Once it is held that the assessee had set up the business during the year, the profit and loss account had to be prepared in accordance with Part II & III of Schedule VI of the Companies Act and has to be certified by the auditor.

Both the terms 'commencement of business' and 'set-up of business' are different. Under the Act, once business is set-up, the income earned by the assessee is chargeable to tax and it cannot be regarded that no business profit is earned. Thus, the company must prepare its Profit and Loss account for the impugned assessment year in accordance with the provisions of Part II and III of Schedule VI to the Companies Act and whatever profit is arrived at in the profit & loss account, the said profit will be their book profit subject to the adjustment to be made under Explanation 1 to section 115JB.

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