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2015 (3) TMI 924 - ITAT HYDERABAD

2015 (3) TMI 924 - ITAT HYDERABAD - TMI - Revision u/s 263 - order passed by Assessing Officer is erroneous as he 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 - Held that:- Coming to the issue of addition of prior period expenditure as income, Ld.CIT directed the Assessing Officer to examine and consider the amounts u/s.41(1). It was the contention of assessee that th .....

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as expenditure, how much was disallowed and amounts waived by the bank. Since these details are not considered by Assessing 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 O .....

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n 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. .....

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favour of assessee for statistical purposes.

Direction of CIT on claiming of normal depreciation and additional depreciation - Held that:- This issue has been examined by Assessing Officer in the original assessment proceedings, therefore, the CIT direction to re-examine the issue does not arise, as it is contrary to the provisions of the Act. CIT cannot substitute his opinion and direct the Assessing Officer to re-examine the issue which was already examined and accepted by Assessing .....

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d against the order of the Commissioner of Income Tax-III, Hyderabad dated 29-03-2012 u/s.263 of the Income Tax Act (Act). The issues in this appeal are with reference to taxability of interest waived by IDBI u/s.41(1) and also u/s.115JB and claim of depreciation. These are decided after hearing the Ld.Counsel and Ld.DR. 2. Briefly stated, assessee-company filed its return of income on 30-11-2006 declaring loss at ₹ 11,04,66,667/-. As seen from the assessment order, the assessment has been .....

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₹ 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 cre .....

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was submitted that special audit also had examined issues in detail and had not proposed any disallowance or additions under the above two heads. Assessee relied on the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd., Vs. CIT [243 ITR 83] for the proposition that assessee having submitted the required details asked for and accordingly assessment order has been passed, CIT does not acquire jurisdiction by mere changing of opinion. It was contended that the .....

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at assessee did not adduce any documentary evidence in support of its contentions and therefore he held that the objections of assessee against assumption of jurisdiction are devoid of merit. 5. Coming to the issues taken up by Ld.CIT, on the issue of taxability of prior period income of ₹ 16,23,01,015/-, the CIT gave direction to examine and consider the amount after giving due opportunity to assessee. We were informed that Assessing Officer has added the entire amount u/s.41(1) on the re .....

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Assessing Officer for verification and examination in accordance with law after affording assessee an opportunity of being heard. In the consequential order, Assessing Officer did not disallow any amount. Therefore, after examination, it seems that he accepted that assessee's claims are correct. 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 audi .....

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s 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 in ear .....

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e order of the CIT both on the facts and on law. 10. We have considered the rival contentions and perused the Paper Book placed on record. Coming to the issue of addition of prior period expenditure as income, Ld.CIT directed the Assessing Officer to examine and consider the amounts u/s.41(1). It was the contention of assessee that this amount has never been claimed as a deduction. As seen from the consequential order passed by Assessing Officer on the directions of the CIT, Assessing Officer wi .....

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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 exa .....

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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 .....

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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 is the case of the assessee that interest expenses for the A.Ys 2004-2005 and 2005-2006 aggregating to ₹ 3606.55 lacs were disallowed u/s.43B of the I.T.Act, 1961. The assessing officer is directed to examine the above claim with reference to the assessment records of earl .....

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h.VI does not make any distinction between P&L a/c and P&L appropriation account (after considering extra ordinary items and prior period adjustments). In fact the Schedule does not speak of the appropriation account at all. It is only as a matter of presentation that most of the companies segregate to reflect as to what has been appropriated out of the profits earned by them. Further, sub-cls.(a) and (b) of cl.(viii) of Note II in para 3 of Part II of Sch.VI specifically provide that th .....

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n the P&L a/c. All the above items discussed above are classified in the appropriation account and are necessarily to be included in the P&L a/c prepared as per Parts II and II of Sch. VI to Companies Act. 11.1 Therefore, the starting point for computation of book profits for the purposes of s.115JB should be the final balance in the P&L a/c carried to balance sheet (after considering prior period adjustments and extra ordinary items). For the above proposition, reliance is placed on .....

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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 .....

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cordance with law for the Assessing Officer to have taken ₹ 26,06,94,469/- as the base figure to compute the book profits for the purpose of section 115JB as against the base figure of ₹ 16,89,24,325/- adopted by the assessee company. 11.3 In view of the foregoing, the Assessing Officer is directed to recompute book profits of the assessee company by adopting ₹ 26,06,94,469/- as the starting point and the same is to be increased by the items specified in clauses (a) to (f) and .....

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izers Ltd., reported in 307 ITR 150 has held as under: "Accounting starndards are recommended by the Institute of Chartered Accountants of India. Accounting Standard (A-5) stipulates that prior period items are income or expenses which arise "in the current period" as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. Therefore, the income or expenses relatable to prior period items are those which arise in the current peri .....

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he net profit or loss. Paragraph 7 of AS-5 stipulates that teh net profit or loss, inter alia, comprises extraordinary items and should be disclosed 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 A .....

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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 th .....

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y the assessee in view of the provisions of section 115JA(2) read with section 211 of the 1956 Act, the assessee was required to show the prior period items/extraordinary items separately so that their impact on the current profit or loss could be perceived. The fact that the assessee adopted the alternative approach of showing such items in the statement of profit and loss after determination of current net profit or loss, did not mean that these items were not to be taken into account in compu .....

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extraordinary items". Not only that even the principles laid down by the Hon'ble Supreme Court in the case of Apollo Tyres Vs. CIT [255 ITR 273] (SC) and followed by the Hon'ble Madras High Court in the case of Tamil Nadu Cements Corporation Ltd., Vs. JCIT [349 ITR 58] (Mad) also supports the above. In fact in the above referred later case, while examining the issue whether the claim of prior period expenses are disallowable u/s.115JB, the Hon'ble Madras High Court held as under .....

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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 ve .....

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also on the principles of law. We therefore uphold invoking the jurisdiction by CIT on the order of Assessing Officer. 14. Since amounts adopted by CIT is not correct, while upholding the jurisdiction of the order of the CIT on 263, we set aside consequential order passed by Assessing Officer and restore the issue to the file of Assessing Officer to re-do the exercise of reconciliation of amounts of prior period income and computing the income u/s.115JB as per the provisions of the Act, after g .....

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