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2016 (9) TMI 496 - ITAT CHENNAI

2016 (9) TMI 496 - ITAT CHENNAI - TMI - MAT computation - disallowance of the cost of improvement under the normal computation and under the provisions of section 115JB - applicability of companies act - Held that:- Whatever be the nature of profit or loss is incurred by the assessee it has to be disclosed in the profit and loss account mandatorily as per the provisions of the Companies Act, 1956. Only the assets & liabilities and the profit/loss carry forwarded from the profit and loss account .....

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subject to the other provisions of the Income-Tax Act. - To make it clear, there is no provision in the Companies Act to directly absorb any profit or loss in the balance sheet directly other than routing it through the profit and loss account of the assessee. Therefore, it is apparent that the assessee company had directly absorbed the profit derived from the sale of its capital asset in the balance sheet thereby avoided to disclose the same in its profit and loss account in order to esca .....

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rightly upheld by the learned Commissioner of Income Tax (Appeals). - I .T.A.No.497/Mds/2016 - Dated:- 1-8-2016 - SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER For The Appellant : Mr. B.Ramakrishnan, C.A. For The Respondent : Mr. B.Koteswara Rao, CIT ORDER Per A. Mohan Alankamony, AM:- This appeal is filed by the assessee aggrieved by the order of the learned Commissioner of Income Tax (Appeals)- 3, Chennai dated 26.02.2016 in ITA No.104/CIT(A)-3/2013- 14 pas .....

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t routing it through the profit & loss account)in the book profit while determining the tax liability under section 115JB of the Act. ii) The learned Commissioner of Income Tax (Appeals) has erred in confirming the order of the learned Assessing Officer for disallowing the cost of improvement of 3,10,00,000/- under the normal computation and under the provisions of section 115JB of the Act. 3. Brief facts of the case are that the assessee is a company engaged in the business of leasing and r .....

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absorbed the same in its balance sheet without routing it through the profit and loss account. Thus, the book profit of the company was under stated by the profit that was directly absorbed in the balance sheet as it was not routed through the profit and loss account. According to the provisions of the Companies Act, 1956 Schedule VI Part II & III, it is mandatory to route such profit through the profit & loss account of the company which will be the book profit of the assessee for the .....

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the assessee and the following factual and legal position, the assessment of the assessee is completed. 14.1 The two assets sold by the assessee are fixed assets as defined in Accounting Standard (AS)10 prescribed by lCAl. 14.2 Losses arising from the retirement or gains or losses arising from disposal of fixed assets which is carried at cost should be recognised in the profit and loss Statement. 14.3 As per notification by the council of lCAl, Accounting Standard (AS)10 is one of the standard .....

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counting Standards referred to in Sub- Section (3C) of section 211 of the companies except for the change in Accounting Policy for including profit and sale of fixed assets of ₹ 32.11 Crores directly in Reserves and Surplus in Balance sheet instead of through Profit and Loss Account. 14.6 As per the statutory Auditor by not auditing the profit on sale of fixed assets of ₹ 32.11 Crores to Profit and Loss Account and not providing for income tax liability of ₹ 5.29 Crores and the .....

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d., Vs UOI (29 ITR 176) (SC) has upheld the mandatory nature of Accounting Standards issued by ICAI. 14.9 Only when the accounts of a company are prepared in accordance with Part II & III of Schedule VI of the Companies Act, 1956, the Assessing Officer will not have the power to restate the profit of a company. 14.10 In the case of the company the qualification by the statutory Auditor clearly establishes the fact that the profit and loss account of the company has not been prepared as requi .....

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e fixed assets of the company is non-recurring. These are not in the regular course of its business and are exceptional in nature. The credit receipts from these sales should have been reported in the profit and loss account of the assessee. 14.12 The qualification by the Auditor was evidence to conclude that the books profit of the assessee was not stated correctly. In such a case, a duty is cast upon the A.O. to restate the book profit. 14.13 In the process of restating the book profit it was .....

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s took the usual route. The supplier of material and the labour contractor were not produced by the assessee even after being told to do so. Mere deduction of TDS from the payment to the labour contractor will not make it a genuine transaction. 14.14 In the books of accounts the narration given in the books is reworking construction, building redoing, land filling, excavation, fencing, repair works, land developments and allied civil work. Such extensive civil work was not noticed by the purchas .....

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me tax Act was overstated by ₹ 3.10 Crores but also the book profit was further understated by ₹ 3.10 Crores. The assessee has already understated book profit on sale of fixed assets as per Schedule B of the balance sheet under the head "Reserves and Surplus" by ₹ 32,ll,24,002/-. 14.16 The decision rendered in the case of Apollo Tyres is applicable only when the profit and loss account of the assess company is prepared in accordance with the provisions of Part II and .....

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910 Profit on sale of Vadapalani property 32,95,42,600 II. Consideration received for Harrington Rd Property 4,00,00,000 - 9,50,000 Less: Selling Expenses - Brokerage 2,67,69,474 Less: Cost including improvement 1,22,80,526 6,36,609 Less: Consideration towards Furniture & Fittings 1,16,43,917 34,11,86,517 Total profit on sale of properties (I + II) Book Profit before tax as per the P&L Account audited by the Statutory Auditor (-) 1,01,69,416 Add: Profit on sale of properties 34,11,86,517 .....

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ble on record and the provisions of Companies Act, 1956 as well. Schedule VI Part II of the Companies Act provides the manner in which the profit & loss account is to be arrived at. The relevant portion of the order is reproduced herein below for reference:- Part II Requirement as to profit and loss Account: 1. The provisions of this Part shall apply to the income and expenditure account referred to in sub-section (2) of section 210 of the Act in like manner as they apply to a profit and los .....

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ovided that any item under which the expenses exceed 1 per cent of the total revenue of the company or 5,000 whichever is higher shall be shown as a separate and distinct item against an appropriate account head in the profit and loss account and shall not be combined with any other item to be shown under Miscellaneous Expenses. (xi)a)The amount of income from investments, distinguishing between trade investments and other investments. ……. …… (xii) a) Profits or losse .....

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r loss is incurred by the assessee it has to be disclosed in the profit and loss account mandatorily as per the provisions of the Companies Act, 1956. Only the assets & liabilities and the profit/loss carry forwarded from the profit and loss account are disclosed in the balance sheet. The format of balance sheet as provided under Schedule VI of the Companies Act itself indicate the fact that only the assets & liabilities including reserves and carry forward of profit/loss from the profit .....

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