TaxTMI 
TaxTMI 
2008 (9) TMI 89
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....ific requirement of the Accounting Standards prescribed by the Institute of Chartered Accountants of India?" 2. Consequently, we admit this appeal. The filing of paper books is dispensed with and the counsel for the parties have been heard on the above question. 3. The facts are that the assessee initially filed its return of income on 30.10.2000 declaring a loss of Rs 193.31 lakhs. Due to the merger of Khaitan Soya Limited with the assessee with effect from 01.04.1999, a revised return was filed by the assessee. The assessee calculated the taxes payable as per Section 115JA of the Income-tax Act, 1961 (hereinafter referred to as "the said Act") and for that purpose the net profit as per the profit and loss account was computed after reducing prior period expenses/extraordinary items and profit from generation of power plant and the resultant book profit was indicated as under:- Khaitan Chemicals and Fertilizers (lacs) Khaitan Soya Ltd. (lacs) Total Net Profit as per Profit and Loss A/c 220.33 20.33 240.56 Less: Prior Period Expenses / Extra Ordinary Items 0.82 57.21 58.03 Less: Pr....
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....and loss account of a company shall give a true and fair view of the profit and loss of the company for the financial year and shall, subject as indicated in sub-section (1), comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto. Sub-section (3A) of Section 211 stipulates that every profit and loss account and balance sheet of the company shall comply with the accounting standards. Sub-section (3B) provides that where the profit and loss account and the balance sheet of the company do not comply with the accounting standards, such company shall disclose in their profit and loss accounts and balance sheets the following, namely:- (a) the deviation from the accounting standards ; (b) the reasons for such deviation; and (c) the financial effect, if any, arising due to such deviation. 9. Sub-section (3C) provides that for the purposes of Section 211, the expression "accounting standards" means the standards of accounting recommended by the Institute of Chartered Accountants of India (ICAI) constituted under the Chartered Accountants Act, 1949, as may be prescribed by the Central Government in consultation with the National Advisory Co....
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....Standard read as under:- "15. The nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the current profit or loss can be perceived............ 19. Prior period items are normally included in the determination of net profit or loss for the current period. An alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss. In either case, the objective is to indicate the effect of such items on the current profit or loss." 13. In view of the aforesaid Accounting Standard, it was the submission of the learned counsel for the respondent/assessee that the prior period expenses/extraordinary items form part of the net profit or loss of the company. He submitted that they are only to be given separate treatment so that the statement of profit and loss indicates the impact of these items on the current profit or loss. He submitted that this does not mean that the prior period expenses and the extraordinary items are to be treated as deductions from the net profit. He submitted that it is only because separate treatment is to be giv....
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...., comprises of extraordinary items and the same should be disclosed on the face of the statement of profit and loss. From this, it is clear that both, "prior period items" as well as "extraordinary items" are to be included in the determination of net profit or loss. If a prior period item is an expense, it is obvious that it will go towards reducing the net profit or increasing the loss, as the case may be. On the other hand, if the prior period item is an income, it would go towards increasing the net profit or reducing the loss, as the case may be. The same is the position with extraordinary items which may be income or expenses. The conclusion that one can arrive at from this discussion is that prior period items and extraordinary items form part of the net profit or loss. 15. Paragraph 15 of AS 5, which has been extracted earlier, makes it clear that the nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the "current" profit or loss can be perceived. Two approaches have been indicated in paragraph 19 of the said accounting standard (AS 5). The normal approach is to include prior period ....