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TMI Blog2012 (6) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... of consideration – in favour of assessee. Provision for leave encashment – ITA held that the provision for leave encashment of could not be reduced from "book profits" while computing tax liability under section 115JB as while preparing such Profit & Loss account, the assessee company did not enter such amount in it and instead, the same formed a part of the Notes forming part of the accounts annexed to its annual accounts – Held that:- On a conjoint reading of sub-sections (2),(3A) of section 211 and Part II of Schedule VI to the Companies Act, 1956 and the Accounting Standard 15 once it is clear that the information towards incremental liability of leave encashment which has not been provided in the Profit & Loss account is otherwise disclosed in the Notes to the accounts, it would clearly fall within the ambit of Explanation 1 to the second Proviso to section 115JB of the Act which defines "book profits" to mean "net profit" as "shown" in the Profit & Loss account for the relevant previous year prepared under sub-section (2) of section 115JB - in favour of assessee. Charging of interest under sections 234B and 234C - the appellant contested that the total income was compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to adopt the value adopted by the Stamp valuation authority without referring the matter to the Valuation Officer, especially when the assessee had objected to the value adopted by the Stamp valuation authority. In this connection, our attention was invited to page 33 of the Paper Book wherein is placed a copy of the computation of income annexed with the return of income in which the assessee had claimed that in terms of section 50C(2)(a) of the Act, the value adopted by the Stamp valuation authority under section 50C exceeded the fair market value of the property as on date of transfer. In terms thereof, the Assessing Officer was expected to refer the matter to the Valuation Officer to ascertain the valuation and thereafter proceed in the matter as contained in section 50C(2)(a) of the Act. 4. On the other hand, the learned Departmental Representative, appearing for the Revenue has contended that it was not mandatory for the Assessing Officer to refer the matter for valuation inasmuch as the word in section 50C(2)(a) used is "may" which clearly shows the discretion on the part of the Assessing Officer in referring the matter for valuation purpose. Therefore, according to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ascertaining the value of the capital asset in question. Therefore, in this view of the matter without going into further merits of the dispute, we set aside the order of the Commissioner of Income-tax (Appeals) and direct the Assessing Officer to adopt the course mentioned in section 50C(2)(a) of the Act and thereafter proceed to determine capital gain on sale of land and building. Needless to mention, the Assessing Officer shall give a reasonable opportunity of being heard to the assessee in this regard and adjudicate the issue afresh. Thus, on this Ground the assessee succeeds for statistical purposes. 6. The second Ground in this appeal relates to the action of the income-tax authorities in holding that the provision for leave encashment of Rs 8,35,447/- could not be reduced from "book profits" while computing tax liability under section 115JB of the Act. The issue is as to whether the assessee can be permitted to deduct Provision for leave encashment of Rs 8,35,447/-, which is not debited to the Profit Loss account, while arriving at the "book profits" for the purposes of section 115JB of the Act. 7. The Assessing Officer and thereafter, the Commissioner of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 115J was found to be tenable, inspite of the fact that the amount was not debited to the Profit Loss account and due cognizance was given to the fact that the amount of depreciation was otherwise disclosed in the Notes to accounts accompanying the financial statements. Therefore, it was contended that having regard to the obligation to comply with Accounting Standard 15 and the disclosure of the amount of Rs 8,35,447/- in the Notes to accounts as an incremental liability towards leave encashment, would entitle the assessee to deduct the same while determining the "book profits" for the purpose of section 115JB of the Act. 9. We have carefully considered the rival submissions. The pointed controversy on this ground has already been noted by us in the earlier part, which is to the effect as to whether the assessee is correct in asserting that the incremental liability towards leave encashment amounting to Rs 8,35,447/-which is not debited to the Profit Loss account, is liable to be deducted while arriving at the "book profits" under section 115JB of the Act. Quite clearly, the issue that is liable to be addressed is the manner in which the "book profits" are