TMI Blog2015 (3) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer and not examined in its correct perspective, we are of the opinion that these require reconciliation year-wise. Prima facie, we are of the opinion that assessee has not claimed any amount as deduction, therefore, addition u/s.41(1) may not arise. Since this issue was not examined by Assessing Officer in correct perspective, we are of the opinion that the Assessing Officer has to examine the same before considering any amount of disallowance. Therefore, reiterating the direction of the CIT we direct the Assessing Officer to examine and consider the same for addition, if any u/s.41(1). Decided in favour of assessee for statistical purposes. Direction of the CIT on the inclusion of prior period income under the provisions of Sec.115JB - Held 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 Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enting the waiver of interest by IDBI under 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 ₹ 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 ₹ 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 adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect. 6. Ld.Counsel referring to the Paper Book filed in this regard 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 ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16,23,01,015/- in the P L A/c as prior period income, generally known as below the line adjustments. Assessee's profit of the year before taxation as per P L A/c stood at ₹ 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 ₹ 9,83,93,454/-. Thereafter, assessee added amount of prior period adjustment at ₹ 16,23,01,015/-. By further increasing the balance from the brought forward profit of ₹ 19,79,61,863/-, profit available for appropriation was arrived at ₹ 45,86,56,332/-. Ld.CIT after discussing the issue on legal principles directed the Assessing Officer to adopt the amount at ₹ 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 ₹ 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s decision in the case of Gulf Oil Corporation Ltd Vs. ACIT reported in 111 ITD at pp.124 and the decision of Hon'ble Delhi High Court 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed on the face of the statement of profit and loss. Paragraph 15 of AS-5 stipulates that the nature and amount of prior period items should be separately 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de in the books of accounts of the company. Sub-section (1A) mandates the company to maintain its accounts in accordance with the requirements of the Companies Act, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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