under the same policy. Read it as a two-way rule.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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For AY 2004-05 the assessee returned nil total income after setting off brought-forward loss and declared income of Rs.74,37,02,287 under s.115JB, later filing a revised return on 31 March 2006 claiming a refund. The Gujarat Electricity Board, later GUVNL, had created a provision for interest on delayed payment charges of Rs.78.1 crores in the assessee's favour on 31 March 2004 and deducted tax of Rs.16.01 crores at source. On learning of this in June 2004 the assessee included the Rs.16.01 crores in its income under the normal provisions but did not include it in book profit under s.115JB. Having received only proportionate TDS credit on processing under s.143(1), it revised its return to include the whole Rs.78.1 crores under the normal provisions, but again excluded both the Rs.78.1 crores and the Rs.16.01 crores from book profit, relying on Apollo Tyres and on the position that its accounts had been prepared in accordance with Parts II and III of Schedule VI. The company's significant accounting policies in Schedule 21 of its annual report for 2003-04 stated that delayed payment charges under power purchase agreements were, on grounds of prudence, to be recognised as revenue as and when recovered; the annual general meeting was held on 25 September 2004. The Assessing Officer, by order dated 29 December 2006 under s.143(3), made a number of additions and recomputed book profit at Rs.194,52,07,490. The CIT(A) held that only Rs.16.01 crores should have been included in book profit and in income under the normal provisions and deleted the balance, and directed proportionate TDS credit across AY 2004-05, 2006-07 and 2007-08 under s.199. The Tribunal confirmed, and the Revenue appealed on six questions.
The Revenue's appeal was dismissed with no order as to costs; on questions 3 to 6, including the s.115JB question, the Tribunal had followed decisions of the Supreme Court and of the High Court and its own earlier order, and considering the findings of fact arrived at by the Tribunal no question of law, much less a substantial question of law, arose (paragraph 5). The finding left undisturbed is that of the Rs.78.1 crores of delayed payment charges only the recovered Rs.16.01 crores was includible in book profit under s.115JB and in income under the normal provisions for AY 2004-05, the balance being neither recovered nor recognisable under the assessee's own accounting policy.
The operative reasoning on the s.115JB question is contained in the CIT(A)'s order reproduced at paragraph 3.8 of the judgment and confirmed by the Tribunal. Apollo Tyres was decided in the context of s.115J and not s.115JB. Comparing the two provisions, the requirement under s.115J was limited to accounts prepared in accordance with Parts II and III of Schedule VI, whereas s.115JB enlarges that requirement: by its first proviso the accounting policies, accounting standards and other matters adopted for preparing the accounts must be the same as those adopted for the accounts laid before the company in its annual general meeting, and by its second proviso the same must hold where the company's financial year differs from the previous year. The Registrar of Companies is not concerned with that comparison, being concerned at most with whether the accounts laid before the annual general meeting comply with Parts II and III of Schedule VI, so in view of the enlarged requirements the Assessing Officer has power to go behind the accounts and see whether they have been prepared in accordance with Parts II and III of Schedule VI — the reasoning of the Mumbai Tribunal in Sumer Builders Pvt Ltd. The Hyderabad Special Bench in Rain Commodities Ltd held that the Assessing Officer may alter net profit for the purposes of s.115JB in two situations: where the profit and loss account was not drawn up in accordance with Parts II and III of Schedule VI, and where the accounting policies and accounting standards were incorrectly adopted for preparing the profit and loss account laid before the annual general meeting. Applying that, the assessee's own significant accounting policy required delayed payment charges to be recognised as revenue when recovered; Rs.16.01 crores was undisputedly recovered before 31 March 2004 and should have been recognised in FY 2003-04, and ample time was available before the annual general meeting of 25 September 2004 to modify the accounts, but the assessee did not do so. It was therefore justified to alter the net profit by adding Rs.16.01 crores to book profit, while the balance of the Rs.78.1 crores, not having been recovered, should not have been recognised as income for s.115JB or for the normal provisions. On the consequential TDS point, credit under s.199 as it then stood was to be allowed in the assessment year for which the income was assessable, so credit for the Rs.16.01 crores was directed to be spread proportionately over AY 2004-05, 2006-07 and 2007-08 subject to verification.
we are of the opinion that no question of law, much less, any substantial question of law arises from the impugned order of the Tribunal, the appeal is accordingly dismissed, with no orders as to cost.
