1998 (9) TMI 142 - AT - Income Tax

Tribunal upholds income tax computation, allows business expenses

The Tribunal upheld the Deputy Commissioner of Income Tax's computation of book profit under section 115J, dismissing the appeal due to correct alignment ... - Issues:1. Computation of book profit for the purpose of s. 115J.2. Disallowance of certain expenses related to telephone and motor car expenses.Issue 1: Computation of Book Profit:The appeal concerned the computation of book profit for the purpose of s. 115J. The Dy. CIT calculated the book profit at Rs. 16,42,535, while the assessee computed it at Rs. 8,21,555. The CIT(A) directed the Dy. CIT to recompute the profit by deducting excess bonus paid, but confirmed the addition of prior year expenses. The assessee contended that the prior year expenses were incurred during the year and should be allowed as a deduction. The Tribunal noted that the prior year expenses were not related to the period under consideration and were charged to P&L Appropriation a/c, not P&L a/c. It was held that the AO correctly recomputed the P&L a/c to align with the Companies Act provisions. The Tribunal dismissed the appeal on this ground.Issue 2: Disallowance of Expenses:The second and third grounds of appeal related to the disallowance of Rs. 4,000 for telephone expenses and Rs. 8,618 for motor car expenses on the basis that they were not business-related. The assessee argued that as a company, all expenses were incurred for business purposes. The Tribunal agreed with the assessee, stating that if the expenses were not for business purposes, s. 40A(5) could have been applied. Consequently, the AO was directed not to disallow these expenses. The appeal was partly allowed on this issue.