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TMI Blog2015 (3) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... er the head 'prior period adjustment'. The above waiver of interest was not offered for taxation under the normal provisions of I.T. Act as assessee claims that no deduction was allowed in earlier years. The above prior period adjustment (income) of Rs. 16,23,01,015/- had not been taken into reckoning while computing book profit under the provisions of Section 115JB of the Act. Assessing Officer allowed normal depreciation @80% and additional depreciation @20% on additions made to Plant and Machinery of Rs. 30,44,73,896/-. 3. Ld.CIT after examining the assessment record has come to a conclusion that order passed by Assessing Officer is erroneous and prejudicial to the interest of Revenue as Assessing Officer had not verified the credit of prior period expenditure which should have been considered under the provisions of Section 41(1) and also under the provisions of Section 115JB. Accordingly, he issued a notice asking assessee to file its objections if any. Assessee filed detailed written submissions against the proposed revision, point-wise to submit that Assessing Officer has asked for details of the prior period adjustments and also the financial interest claims made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd stated that company's Books of Accounts were audited under the Companies Act. Further Assessing Officer had directed a special audit under the provisions of I.T. Act and also issued show cause notices and assessee clarified the amounts credited to P&L A/c as prior period expenditure. It was explained that the same can not be considered as income under the provisions of Section 41(1) as assessee has not claimed any interest as deduction in earlier years, as the same was governed by the provisions of Section 43B. Therefore, direction of the Ld.CIT in directing further examination of the amount of Rs. 16,23,01,015/-, is not correct on the facts of the case. 7. Ld.Counsel further submitted that as far as the applicability of prior period income of Rs. 16,23,01,015/- under the provisions of Section 115JB, the direction of the CIT is not tenable as Sub-section 2 of 115JB does not specify the addition of prior period income. Assessee's computation being that year's profit is according to the provisions of the Act. Further, it was submitted that assessee did not make any claim or got any benefit in earlier years as most of the amounts were treated as 'Deferred Revenue E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents. Assessee's profit of the year before taxation as per P&L A/c stood at Rs. 16,89,24,325/-. This is the amount which was adopted by assessee for the purpose of 115JB and also accepted by the Assessing Officer in the order u/s.143(3). However, in the P&L A/c after arriving at the profit before taxation, assessee made various provisions for income tax, deferred tax liability and arrived at profit after taxation of Rs. 9,83,93,454/-. Thereafter, assessee added amount of prior period adjustment at Rs. 16,23,01,015/-. By further increasing the balance from the brought forward profit of Rs. 19,79,61,863/-, profit available for appropriation was arrived at Rs. 45,86,56,332/-. Ld.CIT after discussing the issue on legal principles directed the Assessing Officer to adopt the amount at Rs. 26,06,94,469/- in his order as under: "10. With regard to the first issue of taxability of interest waived by IDBI aggregating to Rs. 16,23,03,016/- u/s.41(1) of the I.T.Act, 1961, this issue is restored to the file of the Assessing Officer for detailed verification of the assessee's claim that no deduction/allowance was allowed in earlier years in respect of above interest waived. Further, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of CIT Vs. Khaitan Chemicals and Fertilizers Ltd (2008) reported in 307 ITR at Pp.150. 11.2 It may also be noted from the above discussion that even extraordinary items and prior period adjustment have to be taken to the P&L a/c. The starting point adopted as above has to be increased by the items specified in cls. (a) to (f) of Explanation 1 and has to be reduced by the items specified in cls.(i) to (vii) given in the said Explanation. No other adjustment is permitted by law as laid down by the Supreme Court in the case of Apollo Tyres. None of the clauses given in the Explanation provides for the increase or decrease of the book profits by extraordinary items and prior period adjustments. The AS-5 merely says that prior period and extraordinary items should be separately disclosed along with their nature so that their impact on the operating results can be properly gauged. It does not say that they are not part of the P&L a/c. Similarly, the Guidance Note issued by the ICAI also does not help the case of the assessee, as it merely says that sometimes, appropriation account is included as a separate section of the P&L a/c. But, as discussed above, Parts II and II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed in the statement of profit and loss in a manner that their impact on the "current" profit or loss can be perceived. Two approaches have been indicated in paragraph 19 of the said Accounting Standard (AS-5). The normal approach is to include the prior period items in the determination of net profit or loss for the current period. The alternative approach is to show such items in the statement of profit and loss after determination of the current net profit or loss. The object is to indicate the effect of such items on the current profit or loss. While calculating the tax under section 115JA of the Income-tax Act, 1961, the assessee computed the net profit as per the profit and loss account after reducing the prior period expenses/extraordinary items and profit from generation of power plant. According to the Revenue, the amount of the prior period expenses/extraordinary items could not be deducted for arriving at the net profit for the purpose of section 115JA. According to the assessee, the net profit was to be computed on the basis of the profit and loss account which, in turn, was to be in accordance with the provisions of Parts II and III of Schedule VI to the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956, and the assessing authority has a limited jurisdiction to satisfy himself that the accounts are maintained in accordance with the provisions of the 1956 Act. Beyond that, the assessing authority has no jurisdiction to go further into the accounts. Held, allowing the appeal, that in computing the net profit the assessee had adjusted the prior period expenses and offered the book profit for assessment. No exception could be taken to the course adopted by the assessee in adjusting the prior period expenses in computing the net profit". 13. In view of the above, it is very clear that the computation has to start from the final figure of P&L A/c and necessary adjustments as provided in Explanation to Section 115JB has to be considered, while computing the book profit for the purpose of 115JB. The CIT also made a mistake in directing to take a different amount. There seems to be no inquiry under the provisions of Section 115JB while completing assessment u/s 143(3) therefore to that extent, order of the Assessing Officer is not only erroneous on the facts but also on the principles of law. We therefore uphold invoking the jurisdiction by CIT on the order of Assessing Officer. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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