2015 (12) TMI 1847 - AT - Income Tax

Tribunal orders re-examination of prior period expenses for book profit calculation

Deputy Commissioner of Income-tax, Circle 11 (3), Bangalore Versus M/s. Golden Gate Properties Ltd.

Deputy Commissioner of Income-tax, Circle 11 (3), Bangalore Versus M/s. Golden Gate Properties Ltd. - TMI Issues:1. Whether the assessee can adjust prior period expenses while computing book profit under section 115JB.Analysis:1. The revenue raised grounds against the CIT(A)'s order, arguing that the prior period expenses were not specified in the clauses of Explanation to Section 115JB and were not debited to the Profit & Loss Account. The revenue contended that the prior period expenses were adjusted against opening reserves, not reflected in the P&L account, and thus not eligible for adjustment.2. The assessee, a public limited company in the real estate business, filed a revised return declaring income after claiming deductions under section 80-IA. The Assessing Officer (AO) added back prior period expenses to compute book profit under section 115JB. The assessee challenged this before the CIT(A), arguing that net profit should consider expenses disclosed in the notes to accounts as part of the financial statement, complying with the Companies Act and accounting standards.3. The CIT(A) accepted the assessee's contention, citing judgments allowing deduction of prior period expenses irrespective of separate presentation in the Profit & Loss Account. The CIT(A) held that prior period expenses disclosed in the notes to accounts should be considered for computing book profit under section 115JB.4. The Tribunal considered both parties' arguments. It noted that the prior period expenses were not debited to the Profit & Loss Account but disclosed in the notes to accounts. The Tribunal highlighted the requirement for such expenses to be part of the Profit & Loss Account as per Schedule VI of the Companies Act or relevant accounting standards for adjustment under section 115JB.5. As neither party provided evidence on whether the prior period expenses were required in the Profit & Loss Account as per Schedule VI of the Companies Act, the Tribunal remanded the issue to the CIT(A) for re-examination. The CIT(A) was directed to determine if the prior period expenses should be part of the Profit & Loss Account based on relevant provisions and accounting standards.6. The Tribunal allowed the revenue's appeal for statistical purposes, emphasizing the need for a thorough examination of whether the prior period expenses were mandated to be part of the Profit & Loss Account under the Companies Act before adjusting for book profit under section 115JB.