2023 (2) TMI 446 - AT - Income Tax

ITAT Chennai partially allows appeal on MAT book profits computation under sec.115JB for AY 2008-09.

M/s. Kavithalayaa Productions- (P) Ltd., Versus. The Asst. Commissionerof Income Tax, Media Circle-14,

M/s. Kavithalayaa Productions- (P) Ltd., Versus. The Asst. Commissionerof Income Tax, Media Circle-14, - tmi Issues:1. Computation of book profits for the purpose of MAT under sec.115JB of IT Act 1961.2. Adjustments to book loss for assessment year 2008-09.3. Compliance with Companies Act 2003 and Accounting Standards of ICAI.4. Treatment of income for TDS credits under Accounting Standards.5. Treatment of prior period expenses while computing book profit under sec.115JB.Issue 1: Computation of book profits for the purpose of MAT under sec.115JB of IT Act 1961:The appeal challenged the order of the Commissioner of Income Tax (Appeals) regarding the computation of book profits for the assessment year 2008-09 under sec.115JB of the IT Act 1961. The appellant argued that adjustments made to re-compute the book loss or income under normal provisions of the IT Act for assessment purposes were not applicable to the computation of income for MAT purposes. The appellant contended that the adjustments made by the authorities were not in line with the provisions of sec.115JB, and the book profit computation should be restored as per the return filed.Issue 2: Adjustments to book loss for assessment year 2008-09:The appellant raised concerns regarding two adjustments made to re-compute the book loss or income for assessment year 2008-09. These adjustments included income admitted to claim TDS credits and the exclusion of prior period expenses. The appellant argued that these adjustments were permissible under the normal provisions of the IT Act 1961 but were not applicable for computing income liable for assessment under sec.115JB of the Act. The appellant sought the deletion of these additions to restore the income computed by the assessee for tax liability purposes.Issue 3: Compliance with Companies Act 2003 and Accounting Standards of ICAI:The appellant emphasized the importance of maintaining accounts in accordance with the provisions of the Companies Act 2003 and the Accounting Standards of ICAI. The appellant argued that the adjustments made by the authorities were not in line with the mandatory requirements for maintaining company accounts, which should have limited the adjustments permissible for computing book profits under sec.115JB of the IT Act.Issue 4: Treatment of income for TDS credits under Accounting Standards:The appellant contested the treatment of income offered for TDS credits, arguing that it should not be considered as income for the assessment year under sec.115JB. The appellant highlighted that Accounting Standards recognize income only when it has accrued during the previous year, and thus, the treatment of TDS credits income should align with these standards.Issue 5: Treatment of prior period expenses while computing book profit under sec.115JB:The appellant challenged the disallowance of prior period expenses while computing book profit under sec.115JB of the IT Act 1961. The appellant argued that the treatment of prior period expenses should follow the Accounting Standards, which allow debiting such expenses to the profit & loss account of a subsequent year. The appellant contended that the disallowance of prior period expenses did not align with the provisions of sec.115JB and the adjustments specified in Explanation (1) to the section.In conclusion, the ITAT Chennai partially allowed the appeal, directing the AO to delete the additions made towards income admitted for TDS credits while computing book profit under sec.115JB. However, the additions made towards prior period expenses were sustained as the appellant's treatment did not comply with the requirements of the Companies Act 2003 and Accounting Standards.