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TMI Blog2012 (7) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... djustments could not be reduced for arriving at the net profit of that particular year. As per Section 115JA of the Act the Profit and Loss Account for the relevant previous year should be in accordance with the provisions of Part II and III Schedule VI of the Companies Act. Consequently, it was held that the computation done by the assessee was not in accordance with Section 115JA of the Companies Act. Thus the Officer viewed that the net profit as per the profit and loss adopted by the assessee was not in order. Aggrieved by the same, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who confirmed the order of the Assessing Authority by holding that prior year's expenditure could not be adjusted in the book profit of the current year. The assessee went on further appeal before the Income Tax Appellate Tribunal, who confirmed the view of the Commissioner of Income Tax (Appeals) once again. Aggrieved by this, the assessee is before this Court. 3. Learned counsel for the assessee placed reliance on the decision of the Apex Court reported in 255 ITR 273 - APOLLO TYRES LTD., v. C.I.T. only to contend that while computing the book profit under Section 115JA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en as disclosed in the papers filed before this Court. A perusal of the profit and loss account which is filed before the authorities below and before this Court shows that profit for the year to a tune of Rs.1456.44 was reckoned after taking into account, the prior year expenses which are enumerated under Schedule 'S'. It is seen from the order of the Assessing Authority that the Assessing Authority also did not dispute the above said fact that in computing the net profit of the company, the assessee had considered the deduction of the prior year expenses. The only ground on which the claim of the assessee was rejected was that the prior year adjustments could not be reduced for arriving at net profit for the year under consideration. 8. In contrast to the said fact, the Tribunal held that after arriving at the net profit after tax, the assessee has charged "prior period expenses" and in their opinion, it was charged to appropriation account. We do not think such statement of facts is supported by any material. Thus, the facts as seen from the documents show that the computation of the net profit for the year under consideration was made after adjusting prior year expenses and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestioned the correctness of the working out of the depreciation as per the Income Tax Rules as against the rates given in the Companies Act in terms of Parts II and III of Schedule VI to the 1956 Act. Thus, the Supreme Court referred the decision reported in 300 ITR 251 - MALAYALA MANORAMA CO., LTD v. CIT, to a larger Bench. 12. Leaving this aspect aside, the Apex Court pointed out that by legislative incorporation, only Parts II and III of Schedule VI to the 1956 of the Companies Act have been incorporated legislatively into Section 115J of the Act. The question hence that came up before the Apex Court in the decision reported in 321 ITR 300 - DYNAMIC ORTHOPEDICS P. LTD v. CIT is as regards the computation of the depreciation for the purpose of net profit determination. Hence, as rightly contended by learned counsel for the assessee, the said decision does not seriously stand in the way of this Court considering the issue as regards the deduction of prior year expenses in the matter of computing the net profit of the company for the year under consideration. In fact, similar question came up for consideration before the Delhi High Court in the decision reported in 307 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows:- "................. Two approaches have been indicated in paragraph 19 of the said Accounting Standard (AS 5). The normal approach is to include prior period items in the determination of net profit or loss for the current period. The alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss. As indicated in the accounting standard, in either case, the objective is to indicate the effect of such items on the current profit or loss........" 14. Thus, the Delhi High Court held that whether the prior period expenses were shown separately or not, the assessee would nevertheless be entitled to have the adjustment of the prior period expenses in the matter of computing the net profit of the assessee. Thus on mere fact that the assessee had shown its prior period expenses in the extra ordinary items separately, did not mean the net profit was arrived at de hors these items. The Delhi High Court further pointed out that the assessee had not claimed any deduction with the net profit on the basis of any clauses given in the explanation to Section 115JA(2). Consequently, the question was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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