2022 (7) TMI 430 - AT - Income Tax

Computation of book profits for the purpose of computing the tax liability u/s. 115JB - two sets of books of account - which one to be followed - HELD THAT - The provisions of section 115JB(2) stipulate that the Profit Loss Account for the relevant period is to be prepared in accordance with the provisions of the Companies Act, 1956. The preparation of annual accounts including the Profit Loss Account and Balance Sheet should be in consonance with the provisions of section 210 of the Companies Act, 1956 as well as the Accounting Policies and Accounting Standards - As provided that the annual accounts including Profit Loss Account prepared for the purpose of Income Tax Act shall follow the same Accounting Policies and Accounting Standards, adopted for preparing the annual accounts for the purpose of Companies Act as laid before the AGM in accordance with the provisions of the Companies Act - in case where the company had adopted a financial year under the Companies Act, which is different from the previous year for the purpose of Income Tax Act, the same Accounting Policies and Accounting Standards which are adopted for the purpose of preparing annual accounts under the Companies Act shall be adopted. This would clearly show the Legislative intent that while preparing the annual accounts for the purpose of Income Tax Act and the Companies Act, there should not be any difference in the Accounting Policies and Accounting Standards adopted for the purpose of preparation of annual accounts for both the purposes i.e. Income Tax Act and the Companies Act. In the present case, the assessee had prepared annual accounts without providing for liability towards additional cane price and the same were adopted in the annual accounts and laid before the AGM. For income-tax purposes, the appellant company had prepared a different set of annual accounts wherein the liability towards additional cane price was provided. Therefore, the question is which sets of annual accounts was prepared in accordance with provisions of section 210 of the Companies Act, 1956. One set of annual accounts prepared for the purpose of Companies Act and laid before the AGM, there is no qualification in the auditor's report on the annual accounts of the companies. Moreover, the liability towards additional cane price had not accrued as on the date when the annual accounts were approved by the AGM. Second set of annual accounts providing the liability towards additional cane price were not even approved by the AGM and even not submitted to the Registrar of the Companies. Therefore, there is no material on record indicating the first set of annual accounts are not in accordance with the provisions of section 210 of the Companies Act. The very fact that the annual accounts were re-cast by providing liability towards additional cane price goes to prove that the appellant company had not followed the same Accounting Polices and Accounting Standards which are adopted in the former set of annual accounts. Therefore, the second set of annual accounts cannot be adopted for the purpose of computing the tax liability under the provisions of section 115JB of the Act. Therefore, the Assessing Officer had rightly rejected second set of annual accounts prepared by the appellant company for the purpose of computing the tax liability u/s. 115JB of the Act. Therefore, we do not see any reasons to interfere with the orders of the lower authorities. Argument relating to the 'principle of consistency ', we are of the considered opinion that the principle of res-judicata, has no application in the income-tax proceedings. The principle of consistency comes into play only in cases where two views are possible and the Assessing Officer had adopted one of the possible view and that view is legally sustainable. The principle of consistency cannot be applied in the present case, as the approach of the Assessing Officer is in accordance with settled position of law. Thus, the contention of the appellant on 'principle of consistency' cannot be accepted. Hence, the grounds of appeal filed by the appellant company stand dismissed.

Summary

Issues Involved:
Appeals against orders of Ld. CIT(A) for A.Y. 2012-13, 2013-14, and 2014-15 regarding computation of book profits u/s. 115JB of the Income Tax Act.

Analysis:

Issue 1: Computation of Book Profits
The appellant contested the addition of Rs. 6,47,41,354 to the book profit computed u/s. 115JB. The dispute arose due to the company's decision to pay an additional cane price after the annual accounts were approved. The Assessing Officer disallowed this claim, stating that the re-cast accounts did not align with Accounting Policies and Standards. The Ld. CIT(A) upheld this decision, citing the Apollo Tyres Ltd. case. The appellant argued for the right to prepare separate accounts for tax purposes, emphasizing consistency and referring to the Radhasoami Satsang case. However, the Tribunal held that the legislative intent requires uniformity in accounting policies for both Companies Act and Income Tax Act purposes. As the appellant's accounts did not align with this requirement, the appeal was dismissed.

Issue 2: Principle of Consistency
The appellant invoked the principle of consistency, claiming that similar claims were allowed in previous years. However, the Tribunal clarified that this principle applies when two legal views are possible, and the Assessing Officer's approach is legally valid. As the AO's decision was in line with established law, the principle of consistency did not apply in this case. Therefore, the Tribunal dismissed the grounds of appeal based on this argument.

Final Decision:
The Tribunal dismissed all three appeals filed by the assessee for A.Y. 2012-13, 2013-14, and 2014-15, as the appellant's accounts did not adhere to the required Accounting Policies and Standards for computing book profits u/s. 115JB. The principle of consistency was deemed inapplicable in this context. The orders were pronounced on June 29, 2022.