TaxTMI 
TaxTMI 
2016 (1) TMI 1501
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....s permissible beyond that. 3. That the various disallowance as confirmed by the CIT(A) is against the judgment of Delhi Bench of the ITAT in the case of ACIT Vs. UFLEX Ltd. as reported in 55 SOT 43 and of the Mumbai Bench of the ITAT in the case of Shivshahi Punarvasan Praklp Ltd. Vs. ITO as reported in 135 ITD 51 (Mum). 3. Brief facts of the case are that the assessee is in the business of manufacturing mosquito coils, with its unit located at Samba, J&K. During the impugned Assessment year the assessee was chargeable to tax as per the provisions of Section 115JB of the Income Tax Act and paid taxes on its book profits. During assessment proceedings the AO noted that as per computation of income, the assessee had added following amounts, while arriving at total income. Prior Period items 46,64,504/- Interest on PLA 3,635/- Interest on TDS 6050/- The AO further noted that these amounts had not been added while computing the book profit u/s 115JB of the Income Tax Act. The AO accordingly added these to the total income of the assessee an....
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....king out the book profit of the company u/s 115JB. On the issue of addition of prior period expenses amounting to Rs. 46,64,504/- to the net profits of the assessee u/s 115JB the AR reiterated the arguments made before the Ld. CIT(A) and further relied on the following judicial decision. 1. CIT Vs. Khaitan Chemicals & Fertilizers Ltd. (2008) 307 ITR 150(Del) 2. CIT Vs. RTCL Ltd. ITA No. 612/2009 dt. 28/03/2012 3. Gulf Oil Corporation Ltd. Vs. ACIT (2007) 112 TTJ (Hyd) 138 4. Riddhi Siddhi Gluco Biols Ltd. in ITA No. 3234/Hyd/2007 dt. 29/12/2011. Ld. DR on the other hand relied upon the order of the CIT(A). Ld. DR further relied upon the decision of the Kerala High Court in the case of Sree Bhagawathy Textiles Ltd. Vs. ACIT 342 ITR 244 and stated that after considering the decision rendered by the Delhi High Court in the case of Khaitan Chemicals & Fertilizers Ltd. (2008) 307 ITR 150, the Kerala High Court had held that no adjustment of prior period is to be made to arrive at the Book Profit for the purpose of Section 115JB. 6. We have heard the rival submissions and perused the orders of the authorities below as also the documents placed....
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....ounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. ....
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....efor, (i) the amount or amounts set aside as provision for diminution in the value of any asset, (j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset, Following clause (k) shall be inserted after clause (j) in Explanation 1 below subsection (2) of section 115JB by the Finance Act, 2015, w.e.f. 1-4-2016 : (k) the amount of gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through profit or loss account, as the case may be; if any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by,- (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the pr....
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.... units allotted by that trust referred to in clause (xvii) of section 47; or (B) notional gain resulting from any change in carrying amount of said units; or (C) gain on transfer of units referred to in clause (xvii) of section 47, if any, credited to the profit and loss account; or (iif) the amount of loss on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through profit or loss account, as the case may be; (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. A bare perusal of Explanation 1 to the section reveals that the starting point for calculating the book profit is the net profit as shown in the Profit and Loss account of the assessee. This profit and loss account has to be prepared in the manner prescribed u/s 115JB(2), which states that it should be in accordance with the provision of Part-II of Schedule -VI to the Companies Act, 1956 and ....
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....s, states at para 19 that prior period items are to be included for calculating current profits but they should be disclosed separately. AS-5, para 18 is reproduced herein:- Prior period items are generally infrequent in nature and can be distinguished from changes in accounting estimates. Accounting estimates by their nature are approximations that may need revision as additional information becomes known. For example, income or expense recognised on the outcome of a contingency which previously could not be estimated reliably does not constitute a prior period item. Thus, what emanates from the above is that as per Schedule -VI, Part -II and the prescribed Accounting Standards, net profit for the current year is to be arrived after adjusting prior period items. In the present case the undisputed fact is that the Net Profit shown in the profit & loss account has been arrived at after reducing the prior period expenses. As discussed above, this Net Profit, is in compliance with Schedule-VI Part-II of the Companies Act and the prescribed Accounting Standard, i.e. AS-5. No adjustment, on account of prior period expenses, is required to be made to the same. Moreover, ev....