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Handle my notice → Ask a CA on WhatsAppThere is, but note at once how the point comes down: the High Court dismissed the Revenue's appeal holding that no substantial question of law arose, so the proposition below is the reasoning of the CIT(A), confirmed by the Tribunal and left undisturbed, and not the High Court's own. The Apollo Tyres bar is not absolute under s.115JB: the net profit can be altered where the profit and loss account was not drawn up in accordance with Parts II and III of Schedule VI to the Companies Act, and where the accounting policies and accounting standards were not correctly adopted for the accounts laid before the annual general meeting. On these facts the amount actually recovered had to be recognised as revenue under the company's own stated policy, and Rs.16.01 crores was rightly added to book profit — but the balance of Rs.78.1 crores, not being recovered, was not. This was decided by the High Court (Biren Vaishnav J and Bhargav D. Karia J (High Court of Gujarat at Ahmedabad)) and bears on section 115JB, section 115J, section 143(3), section 199, section 260A of the Income Tax Act 1961. It is reported as R/Tax Appeal No.202 of 2023 (C/TAXAP/202/2023), oral order dated 3 October 2023; appeal against ITAT Ahmedabad order dated 26 May 2022 in ITA No.1770/AHD/2012 for AY 2004-05. This is the side of the s.115JB line the library was not carrying. Most of the reported law explains why the Assessing Officer cannot go behind the accounts; this shows when he can, and it matters because s.115JB(2) goes further than the old s.115J did — its provisos require that the accounting policies, the accounting standards and the method and rates of depreciation adopted for the s.115JB accounts be the same as those adopted for the accounts laid before the annual general meeting, and the Registrar of Companies is not concerned with that comparison. The trap here is a familiar one: a company states a conservative revenue recognition policy in its significant accounting policies, then does not follow it in a year when following it would raise book profit. That is the fact that opened the door, not any general power of review. Note the balance in the outcome — the same reasoning that let in Rs.16.01 crores kept out the remaining Rs.62 crores, because the unrecovered amount should not have been recognised under the same policy. Read it as a two-way rule. If it applies to you, the first step is this: Read the company's own significant accounting policies note first, and check whether the profit and loss account for the year actually follows it — a departure is the opening the Department needs.
For AY 2004-05 the assessee returned nil total income after setting off brought-forward loss and declared income of Rs.74,37,02,287 under s.115JB, later filing a revised return on 31 March 2006 claiming a refund. The Gujarat Electricity Board, later GUVNL, had created a provision for interest on delayed payment charges of Rs.78.1 crores in the assessee's favour on 31 March 2004 and deducted tax of Rs.16.01 crores at source. On learning of this in June 2004 the assessee included the Rs.16.01 crores in its income under the normal provisions but did not include it in book profit under s.115JB. Having received only proportionate TDS credit on processing under s.143(1), it revised its return to include the whole Rs.78.1 crores under the normal provisions, but again excluded both the Rs.78.1 crores and the Rs.16.01 crores from book profit, relying on Apollo Tyres and on the position that its accounts had been prepared in accordance with Parts II and III of Schedule VI. The company's significant accounting policies in Schedule 21 of its annual report for 2003-04 stated that delayed payment charges under power purchase agreements were, on grounds of prudence, to be recognised as revenue as and when recovered; the annual general meeting was held on 25 September 2004. The Assessing Officer, by order dated 29 December 2006 under s.143(3), made a number of additions and recomputed book profit at Rs.194,52,07,490. The CIT(A) held that only Rs.16.01 crores should have been included in book profit and in income under the normal provisions and deleted the balance, and directed proportionate TDS credit across AY 2004-05, 2006-07 and 2007-08 under s.199. The Tribunal confirmed, and the Revenue appealed on six questions. The matter was decided on 2023-10-03 by the High Court (Biren Vaishnav J and Bhargav D. Karia J (High Court of Gujarat at Ahmedabad)). On those facts the High Court held as follows. The Revenue's appeal was dismissed with no order as to costs; on questions 3 to 6, including the s.115JB question, the Tribunal had followed decisions of the Supreme Court and of the High Court and its own earlier order, and considering the findings of fact arrived at by the Tribunal no question of law, much less a substantial question of law, arose (paragraph 5). The finding left undisturbed is that of the Rs.78.1 crores of delayed payment charges only the recovered Rs.16.01 crores was includible in book profit under s.115JB and in income under the normal provisions for AY 2004-05, the balance being neither recovered nor recognisable under the assessee's own accounting policy.
