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TMI Blog1998 (9) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The learned CIT(A) has directed the Dy. CIT for the recomputation of the profit for the purpose of s. 115J of the IT Act, 1961, by deducting the excess bonus paid at Rs. 6,94,796 during the year out of the net profit for the asst. yr. 1989-90. But the CIT(A) has confirmed the addition of the prior year expenses to the extent of Rs. 1,34,509 for the purpose of computation of profit under s. 115J of the IT Act, 1961. The assessee has come in appeal before us against the addition of the prior year expenses amounting to Rs. 1,34,509 in the net profit as worked out by assessee for the purpose of computation of net profit under s. 115J. 2. The assessee's authorised representative argued that the prior year expenses have been incurred by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act it is the basic requirement that the P&L a/c shall be so made out as clearly to disclose the result of the working of the company during the period covered by the accounts. Since the accounts relate for a particular period and the expenses do not represent to that particular period, the expenses were not debited to the P&L a/c of the assessee of that period and the nomenclature 'prior year' has been used only to distinguish these expenses from the period to which the financial statement of the assessee belonged. The learned Departmental Representative in this regard relied on the decision of the Hon'ble Supreme Court in the case of Haji Lal Mohd. Biri Works vs. CIT (1997) 140 CTR (SC) 275 : (1997) 224 ITR 591 (SC). 3. We have consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany shall give a true and fair view of the profit or loss of the company for the financial year and shall subject as aforesaid comply with the requirements of Part II of Sch. VI so far as they are applicable thereto. Sec. 209 of the Companies Act, 1956 deals with the books of accounts to be kept by the company. Sec. 209(3) lays down that for the purpose of sub-s. (1) and sub-s. (2) proper books of accounts shall not be deemed to be kept with respect to the matter specified therein: (a)….. (b) if such books are not kept on accrual basis and according to the double entry system of accounting. Thus the section requires to make it obligatory on the companies to maintain accounts on mercantile system only. Sec. 211 r/w Part II of Sch. VI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod expenses are charged to current year's P&L a/c. The Expert Advisory Committee of the Institute of Chartered Accountants of India in its book on Compendium of Opinions Vol. I at page 1-29 has expressed its opinion on a query relating to the presentation of prior year expenses in the P&L a/c as under: "The Companies Act does not envisage a P&L Appropriation a/c although such an account is often prepared in practice. Sometimes, the P&L a/c is divided into two parts referred to customarily as 'above the line' and 'below the line' respectively. The basic requirement which must be borne in mind is that the P&L a/c should disclose a true and fair view of the profit or loss for the year. Therefore, if the prior-year expense and/or receipts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction of Rs. 1,34,509 relating to prior year expenses out of the profit for the year for the purpose of computation of book profit under s. 115J. We, therefore, dismiss this ground of appeal of the assessee. 4. The second and third grounds relate to the disallowance of a sum of Rs. 4,000 out of telephone expenses and Rs. 8,618 out of motor car expenses on the plea that they do not relate to the business. The assessee's authorised representative argued that the company is an artificial person created for the purpose of carrying on the business and, therefore, part of the expenses can never be regarded to have been incurred not for the purpose of the business. If the AO was of the firm view that these expenses are not incurred for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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