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2015 (1) TMI 1023 - KARNATAKA HIGH COURTMAT computation - deferred revenue expenditure towards (advertisement, publicity, distribution and sales promotion) debited to the P & L account and carried to the Balance Sheet and approved by the assessee's Board as per the Companies Act when maintaining regular books of accounts could be modified and other years expenditure can be claimed during the current assessment year itself when computing Book profits u/s.115JB of the Act upheld by Tribunal - Tribunal reversing the finding of the appellate authority that before allowing deduction under Sec. 80HHC of the Income Tax Act, the unabsorbed loss and depreciation should be carried forward and set off and only in respect of the balance deductions should be allowed, - Held that:- As is clear from Section 115JA of the Act, it deals with the 'deemed income'. It is not the actual income earned by the assessee. The object behind it is to prevent the assessee from adjusting the accounts or manipulating the accounts so as to avoid payment of tax on the ground that they have not earned any profit at all. When once the assessee has incurred an expenditure and it is deducted in terms of Part-II of Schedule-VI of the Companies Act and the profit is arrived at, merely because in the printed P & L account for the purpose of showing to the shareholders that a profit is made by the Company, the entire expenditure is not deducted and a portion of it is shown as a deferred expenditure, the assessee cannot be denied the benefit of actual expenditure incurred. The assessee is not showing the actual expenditure incurred to avoid payment of tax. On the contrary when the actual expenditure is given deduction to, the profit margin gets reduced. It is by showing it to the P & L account, a portion of it as a deferred payment, artificially the profit has gone up. The object of Section 115JA being to avoid adjustment of account, manipulation of figures to avoid payment of tax. When the assessee has actually incurred expenditure and the tax liability is less when compared with the net profit arrived at after giving deduction to the actual expenditure, the tax payable is on that net profit and not on the fancy figure shown in the P & L account for the purpose of showing profit to the shareholders. In other words, to find out what is net profit one has to look into the books of accounts maintained by the company and the profit and loss account prepared on the basis of such book of accounts. What is shown in the printed balance sheet is for the benefit of the shareholders as it will not reflect the true state of affairs and that cannot be made the basis for levying tax under the Act. This is precisely what the Tribunal has held. Neither under the Companies Act nor under the Income Tax Act, this concept of deferred expenditure is recognized. That is a pathology used by the chartered accountants to show to the shareholders that the company has made profit though it has not earned profits. It is nothing but a window dressing and the authority should not be mislead or guided by this balance sheet which is prepared to satisfy the shareholders. It is the P & L account prepared on the basis of the books of accounts as contemplated in Part-II of Schedule VI which should form and assist to find out what is the profit earned and on that profit, tax is levied. - Decided in favour of assessee.
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