2019 (1) TMI 788 - AT - Income Tax

MAT - Addition on account of Capital Reserve while computing the book profit of the assessee-company u/s 115JB - Held that - As rightly pointed out by the assessee, the adjustment on account of the amounts carried to any reserves, by whatever name called is permissible as per Clause (b) of Explanation (1) to Section 115JB only if such amounts are debited to the Profit & Loss Account as clearly provided in Explanation (1) to Section 115JB and since the amount in question transferred to the Capital Reserves directly by the assessee-company was not debited to the Profit & Loss Account as clearly mentioned by the AO himself in the assessment order, we find merit in the contention for the assessee that the adjustment made by the Assessing Officer while computing the book profit under section 115JB was not permissible even as per Clause (b) of Explanation (1) to section 115JB. D.R. has not been able to dispute this position, which is clearly evident from the clear language used in Explanation (1) to Section 115JB. No merit in the case of the Revenue on this issue and upholding the impugned order of the CIT(Appeals) deleting the addition/adjustment made by the Assessing Officer on account of Capital Reserve while computing the book profit of the assessee under section 115JB. Disallowance of employees contribution to Provident Fund/Employees State Insurance (ESI) paid by the assessee beyond the due dates prescribed in the respective statute - Held that - Both the sides have agreed that this issue is squarely covered in favour of the assessee, inter alia, by the decision in the case of Vijay Shree Limited (2011 (9) TMI 30 - CALCUTTA HIGH COURT), wherein following the decision in the case of Alom Extrusion Limited 2009 (11) TMI 27 - SUPREME COURT that the amount paid on account of employees contribution before the due date of filing the return of income for the relevant year could not be disallowed as per the amendment made to section 43B by the Finance Act, 2003. Respectfully following the said binding precedent, we uphold the impugned order of the CIT(Appeals) deleting the addition made by the Assessing Officer by way of disallowance of belated payment of employees contribution to P.F/ESI.

Summary

Issues involved:
1. Deletion of addition of capital reserve while computing book profit under section 115JB of the Income Tax Act, 1961.
2. Disallowance of employees' contribution to Provident Fund/Employees State Insurance (ESI) paid beyond due dates.

Analysis:

Issue 1: Deletion of addition of capital reserve while computing book profit under section 115JB
The main issue in this case was the deletion of the addition of a significant amount credited to Capital Reserve by the assessee-company while computing the book profit under section 115JB of the Income Tax Act, 1961. The Assessing Officer had added the amount to the book profit, but the ld. CIT(Appeals) deleted this addition. The ld. CIT(Appeals) based the deletion on the Supreme Court judgment in Apollo Tyres Ltd v CIT and Malayala Manorama Co Ltd vs CIT, emphasizing that the Assessing Officer cannot recast the audited profit and loss account. The Bombay High Court also affirmed this position in a subsequent judgment. The Tribunal upheld the decision of the ld. CIT(Appeals), stating that the Assessing Officer cannot make changes to audited accounts certified under the Companies Act, except for adjustments as provided in Explanation to section 115JB. The Tribunal highlighted that the adjustment made by the Assessing Officer was not permissible under Clause (b) of Explanation (1) to Section 115JB since the amount in question was directly transferred to Capital Reserve without being debited to the Profit & Loss Account.

Issue 2: Disallowance of employees' contribution to Provident Fund/ESI paid beyond due dates
The second issue involved the disallowance of employees' contribution to Provident Fund/ESI paid beyond the due dates prescribed by the respective statutes. The ld. CIT(Appeals) deleted the addition made by the Assessing Officer based on the decision of the Hon'ble Calcutta High Court in the case of Vijay Shree Limited, which held that payments made before the due date of filing the return of income for the relevant year could not be disallowed as per the amendment to section 43B by the Finance Act, 2003. The Tribunal upheld the decision of the ld. CIT(Appeals) on this issue, citing the binding precedent set by the Hon'ble Supreme Court in a related case.

In conclusion, the Tribunal dismissed the appeal of the Revenue and the Cross Objection of the assessee, maintaining the decisions of the ld. CIT(Appeals) on both issues. The order was pronounced in open court on October 31, 2018.