2000 (9) TMI 218 - AT - Income Tax

Issues Involved:
1. Computation of higher total income under section 143(1)(a) of the I.T. Act, 1961.
2. Validity of adjustments made to book profit as per section 115JA of the I.T. Act.
3. Justification for the Assessing Officer's prima facie adjustments.
4. Applicability of prior period adjustments in book profit computation.
5. Relevance of accounting principles and guidelines issued by the Institute of Chartered Accountants of India.

Issue-Wise Detailed Analysis:

1. Computation of Higher Total Income Under Section 143(1)(a):
The assessee contested the computation of a higher total income of Rs. 1,03,59,205 by the Assessing Officer (AO) under section 143(1)(a) for the assessment year 1997-98. The AO did not accept the book profit of Rs. 33,39,518 declared by the assessee and determined the taxable income under section 115JA at Rs. 31,07,762, which was 30% of the book profit recalculated by the AO.

2. Validity of Adjustments Made to Book Profit as Per Section 115JA:
The assessee filed a return showing income as per MAT under section 115JA at Rs. 10,01,856, which was 30% of the book profit of Rs. 33,39,518. This book profit was arrived at by adjusting the profit before prior period adjustment and tax by deducting previous years' interest decapitalized and adding previous years' excess depreciation written back. The AO rejected these adjustments and recalculated the book profit at Rs. 1,03,59,205.

3. Justification for the Assessing Officer's Prima Facie Adjustments:
The AO's rejection of the adjustments made by the assessee was based on the premise that these adjustments were not correct and permissible. The AO made prima facie adjustments under section 143(1)(a), considering the book profit at Rs. 1,03,59,205. The CIT(A) upheld the AO's decision, stating that the assessee was not justified in deducting Rs. 99,94,101 on account of previous years' interest decapitalized and that such adjustments were not prima facie allowable.

4. Applicability of Prior Period Adjustments in Book Profit Computation:
The assessee argued that the adjustments for previous years' interest decapitalized and excess depreciation written back were within the definition of prior period items as given in Annexure-A55 of the accounting policy of the Institute of Chartered Accountants. However, the CIT(A) and the Tribunal held that these adjustments did not pertain to the period relevant to the assessment year 1997-98 and were not allowable as prior period expenses.

5. Relevance of Accounting Principles and Guidelines Issued by the Institute of Chartered Accountants of India:
The assessee contended that the book profit for the purpose of section 115JA had to be calculated in accordance with the provisions of the Companies Act and the guidelines issued by the Institute of Chartered Accountants of India. The Tribunal noted that the assessee had previously capitalized the interest pertaining to term loans based on the recommendations of the Research Committee of the Institute of Chartered Accountants and had given a note on account in the balance-sheet for the assessment years 1993-94 to 1996-97. The Tribunal held that the subsequent reversal of the accounting practice and the claim of adjustment on account of interest and depreciation were not bona fide and were prompted with the intention of reducing the tax liability under section 115JA.

Conclusion:
The Tribunal upheld the order of the CIT(A) and dismissed the assessee's appeal, concluding that the book profit declared by the assessee after making adjustments for previous years' interest decapitalized and excess depreciation written back was not the real and correct book profit in terms of section 115JA of the I.T. Act, the Companies Act, or accounting practices. The Tribunal supported the AO's prima facie adjustments under section 143(1)(a) and determined the book profit at Rs. 1,03,59,205.

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