TaxTMI 
TaxTMI 
2022 (8) TMI 1603
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....ssee filed its return of income for A.Y. 2011-12 on 09.09.2011, declaring a total income of Rs. 2,40,56,230/- and book profits u/s 115JB at Rs. 2,93,98,327/-. The return of income was processed u/s 143(3) of the Act and the total income was determined at Rs. 2,40,65,456/-. Subsequently, the case was reopened u/s 147 and a notice u/s 148 of the Act was issued and served. Later, notice u/s 143(2) of the Act was also issued and served on the assessee. In response to the notices, the assessee filed submissions. After going through the information, the Assessing Officer completed the assessment by adding Rs. 4,05,59,976/- towards the net gain on trade contracts and assessed the total income at Rs.6,99,58,303/-. 4. Feeling aggrieved with the order of Assessing Officer, assessee carried the matter before ld. CIT(A), who partly allowed the appeal of the assessee. 5. Feeling aggrieved with the order of ld. CIT(A), the Revenue is now in appeal before us, and simultaneously, the assessee also appealed before us by filing it's Cross - Objections. 6. At the outset, we notice that the assessee's Cross-Objections suffer from 19 days of delay in filing. Learned counsel for the ass....
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.....2018. The relevant portion of the written submissions dt. 18.09.2018 filed by the assessee read as under : "In the present case the Appellant company has furnished all the information like the Balance Sheet, Profit and Loss Account and the schedules thereto of the company along with the audit report and the tax report in form 3CA and 3CD. During the course of the assessment proceedings the issue pertaining to the profit on speculation was brought to the notice of the assessee and a reply to that effect was also submitted along with the details of the transaction. As such it is for the assessing officer to decide on the amounts so declared. Further it is not correct to state that the information at the time of the original assessment was not furnished. The Assessing Officer stated that "As per section 115JB(2), every assessee, being a company, shall prepare its Profit & Loss Account for the relevant previous year in accordance with the provisions of Part II of Schedule VI of the Companies Act, 1956 and while preparing the annual accounts including profit and loss account, (i) the accounting policies, (ii) the accounting standards adopted for preparing such account....
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....s the issue was already discussed during the course of the Assessment proceedings while passing the first assessment order and there was no new evidence that was brought to light subsequent to the completion of the assessment. It was for the Assessing Officer to take a view on the issue at the time of the first assessment itself as all the facts and figures were placed before him. It is not correct to state that the Appellant has not informed the Assessing Officer of the implication of the provisions laid down under section 115JB of the Income Tax Act. Further the Assessing Officer is not empowered to go beyond the book profit as declared by the Appellant which was duly audited and adopted by the company at its Annual general Meeting and submitted to the statutory authority, the Registrar of Companies." 8.2. Again on 22.07.2021, the ld.AR for the assessee filed written submissions in connection with the re-computation of Book Profits u/s 115JB of the Act, which reads as under : "The A.O has merely relied and acted upon the Note to the Auditors Report, where in it is mentioned as below: a) "The Company has made a net gain of Rs.4,05,59,976/- during the current y....
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.... of assessment. Doing so would have the effect of giving the Assessing Officer the power of review and section 147 confers the power to re- assess and not the power to review." 10. Per contra, the ld. DR opposing the ground of the Cross- Objections had submitted that re-opening of the assessment was done by the Assessing Officer in accordance with law and infact he has taken us to the relevant Auditor's Report at page 89 of the paper book to the following effect : "Note: (a) The company has made a net gain of Rs. 4,05,59,976/- during the current year on account of settlement of trade contracts otherwise than on delivery and forex derivatives explained to be of speculative nature. This has been adjusted against loss of such nature brought forward from earlier year at Rs. 8,98,97,755/- and balance remaining unabsorbed at Rs.4,93,37,779/- is carried forward; grouped under the head "Claim and other receivables" in the Balance-Sheet. (b) This is against the Accounting Standards and to the extent of Rs.4,05,59,976/- which is not brought to credit in profit and loss account during the current year, the profit for the current year is understated and that i....
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....to the Note in the audit report for the current assessment year vide page 84 of the Paper Book wherein it was mentioned as under : "Note - 1: The company has suffered in the earlier year (Financial Year ending 31.03.09) net loss of Rs.8,98,97,755/- on account of settlement of trade contracts (settled otherwise than by delivery) and foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations on trade account; explained to be of speculative nature which for the reason that it could not be set off against profits of that year, were carried forward for set off against such profits in future yeas and hence were instead of charging to profit and loss account during that year have been classified as claims receivable. This is against the accounting standards and hence to that extent reserves and claims receivables forming part of current assets are overstated." 15. Based on the above, it was submitted that the objections of the auditors were not new, and the same have repeatedly been mentioned by the auditors for the earlier three assessment years, and despite that, the Assessing Officer had been passing the orders for all the said asses....
