2016 (1) TMI 499 - AT - Income Tax

Addition on book profit of the interest received on tax refund - Held that - In the case of the assessee, the refund was determined in previous year 2010-11, corresponding to assessment year 2011-12 i.e. present assessment year, so the interest also accrued only in assessment year 2011-12 and not in any year earlier to it. Therefore, we hold that the interest of ₹ 4,66,110 accrued in relevant assessment year only. In the case in hand the interest was not only accrued in the relevant year but the assessee has also accepted the mistake of not crediting the amount of ₹ 2,50,737 in its profit and loss account for the year under consideration. The case of the assessee falls in first category of cases as it was discovered beyond doubt that profit and loss account was not drawn up in accordance with the Part II and Part III of the Schedule VI of the Companies Act. Therefore, respectfully following, the decision of the Special Bench of Tribunal in the case of Rain Commodities (2010 (7) TMI 794 - ITAT HYDERABAD ), we hold that the amount of ₹ 2,50,737 was correctly added by the Assessing officer while computing the book profit of the assessee and no interference is required in the order of the learned Commissioner of Income-tax (Appeals). - Decided against assessee

Summary

Issues:
1. Challenge to the legality of orders passed by the A.O. and confirmed by CIT(A).
2. Addition made to book profit for interest received on tax refund.

Analysis:

Issue 1:
The assessee challenged the orders passed by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)) as being bad in law and void ab-initio. The AO added the interest received on tax refunds to the book profit, leading to the dispute. The assessee contended that the AO could not alter the book profit except in circumstances permitted under the Income-tax Act. The CIT(A) upheld the addition made by the AO, leading to the appeal before the Appellate Tribunal.

Issue 2:
The primary contention was regarding the addition made by the AO to the book profit for the interest received on tax refunds. The assessee argued that the interest was accrued as per the mercantile system of accounting and should have been assessed in the year of accrual, not when received. However, the Tribunal disagreed with this assertion, citing relevant sections of the Income Tax Act to establish that the interest accrued only in the relevant assessment year. The Tribunal also referred to a Special Bench decision to support the AO's power to alter the book profit when the profit and loss account is not drawn up in accordance with the Companies Act. As the interest was not credited in full due to a mistake, the Tribunal upheld the addition to the book profit.

In conclusion, the Tribunal dismissed the appeal filed by the assessee, upholding the addition made by the AO to the book profit for the interest received on tax refunds. The decision was based on the interpretation of relevant provisions of the Income Tax Act and the authority of the AO to adjust the book profit in certain circumstances as established by judicial precedents.