2014 (11) TMI 718 - AT - Income Tax

Tribunal sets aside CIT's revision order, affirms AO's computation of book profit under section 115JB

Coromandel Stampings & Stones Ltd. Versus Assistant Commissioner of Income-tax, Circle-1 (2), Hyderabad

Coromandel Stampings & Stones Ltd. Versus Assistant Commissioner of Income-tax, Circle-1 (2), Hyderabad - TMI Issues Involved:1. Validity of disallowance under section 40(a)(ia) for non-deduction of TDS on rental and carriage & freight expenses.2. Correctness of computation of book profit under section 115JB considering prior period expenses.3. Exercise of revisionary powers under section 263 by the CIT.Detailed Analysis:1. Disallowance under Section 40(a)(ia):The Assessing Officer (AO) disallowed Rs. 1,82,000/- under rental expenses and Rs. 6,32,623/- under carriage and freight expenses for non-deduction of tax at source (TDS). The AO invoked section 40(a)(ia) of the Income Tax Act, adding these amounts back to the income of the assessee. Consequently, the total income was determined at Rs. 8,14,62/- under normal provisions, with book profit computed at Rs. 34,20,315/- under section 115JB.2. Computation of Book Profit under Section 115JB:The Commissioner of Income Tax (CIT) examined the assessment records and found that the assessee had reduced prior period expenditure of Rs. 52,24,589/- while computing the book profit of Rs. 34,20,315/- under section 115JB. The CIT argued that since this expenditure was not incurred in the relevant previous year, it should not be considered under the provisions of Part II & III of Schedule VI to the Companies Act, 1956. Consequently, the CIT deemed the assessment order erroneous and prejudicial to the interests of the revenue and directed the AO to recompute the book profit at Rs. 86,44,904/-.3. Exercise of Revisionary Powers under Section 263 by CIT:The assessee challenged the CIT's revision order, arguing that the book profit was computed in accordance with Part II & III of Schedule VI of the Companies Act, 1956, and certified by the auditor. The assessee contended that the AO, having examined the details and computed the book profit accordingly, could not be said to have passed an erroneous order. The assessee relied on the Supreme Court decision in Apollo Tyres Ltd. and ITAT Mumbai Bench decisions in Duke Offshore Ltd. and Gulf Oil Corporation Ltd., which supported the view that the AO cannot disturb the book profit as computed and certified under the Companies Act.The CIT, however, did not accept these contentions, holding that prior period expenditure cannot be reduced from the profit for arriving at the book profit under section 115JB. The CIT directed the AO to recompute the book profit accordingly.Tribunal's Findings:The Tribunal considered the submissions and perused the material on record. It noted that the Profit & Loss (P&L) Account was drawn in accordance with Part II & III of Schedule VI of the Companies Act, 1956, and certified by the auditors. Referring to Accounting Standard (AS) 5, the Tribunal observed that prior period items should be separately disclosed in the P&L Account. The Tribunal cited the Supreme Court's decision in Apollo Tyres Ltd., which held that the AO cannot go behind the net profit shown in the P&L Account except to the extent provided in the Explanation to section 115JB.The Tribunal also referred to the ITAT Hyderabad Bench's decision in Gulf Oil Corporation Ltd., which emphasized that the starting point for computing book profits under section 115JB should be the final balance in the P&L Account carried to the balance sheet, including extraordinary items.The Tribunal concluded that the AO, having examined the details and computed the book profit in accordance with the statutory provisions, had taken an acceptable view. Therefore, the assessment order could not be considered erroneous, and the conditions for invoking jurisdiction under section 263 were not satisfied. Consequently, the Tribunal set aside the CIT's order under section 263.Conclusion:The appeal of the assessee was allowed, and the Tribunal set aside the CIT's revision order under section 263, affirming the AO's computation of book profit under section 115JB. The Tribunal held that the AO's order was neither erroneous nor prejudicial to the interests of the revenue.