The operative reasoning on the s.115JB question is contained in the CIT(A)'s order reproduced at paragraph 3.8 of the judgment and confirmed by the Tribunal. Apollo Tyres was decided in the context of s.115J and not s.115JB. Comparing the two provisions, the requirement under s.115J was limited to accounts prepared in accordance with Parts II and III of Schedule VI, whereas s.115JB enlarges that requirement: by its first proviso the accounting policies, accounting standards and other matters adopted for preparing the accounts must be the same as those adopted for the accounts laid before the company in its annual general meeting, and by its second proviso the same must hold where the company's financial year differs from the previous year. The Registrar of Companies is not concerned with that comparison, being concerned at most with whether the accounts laid before the annual general meeting comply with Parts II and III of Schedule VI, so in view of the enlarged requirements the Assessing Officer has power to go behind the accounts and see whether they have been prepared in accordance with Parts II and III of Schedule VI — the reasoning of the Mumbai Tribunal in Sumer Builders Pvt Ltd. The Hyderabad Special Bench in Rain Commodities Ltd held that the Assessing Officer may alter net profit for the purposes of s.115JB in two situations: where the profit and loss account was not drawn up in accordance with Parts II and III of Schedule VI, and where the accounting policies and accounting standards were incorrectly adopted for preparing the profit and loss account laid before the annual general meeting. Applying that, the assessee's own significant accounting policy required delayed payment charges to be recognised as revenue when recovered; Rs.16.01 crores was undisputedly recovered before 31 March 2004 and should have been recognised in FY 2003-04, and ample time was available before the annual general meeting of 25 September 2004 to modify the accounts, but the assessee did not do so. It was therefore justified to alter the net profit by adding Rs.16.01 crores to book profit, while the balance of the Rs.78.1 crores, not having been recovered, should not have been recognised as income for s.115JB or for the normal provisions. On the consequential TDS point, credit under s.199 as it then stood was to be allowed in the assessment year for which the income was assessable, so credit for the Rs.16.01 crores was directed to be spread proportionately over AY 2004-05, 2006-07 and 2007-08 subject to verification. In the words reproduced by the source cited on this page: "we are of the opinion that no question of law, much less, any substantial question of law arises from the impugned order of the Tribunal, the appeal is accordingly dismissed, with no orders as to cost." The decision followed or applied Sumer Builders Pvt. Ltd. (2012) 19 taxmann.com 43 (Mumbai) — relied on in the CIT(A) order reproduced in the judgment, for the Assessing Officer's power to go behind the accounts under s.115JB; Rain Commodities Ltd. (2010) 131 TTJ 514 (Hyd) (Special Bench) — relied on in the same reproduced passage, for the two situations in which net profit may be altered; Apollo Tyres Ltd v CIT 255 ITR 273 (SC) — distinguished in the reproduced passage as decided in the context of s.115J and not s.115JB.
