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TMI Blog2020 (9) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the book profit of the company in order to avoid tax as per the MAT provisions of the Act. In fact, it epics the correct state of affairs of the assessee company based on the qualified audit report of the Statutory Auditors of the assessee company. Since these facts were brought to the notice of the Ld. AO subsequent to the filing of the return of income it appears that the Ld. AO had accepted the same while passing orders U/s. 143(3) this action of the Ld. AO has not resulted in any error in so far as it is prejudicial to the interest of the Revenue - quash the orders passed by the Ld. CIT invoking his powers u/s.263 - Decided in favour of assessee. - ITA No. 674/Hyd/2016, 957/Hyd/2018 - - - Dated:- 22-7-2020 - Smt. P. Madhavi Devi, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Assessee : Shri C.Subramanyam, AR For the Revenue : Shri Y.V.S.T.Sai, CIT-DR ORDER PER A. MOHAN ALANKAMONY, A.M. : The assessee has filed these appeals against the order passed by the Ld.CIT U/s. 263 of the Act dated 10/03/2016 and the Order passed by the Ld.CIT(A) in ITA No. 0465/2016-17/CIT(A)/5, dated 13/3/2018 U/s 250(6) r.w.s 143(3) 147 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies Act, 1956, the accounting standards issued by the Institute of Chartered Accountants of India is mandatory while drawing the statement of affairs of the assessee company. (iii) The Accounting Standard-15 dealing with provision for gratuity mandates the assessee company to provide for the liability arising out of gratuity based on actuarial valuation in the Balance Sheet as well as the Profit Loss Account of the Company. (iv) As per the actuarial valuation, the assessee company had determined the liability towards gratuity as ₹ 133,99,37,863/- which is to be charged off in the P L account during the relevant Assessment Year. (v) However, the management of the assessee company was of the opinion that such huge liability cannot be absorbed in a single year and hence decided to write off only 20% of the amount of ₹ 133,99,37,863/- which works out to ₹ 26,79,87,573/- in the Balance Sheet and Profit Loss statement of the Company. Thus, the amount of ₹ 107,19,50,290/- was omitted to be written off during the relevant assessment year which is in violation of the Companies Act. (vi) However, the provisions of Companies Act flouted by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT Act. (ii) As per the provisions of the Act the Ld. AO has to ascertain the book profit of the assessee as per the Companies Act, 1956 and compared with the profit under the normal provisions of the Income Tax Act, 1961 and higher of the same has to be adopted for the purpose of computing tax under the provisions of section 115JB of the Act. Since, the book profit as per the provisions of Companies Act was not computed, such comparison was not possible. (iii) From the communication between the assessee and the Ld. AO during the course of scrutiny assessment proceedings, it was apparent that there was no discussion with respect to the book profit of the assessee. (iv) Even in the order sheet notings, no reference to book profit was mentioned. (v) The submission of the Ld. AR that he had offered explanation regarding the above issues does not have merits because those explanations were submitted within 15 days of filing of the return on line and not during the course of assessment proceedings. (vi) The assessee itself had admitted that the provision made for doubtful debts amounting to ₹ 3,31,14,993/- ought to have been added back while computing the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit of the assessee company as per the provisions of the Companies Act in order to arrive at the correct book profit of the assessee. The Ld. AR relied on the decision of the Mumbai Bench of the Tribunal in the case of M/s. Sumer Builders Private Limited vs. DCIT order dated 13/1/2012 in ITA No. 2512, 2513 2514/Mum/2009 wherein the above stated ratio was laid down. We find merit in the submission of the Ld. AR. In the case of the assessee the assessee itself has recaste its P L Account and Balance sheet in accordance with the provisions of the Companies Act. Companies Act recognises the Accounting Standards issued by the Institute of Chartered Accountants of India which stipulates that the financial statements ought to be free from material misstatements and faithfully represent the financial performance and position of the entity. Therefore, all the material facts have to be taken into account in order to arrive at the correct profit earned by the entity during the relevant financial year. Hence, in the case of the assessee it had rightly redrawn the P L Account disclosing the actual loss accrued to it during the relevant AY by way of making provision towards gratuity, b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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