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2018 (5) TMI 498 - AT - Income TaxMAT - computing the income u/s 115JB - prior period expenses - Held that:- The reasons for disallowing the expenditure u/s 37 of the Act cannot be adopted for adding the same to the book profit u/s 115JB of the Act as the mode of computation of income under these two provisions entirely different. - We are inclined to accept the contentions of the assessee that the prior period expenses cannot be added to the book profit computed under the Companies Act for computation of income u/s 115JB of the Act. The assessee’s grounds of appeal accordingly allowed. Opening balance of the provisions for bad and doubtful debts as on 1.4.2008 - Held that:- AO has no jurisdiction to tinker with the net profit arrived at under the provisions of the Companies Act. There is also no doubt that the provision made for bad and doubtful debts has to be added back to the net profit. The bad debts written off ought to have been debited to the P&L A/c as per the provisions of the Companies A/c and thereafter the net profit is to be arrived at to which the adjustments under the Explanation (1) are to be made. Where the AO has no jurisdiction to tinker with the accounts of the assessee, likewise the AO has no authority to make an adjustment not provided under the explanation. Therefore, we see no reason to interfere with the order of the CIT (A) on this issue as the assessee has clearly debited the provision of ₹ 22.81 crores to the P&L A/c. The assessee’s ground of appeal No.4 is accordingly rejected. Addition of provision for non moving and obsolete stock on the ground that it is a provision which has to be added to the book profit for MAT computations - Held that:- The nature of the item or of expenditure cannot be determined merely by the nomenclature but the AO and the CIT (A) ought to have gone into and examined the nature of the expenditure claimed by the assessee particularly whether it has been debited to the P&L A/c. As we are satisfied that it is not a provision and has not been debited to the P&L A/c, we direct the AO to recompute the taxable income u/s 115JB of the Act without adding the provision for non moving and obsolete stock to the book profit. The assessee’s ground of appeal is accordingly allowed. Provision for leave encashment as an ascertained liability and therefore, cannot be added to the book profit. Provision for Fringe Benefit Tax is not similar to the provision for Income Tax. CBDT Circular No.8/2008 dated 29.8.2005 has clarified that the FBT is a liability of the employer and is in the nature of the expenditure laid out and expended wholly and exclusively for the purpose of business or profession of the employer and therefore, is an allowable deduction for the computation of book profit u/s 115JB of the Act
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