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SC says tax authorities bound to accept cos' audited accounts
October, 13th 2008

The income tax department is bound to accept the authenticity of the accounts certified by the auditor and maintained in accordance with the provisions of the Companies Act, the Supreme Court has ruled.
The assessing officer (AO) has only the power of examining whether the books of accounts are duly certified by the authorities under the Companies Act and whether such books have been properly maintained in accordance with the Companies Act, it held.

A bench headed by Justice S H Kapadia while ruling in favour of HCL Comnet Systems & Services said: "The AO has to accept the authenticity of the accounts maintained in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, which are certified by the auditors and pressed by the company in the general meeting." The AO has only the power of examining whether the books of accounts are duly certified by the authorities under the Companies Act and whether such books have been properly maintained in accordance with the Companies Act.

"The AO does not have the jurisdiction to go beyond the net profit shown in the profit and loss account" except to the extent whether the books of accounts were duly certified by the authorities and properly maintained, it said.

The ruling has come in an appeal filed by the department seeking the apex court's intervention in deciding whether its AO was justified in adding back the provision for doubtful debts of Rs 92.15 lakh to the net profit of HCL Comnet under clause (c) of the Explanation to Section 115 JA of the Income-tax Act, 1961.

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