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TMI Blog2014 (11) TMI 718X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of account and information furnished before him noticed that out of total expenditure booked under the head rental expenses an amount of Rs. 1,82,000/-was not subjected to deduction of tax at source, therefore, he disallowed the same u/s 40(a)(ia) of the Act and added back to the income of the assessee. That apart, the AO noticed that the assessee has debited certain expenditure under the head 'carriage and freight expenses. Out of the total expenditure claimed an amount of Rs. 6,32,623/- was not subjected to TDS. Accordingly, the AO by invoking the provisions of section 40(a)(ia) disallowed the amount of Rs. 6,32,623/- and added back to the income of the assessee. As a result, total income was determined at Rs. 8,14,62/- under the normal provisions and book profit was computed at Rs. 34,20,315/- u/s 115JB of the Act. 3. The CIT called for the assessment records of the assessee for the impugned assessment year in exercise of power conferred u/s 263 of the Act and on examining the same was of the view that the assessee while computing book profit u/s 115JB of the Act has arrived at the net profit of Rs. 34,20,315/-after reducing prior period expenditure of Rs. 52,24,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was submitted that the AO after examining the details of computation of book profit u/s 115JB of the Act, having passed the order of assessment which is also a possible view as per the decisions of Apex Court and ITAT, there is no error in the assessment order nor there is any prejudice caused to the revenue. It was, therefore, submitted that the assessment order cannot be revised u/s 263 of the Act. 4. The CIT after considering the submissions, however, did not accept the same and ultimately passed the impugned order by holding that prior period expenditure cannot be reduced from the profit for arriving at the book profit u/s 115JB of the Act. Accordingly, he directed the AO to compute book profit u/s 115JB at Rs. 86,44,904/-. 5. Being aggrieved of the revision order passed by the CIT, assessee is before us challenging the same both on the ground of exercise of powers u/s 263 of the Act as well as on merits of the issue. 6. Reiterating the contentions raised before the CIT in course of revision proceeding, the learned AR submitted before us that the assessee has computed the book profit of Rs. 34,20,315/- in terms with the provisions of Part II & III of Schedule VI of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 52,24,542/-. It is also necessary to state that there is no dispute to the fact that P&L A/c has been drawn out in accordance with Part &II and III of Schedule VI of the Companies Act, 1956 and has been certified by the auditors. Further a reference to clause 4.3 and clause 16 of AS-5 would show that as per clause 4.3, prior period items are defined as income or expenses which arises in the current period as a result of errors or omissions in the preparation of financial statements of one or more period. Clause 15 of AS-5 provides that the nature and amount of prior period expenses should be separately disclosed in the statement of P&L in a manner that their impact on the current profit or loss can be perceived. Even as per the AS-5 also, the assessee has shown the prior period items in the P&L Account. The Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) while examining pari-materia provisions of section 115J held as under: 'The use of the words "in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act" was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt has erred in reversing the said view of the Tribunal. Therefore, the AO while computing the income under s. 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The AO thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the AO does not have the jurisdiction to go behind the net profit shown in the P&L a/c except to the extent provided in the Explanation to s. 115J. Conclusion While assessing a company for income-tax under s. 115J the correctness of the P&L a/c prepared by the assessee-company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Sch. VI to the Companies Act cannot be examined by the AO; AO does not have the jurisdiction to go behind the net profit shown in the P&L a/c except to the extent provided in the Explanation to s. 115J.' 10. The ITAT, Hyderabad bench in case of Gulf Oil Corpn. Ltd. (supra) held as under: "Sub-s. (2) of s. 115JB p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etimes, appropriation account is included as a separate section of the P&L a/c. But Parts II and III of Sch. VI to the Companies Act do not speak of appropriation account at all. It was in accordance with law for the assessee to have taken Rs. 978.55 lakhs as the base figure to compute the book profits for the purposes of s. 115JB. Conclusion : Starting point for computation of book profits for purposes of s. 115JB should be the amount which is the final balance in the P&L a/c carried to balance sheet and in doing so even the extraordinary items have to be debited to the P&L a/c. " 11. If we examine the provisions of section 115JB of the Act in the context of the view expressed in the decisions referred to hereinabove, it becomes clear that when the P&L A/c of the assessee is drawn up in accordance with the provisions of Part II of Schedule 6 to the Companies Act, 1956 and is certified by Auditor, then, the AO cannot make any other modification to the book profit computed in the P&L A/c except as provided under Explanation 1 of section 115JB. Further, it is evident that the AO after examining the details has computed the book profit in the assessment order. Therefore, there cann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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