2015 (12) TMI 1847 - AT - Income Tax

MAT Computation u/s 115JB - Deduction on account of prior period expenditure from net profit shown in Profit Loss Account for the purpose of computing book profit u/s 115JB - HELD THAT - Only in cases where a particular item of income or expenditure is required to be disclosed in the Profit Loss Account but was disclosed in the notes to accounts, then such item of income or expenditure will be treated as part of Profit Loss Account for the purposes of computing profit u/s 115JB. Assessee has not brought on record anything to show as to how this amount was required to be part of Profit Loss Account prepared in accordance with part II of Schedule VI of the Companies Act. We further note that the CIT(A) has allowed the claim of the assessee on the premise that once assessee has disclosed this amount in notes to accounts, then the same will be treated as disclosed in Profit Loss Account and consequently has to be adjusted for computation of book profit u/s 115JB. CIT(A) has not gone into this aspect of the issue whether this prior period expenditure was required to be part of Profit Loss Account as per Schedule VI of Companies Act or not. Therefore, if this amount was not required to be part of Profit Loss Account prepared as per Schedule VI of the Companies Act, then undisputedly this amount not being part of any of the clauses of Explanation to sec. 115JB cannot be excluded from net profit for the purposes of computing book profit u/s 115JB. Since neither the revenue nor the assessee has furnished any record in support of their respective claims, whether this amount of prior period expenditure was required to be part of Profit Loss Account prepared as per provisions of Schedule VI of the Companies Act, therefore, we set aside this issue to the record of the CIT(A) to re-examine the issue in light of the relevant provisions of Schedule VI of the Companies Act as well as the relevant accounting standard applicable on this item of expenditure and then give a finding whether this amount of prior period expenditure is required to be part of profit and loss account or not - Appeal of the revenue allowed for statistical purposes.

Summary

Issues:
1. Whether the assessee can adjust prior period expenses while computing book profit under section 115JB.

Analysis:
1. The revenue raised grounds against the CIT(A)'s order, arguing that the prior period expenses were not specified in the clauses of Explanation to Section 115JB and were not debited to the Profit & Loss Account. The revenue contended that the prior period expenses were adjusted against opening reserves, not reflected in the P&L account, and thus not eligible for adjustment.

2. The assessee, a public limited company in the real estate business, filed a revised return declaring income after claiming deductions under section 80-IA. The Assessing Officer (AO) added back prior period expenses to compute book profit under section 115JB. The assessee challenged this before the CIT(A), arguing that net profit should consider expenses disclosed in the notes to accounts as part of the financial statement, complying with the Companies Act and accounting standards.

3. The CIT(A) accepted the assessee's contention, citing judgments allowing deduction of prior period expenses irrespective of separate presentation in the Profit & Loss Account. The CIT(A) held that prior period expenses disclosed in the notes to accounts should be considered for computing book profit under section 115JB.

4. The Tribunal considered both parties' arguments. It noted that the prior period expenses were not debited to the Profit & Loss Account but disclosed in the notes to accounts. The Tribunal highlighted the requirement for such expenses to be part of the Profit & Loss Account as per Schedule VI of the Companies Act or relevant accounting standards for adjustment under section 115JB.

5. As neither party provided evidence on whether the prior period expenses were required in the Profit & Loss Account as per Schedule VI of the Companies Act, the Tribunal remanded the issue to the CIT(A) for re-examination. The CIT(A) was directed to determine if the prior period expenses should be part of the Profit & Loss Account based on relevant provisions and accounting standards.

6. The Tribunal allowed the revenue's appeal for statistical purposes, emphasizing the need for a thorough examination of whether the prior period expenses were mandated to be part of the Profit & Loss Account under the Companies Act before adjusting for book profit under section 115JB.