Tax Court Upholds Book Profit Calculation & Provident Fund Contributions Disallowance

The case involved issues regarding the deletion of addition of capital reserve while computing book profit under section 115JB of the Income Tax Act, 1961, and the disallowance of employees' contribution to Provident Fund/ESI paid beyond due dates. The Tribunal upheld the decisions of the ld. CIT(Appeals) on both issues, emphasizing that the Assessing Officer cannot recast audited accounts and that payments made before the due date of filing the return of income cannot be disallowed. The appeal of the Revenue and the Cross Objection of the assessee were dismissed, with the order pronounced on October 31, 2018.

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Issues involved:
1. Deletion of addition of capital reserve while computing book profit under section 115JB of the Income Tax Act, 1961.
2. Disallowance of employees' contribution to Provident Fund/Employees State Insurance (ESI) paid beyond due dates.

Analysis:

Issue 1: Deletion of addition of capital reserve while computing book profit under section 115JB
The main issue in this case was the deletion of the addition of a significant amount credited to Capital Reserve by the assessee-company while computing the book profit under section 115JB of the Income Tax Act, 1961. The Assessing Officer had added the amount to the book profit, but the ld. CIT(Appeals) deleted this addition. The ld. CIT(Appeals) based the deletion on the Supreme Court judgment in Apollo Tyres Ltd v CIT and Malayala Manorama Co Ltd vs CIT, emphasizing that the Assessing Officer cannot recast the audited profit and loss account. The Bombay High Court also affirmed this position in a subsequent judgment. The Tribunal upheld the decision of the ld. CIT(Appeals), stating that the Assessing Officer cannot make changes to audited accounts certified under the Companies Act, except for adjustments as provided in Explanation to section 115JB. The Tribunal highlighted that the adjustment made by the Assessing Officer was not permissible under Clause (b) of Explanation (1) to Section 115JB since the amount in question was directly transferred to Capital Reserve without being debited to the Profit & Loss Account.

Issue 2: Disallowance of employees' contribution to Provident Fund/ESI paid beyond due dates
The second issue involved the disallowance of employees' contribution to Provident Fund/ESI paid beyond the due dates prescribed by the respective statutes. The ld. CIT(Appeals) deleted the addition made by the Assessing Officer based on the decision of the Hon'ble Calcutta High Court in the case of Vijay Shree Limited, which held that payments made before the due date of filing the return of income for the relevant year could not be disallowed as per the amendment to section 43B by the Finance Act, 2003. The Tribunal upheld the decision of the ld. CIT(Appeals) on this issue, citing the binding precedent set by the Hon'ble Supreme Court in a related case.

In conclusion, the Tribunal dismissed the appeal of the Revenue and the Cross Objection of the assessee, maintaining the decisions of the ld. CIT(Appeals) on both issues. The order was pronounced in open court on October 31, 2018.

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