HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Indo Rama Synthetics (India) Limited v. Commissioner of Income Tax, New Delhi
Civil Appeal No. 33 of 2011
[2011] 1 SCR 853 ·
Income-tax Act, 1961: section 115JB(2), Explanation clause (i) and proviso, as applicable to AY 2001-02 · Companies Act, 1956: sections 210 and 211; Schedule VI · Accounting Standards 6 and 10
Holding and result. The withdrawal could not reduce book profit. The reserve had not increased book profit when created, and the later entry was a contra adjustment rather than an effective credit affecting net profit. The proviso to clause (i) therefore barred the reduction, and the assessee's appeal was dismissed.
Sources & disclosures includedDownload original judgment / order
Three-judge bench; judgment delivered by S. H. Kapadia, C.J. · S. H. Kapadia, C.J. · K. S. Panicker Radhakrishnan, J. · Swatanter Kumar, J.
Assessment years: 2001-02
01 · Facts of the case
Indo Rama revalued fixed assets at 31 March 2000, adding Rs 288.58 crore to asset cost and creating an equal revaluation reserve without increasing profit. For AY 2001-02 it charged depreciation of Rs 127.57 crore, then transferred Rs 26.11 crore of differential depreciation from the reserve and credited that amount in the profit and loss account. The Assessing Officer refused to reduce book profit by that amount; the CIT(A), Tribunal and Delhi High Court agreed.
Source: Primary judgment: facts
02 · Discussion by the Hon’ble Court
The Court treated section 115JB as a self-contained code for book-profit computation. A reserve withdrawal could reduce net profit only if it was credited to the profit and loss account in the statutory sense, and the proviso additionally required the reserve to have increased book profit when created. Here, the revaluation reserve was a balance-sheet equalisation entry. Recouping differential depreciation was a contra adjustment that did not effectively increase net profit. Allowing the reduction would convert a loss shown after full depreciation into a reported profit while producing the kind of artificial presentation the MAT regime sought to address.
03 · Judicial decision
Because neither the Rs 288.58 crore reserve nor the later Rs 26.11 crore withdrawal had increased book profit when the reserve was created, the proviso to clause (i) prevented the claimed reduction. The later entry also lacked the effective profit-and-loss impact required by the main clause. The Assessing Officer's add-back was upheld.
Source: Primary judgment: holding
04 · Outcome / in whose favour
The assessee's civil appeal was dismissed with no order as to costs. No reduction of book profit was allowed for the differential-depreciation amount withdrawn from the revaluation reserve.
05 · AKHB REVIEW POINT
AKHB analysis: for a historical reserve withdrawal, trace both sides of the entry. Confirm whether creation of the reserve increased book profit in the creation year and whether the later credit genuinely affected net profit rather than merely offsetting an enhanced depreciation charge. Do not transpose this AY 2001-02 analysis without checking the later statutory and accounting framework.
Source: Primary judgment: application to reserve and depreciation entries
Source & verification
Download original judgment / order · Open cited source rendition
Complete 19-page Supreme Court Reports rendition, including the full 25-paragraph judgment and operative dismissal.
- The complete 19-page report was read and its SHA-256 matched the reconciliation catalogue.
- The AY, amounts, statutory wording, bench and operative dismissal were checked against the judicial text rather than inferred from the headnote.
Statutory scope
The Court applied section 115JB and its Explanation as they stood for AY 2001-02. Later amendments, accounting standards and Companies Act changes require separate verification before current use.
Later treatment
Source checked 2026-10-12. Later judicial treatment and present-law application have not been comprehensively checked. No citator or current-law clearance is represented.
Page references identify the supplied PDF; paragraph references identify the judgment unless stated otherwise.
AI disclosure & professional disclaimer
This AKHB research note was prepared with AI assistance from the identified primary report and has not been represented as independently human-reviewed.
General legal and tax research only; not legal or tax advice. Verify the complete judgment, governing statutory version and subsequent judicial treatment before reliance. The AKHB REVIEW POINT is editorial analysis, not the Court's holding, and no current-law clearance is claimed.