TaxTMI 
TaxTMI 
2021 (10) TMI 217
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....umstances of the case to the extent prejudicial to the interests of the appellant and is opposed to the principles of equity, natural justice and fair play. 2. For that the Commissioner of Income Tax (Appeals) erred in concluding that the adjustments made by the appellant on account of provisions of gratuity relating to earlier years is not in accordance with the provisions of section 115JB of the Income Tax Act, 1961 3. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the gratuity provision created and charged based on the actuarial valuation being the ascertained liability is deductible in arriving at the quantification of the books profits 4. For that the Commissioner of Income Tax (Appeals) failed to app....
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....the case of M/s. Apollo Tyres Ltd. vs. CIT, 255 ITR 273 held that provision for gratuity relating to earlier years is not in accordance with provisions of section 115JB of the Act. He further noted that explanation to section 115JB of the Act, does not provide for adjustment made by the assessee. Aggrieved by the CIT(A) order, the assessee is in appeal before us. 4. The ld. AR for the assessee submitted that the ld. CIT(A) has erred in sustaining computation of book profit u/s. 115JB by the AO, without considering provision made for gratuity in books of accounts and computed net loss for the year. The AO has taken net profit before allowing deduction towards provision for gratuity without appreciating the fact that provision made for gratu....
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....ssessee and the AO is, on account of provision for gratuity relating to earlier years as prior period item. As per provisions of Act and accounting principles, prior period item whether expenses or income is an item of expense deductible or item of income, always comes below the line in the profit & loss account. That means, for all practical purposes, the net profit as per books of account for the relevant period is net profit computed without making any adjustment by deducting prior period items or other appropriations made in the current financial year. If you go by this analogy then, provision for gratuity relating to earlier years claimed by the assessee under the head 'prior period items' comes below the line in profit & loss ....
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....ty while computing book profit and held that provision for gratuity cannot be added for computing book profit u/s. 115JB of the Act, but fact remains that there is a difference between provision for gratuity of current year and provision for gratuity relating to earlier years. If provision for gratuity relating to current financial year is provided on actuarial basis, then same is deductible expenses and thus, the question of making adjustment to book profit does not arise. If provision for gratuity relating to earlier years is provided in the books of accounts as item of prior period expenses, then same needs to be provided in the profit & loss account below the line and hence, the same should be considered in light of Explanation - (1) to....