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Issues Involved:
1. Adjustment of book profits u/s 115J by Rs. 135.13 lakhs. 2. Disallowance under Rule 68 of the Income-tax Rules. Summary: Issue 1: Adjustment of Book Profits u/s 115J by Rs. 135.13 Lakhs The primary issue in the assessee's appeal was whether the CIT(A) erred in upholding the Assessing Officer's (AO) action of adjusting book profits u/s 115J by Rs. 135.13 lakhs. This amount represented the differential liability for earlier years due to a change in the accounting method for foreign exchange fluctuations from cash to accrual basis, mandated by the amendment of section 209 of the Companies Act, effective from 15-6-1988. The assessee argued that the additional liability of Rs. 135.13 lakhs (later rectified to Rs. 110.87 lakhs) was a necessary charge to reflect a true and fair view of the financial statements, in line with the guidance from the Institute of Chartered Accountants of India (ICAI) and accounting standards. The CIT(A) agreed that the loss from foreign exchange fluctuations was a revenue loss but upheld the AO's alternative contention that the loss pertaining to earlier years should be added back while computing book profits u/s 115J. The Tribunal analyzed various judgments and accounting standards, concluding that once the change in the accounting method was accepted, it had to be applied retrospectively to ensure the financial statements disclosed a true and fair view. The Tribunal noted that the profit and loss account prepared by the assessee was in accordance with Parts II and III of Schedule VI to the Companies Act and that no specific provision in section 115J required adding back such liability. Therefore, the Tribunal directed the AO to delete the addition of Rs. 135.13 lakhs (subsequently rectified to Rs. 110.87 lakhs) for computing book profits u/s 115J. Issue 2: Disallowance under Rule 68 of the Income-tax Rules The CIT(A) did not provide any findings regarding the Grounds of Appeal No. 10 concerning disallowance under Rule 68 of the Income-tax Rules. This issue was not elaborated further in the judgment provided.
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