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2016 (1) TMI 1501 - AT - Income TaxMAT computation u/s 115JB - disallowance of prior period items in the net profit of the company for the purpose of working out the book profit of the company u/s 115JB - whether Prior Period Expenses are to be adjusted to the net profit to arrive at the book profits? - HELD THAT - As per Schedule VI Part II and the prescribed Accounting Standards net profit for the current year is to be arrived after adjusting prior period items. In the present case the undisputed fact is that the Net Profit shown in the profit loss account has been arrived at after reducing the prior period expenses - this Net Profit is in compliance with Schedule-VI Part-II of the Companies Act and the prescribed Accounting Standard i.e. AS-5. No adjustment on account of prior period expenses is required to be made to the same. Moreover even as per Explanation 1 to section 115JB no adjustment on account of prior period expenses is required to be made to the net profits reflected in the profit and loss account of the assessee. Therefore we hold that no adjustment of prior period expenses is to be made by the assessee to arrive at the book profits for the purpose of levying tax u/s 115JB. Decided in favour of assessee.
Issues Involved:
1. Addition of prior period items amounting to Rs. 46,64,504/-. 2. Addition of interest on PLA of Rs. 3,635/-. 3. Addition of interest on TDS amounting to Rs. 6,050/-. 4. Computation of book profit under Section 115JB of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Addition of Prior Period Items Amounting to Rs. 46,64,504/-: The primary issue is whether prior period expenses should be added back to the net profits for computing book profits under Section 115JB. The assessee argued that these expenses should not be added back as per the Companies Act and relevant accounting standards. The CIT(A) rejected this argument, stating that the prior period expenses should be added back to comply with the company's own accounting policies and the requirements of the Companies Act and accounting standards. The Tribunal examined the provisions of Section 115JB, which mandates the preparation of the profit and loss account as per Part II of Schedule VI to the Companies Act, 1956, and compliance with accounting standards. The Tribunal concluded that prior period expenses are included in the net profit calculation as per Accounting Standard 5 and Schedule VI, Part II. Therefore, no adjustment is required for prior period expenses in computing book profits under Section 115JB. 2. Addition of Interest on PLA of Rs. 3,635/- and Interest on TDS Amounting to Rs. 6,050/-: The assessee initially contested these additions but later stated that it was not pressing these issues. Consequently, the Tribunal did not address these additions in detail. 3. Computation of Book Profit Under Section 115JB of the Income Tax Act, 1961: The Tribunal emphasized that Section 115JB is a special provision ensuring minimum tax on book profits of companies. The book profit calculation starts with the net profit as shown in the profit and loss account, prepared in accordance with Part II of Schedule VI to the Companies Act, 1956, and relevant accounting standards. The Tribunal noted that adjustments to the net profit are only permitted as specified in Explanation 1 to Section 115JB. Since prior period expenses are not specified for adjustment in Explanation 1, they should not be added back to the net profit for computing book profits. The Tribunal distinguished the present case from the Sree Bhagwathy Textiles Ltd. case, as the prior period expenses in the current case were debited to the profit and loss account, not the appropriation account. Conclusion: The Tribunal held that no adjustment of prior period expenses amounting to Rs. 46,64,504/- is required for computing book profits under Section 115JB. The appeal of the assessee was allowed partly, with the specific issue of prior period expenses resolved in favor of the assessee. The order was pronounced in the Open Court on 21/01/2016.
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