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TMI Blog2014 (11) TMI 718X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, 1956 and is certified by Auditor, then, the AO cannot make any other modification to the book profit computed in the P&L A/c except as provided under Explanation 1 of section 115JB - the AO after examining the details has computed the book profit in the assessment order - Therefore, there cannot be non-application of mind by the AO - The view taken by the AO in computing book profit u/s 115JB being an acceptable view, the assessment order passed cannot be considered to be erroneous - Therefore, one of the conditions for invoking jurisdiction u/s 263 of the Act is not satisfied – thus, exercise of power u/s 263 of the Act is not justified – thus, the order of the CIT is set aside – Decided in favour of assessee. - IT APPEAL NO. 215 (HYD.) OF 2014 - - - Dated:- 18-7-2014 - B. RAMAKOTAIAH AND SAKTIJIT DEY, JJ For The Appellant : S. Rama Rao For The Respondent : P. Soma Sekhar Reddy ORDER Saktijit Dey, Judicial Member - This appeal of the assessee is directed against the order dated 17/12/2013 passed by the CIT-I, Hyderabad u/s 263 of the Act for the AY 2009-10. 2. Briefly the facts are, assessee a company filed its return of income for the impugned as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT, assessee submitted that as per the provisions of section 115JB of the Act, book profit shall be the net profit as shown in the P L A/c prepared in accordance with the provisions contained in Part I II of Schedule - VI to the Companies Act. It was submitted that as per the P L A/c for the period ending 31/03/2009, the profit is ₹ 34,20,315/-, which has been admitted by the assessee as book profit. It was submitted that the amount of prior period adjustment of ₹ 52,24,589/- was a payment made during the year. Explaining further, it was submitted that the payment relates to services rendered by the foreign agent. As there was dispute with regard to payment of service tax in respect of services rendered by them, the amount was not paid to the foreign agent. However, subsequently, on the basis of a decision of the Hon'ble Supreme Court, the amount of ₹ 52,24,589/- became payable to the foreign agent. Hence, the said amount was provided during the year under consideration, which is in accordance with para 2 of Schedule - II of the Companies Act, 1956. It was submitted by the assessee that any transaction that took place during the year has to be recorded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shown separately in the P L A/c as per the provisions of the Companies Act and as well as Accounting Standard -5, hence, the assessee having followed the procedure laid down in the Companies Act and AS-5, the book profit computed cannot be disturbed by the AO. In support of such contention, he relied on the decision of Apollo Tyres Ltd. and Gulf Oil Corpn. Ltd. (supra). It was submitted that the view taken by the AO being in consonance with the view expressed in the judicial precedents, which is one of the possible view, the CIT was not justified in invoking the jurisdiction u/s 263 of the Act to revise the assessment order. 7. The learned DR, on the other hand, referring to clause 4.3 and clause 16 of the AS-5 submitted that prior period expenses are not in conformity with AS-5. It was submitted that as the P L Account is not in accordance with Part II III of Schedule VI of the Companies Act, computation of book profit is erroneous. The AO having not applied his mind and examined this aspect during the assessment proceeding and having accepted book profit computed by the assessee, the assessment order is erroneous and prejudicial to the interests of the revenue, hence, exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, it is difficult to accept the argument of the Revenue that it is still open to the AO to re-scrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provisions of Companies Act. Reliance placed by the Revenue on sub-s. (1A) of s. 115J in support of the above contention is misplaced. Sub-s. (1A) of s. 115J does not empower the AO to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, the said sub-section does not empower the authority under the IT Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically provide that the aggregate amounts set aside or proposed to be set aside to reserves should be distinctly shown in the P L a/c. Similarly, sub-cl. (b) and sub-cls. (a) and (b) of cls. (xii) and (xiii) respectively in Note II of Part II of Sch. VI provide that profits or losses in respect of transactions not usually undertaken or undertaken in exceptional circumstances or which are of non-recurring nature should be shown in the P L a/c. The aggregate amount of dividends paid and proposed is also to be shown in the P L a/c. The point to drive home is that all the items which are generally classified in the appropriation account are in fact to be included in the P L a/c prepared as per Parts II and III of Sch. VI. Therefore, the starting point for computation of book profits for the purposes of s. 115JB should be the amount which is the final balance in the P L a/c carried to balance sheet. It may also be noted that even extraordinary items have to be debited to the P L a/c. Having adopted such figure as the starting point, the same has to be increased by the items specified in cls. (a) to (f) and has to be reduced by the items specified in cls. (i) to (vii) given in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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