required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit Loss account. In terms of sub-section (1) of section 211 of the Companies Act, 1956, the balance sheet of a company is to be prepared so as to give a true and fair view of the state of affairs of the company at the end of the financial year and is to be in a form set out in Part I of Schedule VI to Companies Act, 1956. Similarly sub-section (2) of section 211 requires that every Profit Loss account of a company shall give a true and fair view of the profit or loss of a company for the financial year and shall comply with the requirements of Part II of Schedule VI to the Companies Act, 1956. Sub-section (3A) of section 211 provides that every Profit Loss account and Balance sheet of the company shall comply with the Accounting Standards. Sub-section (3C) of section 211 of Companies Act, 1956 further clarifies that the expression 'Accounting Standards' means standards of accounting recommended by the Institute of Chartered Accountants of India. 11. Now, we may examine the requirements as to Profit Loss account contained in Part II of Schedule VI to the Companies Act, 1956. The relevant portion of Clause 3 reads as under: "The profit and loss account shall set out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to a balance sheet or profit and loss account shall include the notes thereon or documents annexed thereto, giving information required to be given and/or allowed to be given in the form of notes or documents by the Companies Act. As already noted it is obligatory under clause 3(iv) of Part II to Schedule VI to the Companies Act to give information with regard to depreciation, which has not been provided for alongwith the quantum of arrears. According to us, once this information is disclosed in the notes to the accounts it would clearly fall within the ambit of the Explanation to section 115J of the Act which defines "book profit" to mean "net profit" s "shown" in the profit and loss account for the relevant assessment year. To our minds, as long as the depreciation which is not charged to the profit and loss account but is otherwise disclosed in the notes of the accounts, it would come within the ambit of the expression "shown" in the profit and loss account, as notes to the accounts, form part of the profit and loss account by virtue of sub-section (6) of section 211 of the Companies Act, 1956. This is quite evident if the provisions of subsection (6) of section 211 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed in the Notes to Accounts will have to be taken into account while determining the "book profits" under section 115JB of the Act. In other words, the liability of Rs 8,35,447/- towards leave encashment has to be considered to determine net profit as the information was disclosed in the Notes appended to accounts, which have been held to be part of the accounts of the assessee company. Therefore, we find ample force in the plea of the assessee which, in our opinion, is allowable having regard to the parity of reasoning laid down by the Hon'ble Delhi High Court in the case of Sain Processing Weaving Mills P. Ltd ( supra ). 13. In so far as the plea of the Revenue to the effect that the aforesaid item is not mentioned in Clauses (i) to (vii) of the Explanation 1 to the second Proviso to section 115JB of the Act is concerned, the same in our view is liable to be dismissed as misconceived. At no stage it has been the claim of the assessee that it was claiming deduction in terms of clauses (i) to (vii) of Explanation 1 to the second Proviso to section 115JB of the Act. The plea of the assessee has been that net profit as referred to in Explanation 1 to the second Proviso to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad debt only if the said amount has been taken into account in computing the income of the assessee for the previous year or for an earlier previous year. In the opinion of the Assessing Officer, since the said amount was a reimbursement and not income, there was no question of taking the same into account while computing the income of the assessee for any previous year. He accordingly disallowed the claim of the assessee of bad debt of Rs 1,22,402/-. Against the said decision, the assessee went in appeal before the Commissioner of Income-tax (Appeals). 19. Before the Commissioner of Income-tax (Appeals), assessee explained that the amount in question represented cost of corrugated boxes charged by the assessee to M/s Voltas Ltd, to whom certain goods were sold in financial year 2000-01. As the assessee did not receive this amount from the said concern, the same was claimed as bad debt in the current year. It was further submitted that since the cost of boxes as charged to M/s Voltas Ltd. constituted a part of income of the assessee company for financial year 2000-01, the condition for claiming bad debt had been fulfilled. In support thereof, assessee company submitted ledger ..... X X X X Extracts X X X X X X X X Extracts X X X X
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