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TMI Blog2000 (9) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... it of Rs. 10,01,856 declared under section 115JA on the ground that the assessee had not worked out 30% of the real and correct book profit of Rs. 1,03,59,205. He noted that the adjustments made in the real and correct book profit before arriving at the book profit of Rs. 33,39,518 were not correct and permissible. He, therefore, ignored the aforesaid adjustment made by the assessee and making prima facie adjustment under section 143(1)(a) of the Act, he took the book profit at Rs. 1,03,59,205. 30% of this was worked out by the Assessing Officer at Rs. 31,07,762 which was determined as the taxable income under section 115JA of the Act. 4. Aggrieved the assessee preferred first appeal before the Id. CIT(A). It was argued before him on behalf of the assessee that the Assessing Officer was not justified in determining the book profit at Rs. 1,03,59,205 instead of Rs. 33,39,518 shown by the assessee and as such the determination of the taxable income under section 115JA of the Act by the Assessing Officer was wrong. It was contended that the book profit means the net profit as shown in the P&L Account and hence the book profit shown by the assessee should have been accepted. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment on account of future fluctuation in the amount of interest owing to change in the interest will be accounted for in the years in which such changes occur. As a result of the above, loss after depreciation is lower by Rs. 29,38,067.41 and net fixed asset are higher by Rs. 1,73,03,618-15 and accumulated losses are lower by Rs. 29,38,057.4l." 8. The above note was given in the balance-sheet for the assessment year 1993-94. Similar notes appeared in the balance-sheet of the financial years 1994-95 and 1995-96 and in the financial year 1996-97 relevant to the assessment year 1997-98 covered under the present appeal change in the method of accounting with regard to the above interest was made and the following note appeared : "To comply with the Generally Accepted Accounting Principles and the guidelines issued by the Institute of Chartered Accountants of India, the company has from current year changed its policy of charging interest pertaining to term loans from capitalising the same to fixed assets to charging the same to P&L A/c. Due to this change profit for the year has been decreased by Rs. 73,11,131.58 and net fixed assets has been reduced by Rs. 1,52,62,224.65. It is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment made under section 143(3) for the assessemnt year in question the taxable income was determined at Rs. 44,24,953 and this was higher than the 30% of the book profit as determined by the Assessing Officer at Rs. 33,39,518 and hence the book profit was ignored. He added that it was a different thing that subsequently the taxable income was reduced but that was the subsequent development which was not relevant at the time of assessment. Thus according to the Assessing Officer in the assessment made under section 143(3), the provisions of section 115JA of the Act were not applicable. He, therefore, contended that the higher book profit determined by the Assessing Officer under section 143(1)(a) of the Act was unwarranted and irrelevant. 12. The ld. AR further submitted that even if there were two possible interpretations, with regard to the determination of the book profit in question the interpretation favourable to the assessee should be accepted. He relied on the Supreme Court decision in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 and CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518. 13. He. further submitted that the bona fide of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer can make adjustment under section 143(1)(a) of the Act he added that the facts of the present case were similar to those of the aforesaid decided case. He referred to the ITAT Delhi Bench 'E' decision in the case of Care Heart India Ltd. v. Dy. CIT 65 TTJ (Delhi) 345 wherein it was held that while computing the book profit under section 115JA the Assessing Officer can correct errors in accounts and book profit is to be taken on the basis of the corrected account. It was held that it was open for the Assessing Officer to examine whether book profit is computed in accordance with the law. The amount reflected in the P&L A/c was not sacrosanct. He also referred to the legislative background of introduction of section 115JA of the Act, and added that the assessee must pay tax on 30% of real book profit in accordance with the provisions of section 115JA of the Act instead of dodging the provisions. 17. He also referred to the following observations in the case of J.K. Cotton Spg. & Wvg. Mills Co. Ltd. v. Asstt. CIT [1997] 60 ITD 99 (All.) para 30 as under : "The deduction of prior period expenses is not in accordance with the principles of accountancy, since the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Committee of the Council of Institute of Chartered Accountants. it was only when subsequently the assessee wanted to come out of the clutches of section 115JA of the Act or reduce its liability under section 115JA drastically, that after so many years it decided to reverse the practice under the shelter of the current accounting practice. We are of the view that the subsequent reversal of the accounting practice and the claim of adjustment on account of interest and depreciation from the real and correct book profit as above, was not with bona fide intention but was prompted with the intention of reducing the tax liability under section 115JA of the Act. It will be totally wrong and against the provisions of section 115JA to allow such an action of the assessee. 20. The ld. AR of the assessee in his argument before us relied upon the Supreme Court decision in the case of Challapali Sugars Ltd.'s and Bombay High Court decision in Bombay Steam Navigation Co. (1953) (P.) Ltd. but both these decisions rendered in October, 1974 and October, 1964 respectively as well as the new accounting practice in the name of which the aforesaid claim of adjustment on account of interest and deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can correct errors in accounts and the book profit is to be taken on the basis of the corrected amount. While processing the case under section 143(1)(a) the Assessing Officer is duty bound to go through the P&L Account as also the computation of book profit declared under section 115J of the Act to verify whether the profit declared by the assessee is in accordance with the provisions of law and the accounting principles followed by the assessee from year to year. In the course of this verification, the Assessing Officer hit upon the wrong adjustment claimed by the assessee with regard to the interest and depreciation which was neither in accordance with the accounting method followed by the assessee in the past nor it was in accordance with the provisions of law. The matter clearly fell within the purview of proviso (3) of section 143(1)(a) of the Act. it will be wrong to say that whatever book profit is declared by the assessee for the purpose of section 115JA of the Act, the same had to be accepted in the course of processing of the return under section 143(1)(a) of the Act. Such a view will be totally incontravention of the requirements of law. Taking recourse to the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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