Brief of the case:
- The Assessing Officer does not have the power to tinker with such accounts prepared as per Schedule VI and certified by the Auditors except for the adjustments permissible by Explanation to Sec 115JB to arrive at book profits.
- Thus, AO cannot dispute the routing of principal amount waiver through General Reserve as the same has been accepted by the auditor.
Facts of the case:
- The case of the assessee was reopened u/s 147 to add the waiver of principal amount of loan Rs. 3,52,78,700/- to book profits which were directly credited to ‘General Reserves’.
- The loan so waived off was taken from Vijaya Bank for the purpose of meeting long term capital requirements and to be utilized for business expansion.
- The CIT (Appeals) decided the case in favour of assessee by holding that once the profit and loss account has been prepared under Part-I & Part-II of Schedule-VI of the Companies Act; duly certified by the Auditors; placed before the shareholders and adopted/approved by the AGM, then the Assessing Officer cannot make any adjustments to the company’s book profit except to the extent provided in Explanation 1.
Contention of Revenue:
- The assessee should have credited the waiver of loan liability in the profit and loss account and Accordingly because for the computation of accounting liability cessation of every type of liability is accounting profit.
- The credit made to General Reserve was only to avoid tax on book profits.
Contention of Assessee:
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