It was decided by the High Court on 2023-10-03 and is reported as R/Tax Appeal No.202 of 2023 (C/TAXAP/202/2023), oral order dated 3 October 2023; appeal against ITAT Ahmedabad order dated 26 May 2022 in ITA No.1770/AHD/2012 for AY 2004-05. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 115JB, section 115J, section 143(3), section 199, section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The Revenue's appeal was dismissed with no order as to costs; on questions 3 to 6, including the s.115JB question, the Tribunal had followed decisions of the Supreme Court and of the High Court and its own earlier order, and considering the findings of fact arrived at by the Tribunal no question of law, much less a substantial question of law, arose (paragraph 5). The finding left undisturbed is that of the Rs.78.1 crores of delayed payment charges only the recovered Rs.16.01 crores was includible in book profit under s.115JB and in income under the normal provisions for AY 2004-05, the balance being neither recovered nor recognisable under the assessee's own accounting policy. It arises in Assessment & Scrutiny, How Tax Law Is Read and Evidence & Burden of Proof matters, on section 115JB, section 115J, section 143(3), section 199, section 260A of the Income Tax Act 1961, and was decided by Biren Vaishnav J and Bhargav D. Karia J (High Court of Gujarat at Ahmedabad). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where a departure exists, work out whether it operates for or against you: the same principle that requires an under-recognised receipt to be added requires an over-recognised one to be excluded. Where you rely on Apollo Tyres, meet the argument that it was decided under s.115J: identify the provisos to s.115JB(2) and say why the accounts satisfy them, rather than resting on the Registrar's acceptance alone. Note the timing point that decided this case — the accounts had not yet been laid before the annual general meeting when the recovery became known, so the company had time to recognise the revenue and did not. If a receipt is spread across years, deal with the s.199 credit consequence at the same time; here TDS credit was directed to be given proportionately across the years in which the income was assessable.
Validity check could not be completed. Validity check could not be completed. No later treatment of this order was located and it is not known whether the Revenue sought special leave. The underlying propositions attributed to Sumer Builders Pvt Ltd (ITAT Mumbai) and Rain Commodities Ltd (ITAT Hyderabad, Special Bench) were not retrieved and read on this pass; they are known only from the CIT(A) passage reproduced in the judgment, and a reader relying on them should obtain those decisions separately. Note also that Parts II and III of Schedule VI to the Companies Act 1956 have since been replaced by Schedule III to the Companies Act 2013, to which s.115JB(2) now refers. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Handle the weight of this authority carefully. The High Court dismissed the Revenue's appeal on the footing that no substantial question of law arose from the Tribunal's order; the reasoning on the Assessing Officer's power to go behind the accounts is the CIT(A)'s, reproduced verbatim within the judgment at paragraph 3.8 and confirmed by the Tribunal, and the High Court did not restate it in its own words. Within that reproduced passage the CIT(A) himself quotes the Mumbai Tribunal in Sumer Builders and the Hyderabad Special Bench in Rain Commodities, so the proposition is at three removes from the High Court's own pen. No key_quote is offered for that reason. The figures in the report do not hold together at one point: paragraph 3.5 and question (iii) refer to CDR expenses of Rs.18,31,26,525 while paragraph 3.5 later says Rs.18,31,23,525; and the CIT(A) passage records the delayed payment charges as Rs.78.1 crores but at one point as "Rs.7.1 crores". The operative figure the reasoning turns on is Rs.16.01 crores added to book profit out of Rs.78.1 crores. The neutral citation field in the electronic report prints as "undefined". The judgment covers six questions; only question (iv) on s.115JB is summarised here. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was dismissed with no order as to costs; on questions 3 to 6, including the s.115JB question, the Tribunal had followed decisions of the Supreme Court and of the High Court and its own earlier order, and considering the findings of fact arrived at by the Tribunal no question of law, much less a substantial question of law, arose (paragraph 5). The finding left undisturbed is that of the Rs.78.1 crores of delayed payment charges only the recovered Rs.16.01 crores was includible in book profit under s.115JB and in income under the normal provisions for AY 2004-05, the balance being neither recovered nor recognisable under the assessee's own accounting policy.
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