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....et off of against the business income of the assessee or not. This issue would only be examined in the assessment order in which the assessee seeks the setting off of brought forwarded loss as against the current year income, which is in contradiction to the requirement within the meaning of the preparation of accounts in accordance with the Companies Act and also in accordance with the Income Tax Act. Since this issue had not been examined in earlier assessment years / in original assessment proceedings, therefore, there was no lapse on the part of the Assessing Officer to examine the same in reopening of assessment. The issue in the current year is not about the quantification of the brought forward losses but whether in the current assessment year brought forwarded losses could be set off against the speculative income of the assessee or not. Hence, we do not find any merit in the Cross - Objections filed by the assessee; accordingly, the same are rejected. 19. Though the assessee has relied upon the decision of the Hon'ble Supreme Court in the case of ITO Vs. M/s. TechSpan India Private Limited and another vide Civil Appeal No.2732 of 2007 dt.24.04.2018, but, in our view....
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....ed and set off against loss brought forward of the same nature. The earlier year at Rs. 8,98,97,755 and the balance unabsorbed loss of Rs. 4,93,37,779/- was carried forward and grouped under the head 'claim and other receivables' in the balance sheet. However, the gain of Rs. 4,05,59,976/- was not credited to the profit and loss a/c during the relevant year, and thus the profit for the year is understated to that extent. The income Chargeable to tax u/s 115.IB is short computed, whereas the initial assessment was completed under normal provisions and the credit of Rs. 4,05,59,976/- was not considered. 4.The reasons for reopening are communicated to the assessee and notice u/s 143(2) is also issued and served on the assessee company and the AR has filed response to the same. The Assessing officer has completed the assessment by making the addition of Rs.4,05,59,976/- towards net gain on account of trade contracts to the book profit and assessed the total income at Rs.6,99,58,303/- as per provisions of section 115JB. 5. The assessee company has gone on appeal before the CIT(A) with the following grounds: ● The order of the assessing officer da....
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....of settlement of trade contracts otherwise than on delivery and forex derivatives explained to be speculative in nature. This has been adjusted and set off against the loss of such nature brought forward from the earlier year at Rs. 8,98,97,755/-and balance loss is brought forward. However, the gain of Rs. 4,05,59,976/- is not brought to credit in the profit and loss a/c in the relevant year. The non offering- of the Rs. 4,05,59,976/- is against the accounting standards, and the same is clearly observed and stated in the audit report of the assessee company submitted. The amount is not credited to the profit and loss account and so to that extent the profit for that year is understated. The* net profit should have been credited to the profit and loss account and then the net profit should have been calculated. Hence the case was rightly reopened u/s 147 and the same was brought to tax vide the AOs order u/s 143(3) r.w.s 147 dt. 30.11.2016. 2. The CIT(A) has observed that the book profit in this case is less than .. the tax on regular income, and hence the regular income disclosed of Rs. 2,40,65,456/- is to be considered instead of book profit. The initial scrutiny was comp....
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....ied by the authorities under the companies Act as having been properly maintained in accordance with the companies Act." 9. In this case, the books of accounts are certified by the authorities under the companies Act, however, the audit report clearly states that there is a deviation from the accounting standards and that the amount of Rs. 4,05,59,976/- not credited to the profit and loss account has resulted in the profit being understated to that extent. Further the Hon'ble supreme Court has observed that: " While so looking into the accounts of the company, an Assessing Officer under the income-tax Act has accept the authenticity of the accounts with reference to the provisions of the companies Act Which obligates the company to maintain its account in a manner provided by the companies Act and the same to be scrutinized and certified by statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the registrar of companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the companies Act. In s....
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....e accounts of the assessee are approved by the General Body and submitted to scrutiny by the Registrar of Companies, then the Assessing Officer is bound to accept the books of account of the assessee. He relied on the decision of hon'ble Supreme Court in the case of Apollo Tyres Ltd. reported in (2002) 255 ITR 273, and he has drawn our attention to para 5.3 of the order passed by Ld. CIT(A). "5.3 I have carefully considered the assessment order, facts of the case, case laws relied upon by the appellant and submissions of the appellant. On verification, it is found that the appellant company disclosed return of income of Rs. 2,40,56,230/ - and completed the assessment u/s 143(3) of the Act determining the total income of Rs. 2,40,65,456/- and the same was accepted u/ s 143(3) of the Act. The Book Profit of the appellant company was Rs. 2,93,98,327/- the tax on book profit is less than the tax on regular income disclosed of Rs. 2,40,56,230/- to be considered instead of book profit, since book profit u/s 115JB not applicable. Therefore, as per the submissions and the case laws submitted by the appellant book profit u/ s 115JB of the Act is not applicable and the adjustmen....
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....vables' in the balance sheet. However, the gain of Rs. 4,05,59,976/- was not credited to the profit and loss account during the relevant year, in contradiction of accounting standard / policy under the Companies Act which auditors have qualified in audit report. Thus, assessee had understated the profit for the year to that extent. Hence, this amount is required to be charged along with other income and is required to be brought to tax u/s 115 JB. Thus, the Assessing Officer's order in the present proceedings was in accordance with law. In this connection, we may also draw support from the decision of co-ordinate Bench of the Tribunal in the case of Everest Kanto Cylinders Ltd Vs. ACIT in ITA 764/Mum/2021 wherein at para 5, it was held as under : "5. The said amount of Rs.30,82,223/- was also added by the Assessing Officer in the book profit of the assessee for the purpose of section 115JB of the Act. The argument of the ld. AR for the assessee is that the amount appearing in Form No.26, accepted and offered as income, cannot be added to the book profit of the assessee, as stipulated in section 115JB of the Act. The perusal to the Explanation 1 to section 115JB cle....