Kavithalayaa Productions (P) Ltd. Vs ACIT (ITAT Chennai)
ITAT held that if advances received by the assessee from customers on which TDS Credits has been claimed, has been offered as income of subsequent financial years, then the same needs to be recognized as income as and when such income accrues to the assessee. Therefore, we are of the considered view that when the assessee has treated advances from customers as liability in the books of accounts pending recognition of income in subsequent financial years, it cannot be said that the assessee has not followed the provisions of Companies Act, 1956, more particularly, Part-II & III of Schedule-VI of Companies Act, 1956 while preparing its accounts. Therefore, we are of the considered view that on this issue, the AO cannot make any adjustments to re-compute book profit u/s.115JB of the Act, because said item does not come under any of the items of adjustments specified in Clause (a) to (f) of Explanation (1) to Sec.115JB of the Act and thus, we direct the AO to delete additions made towards income admitted to claim TDS Credits while computing book profit u/s.115JB of the Act.
Inclusion/Exclusion of of prior period expenses’ in Computation of book profit
As regards ‘prior period expenses’ excluded while computing book profit, we find that as per Part-II & III of Schedule-VI of Companies Act, 1956, the assessee is mandatorily shown separate items of ‘prior period expenses’ and income to disclose the effects in the profits or loss for the current year. In this case, no doubt the assessee has shown ‘prior period expenses’ in accordance with Part-II & III of Schedule-VI of Companies Act, 1956. However, while computing book profit u/s.115JB of the Act, the assessee has shown ‘prior period expenses’ along with other items of expenses of the current financial year contrary to provisions of Part-II & III of Schedule-VI of Companies Act, 1956. Further, the assessee has taken profit before tax after deducting ‘prior period expenses’ while computing book profit. However, for the purpose of computing profits & gains of business and profession added back ‘prior period expenses’ to arrive at income chargeable under the head ‘profits & gains of business’. In our considered view, the assessee has not prepared its accounts in accordance with Part-II & III of Schedule-VI of Companies Act, 1956, and thus, we are of the considered view that the AO is very well empowered to re-compute book profit for the purpose of Sec.115JB of the Act. Therefore, we are of the considered view that there is no merit in the arguments of the assessee on this issue and thus, we reject the ground taken by the assessee and sustain the additions made by the AO towards ‘prior period expenses’ items to be excluded while computing book profit u/s.115JB of the Act.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-14, Chennai, dated 06.11.2019 and pertains to assessment year 2008-09.
2. The assessee has raised the following grounds of appeal:
1. The appellant respectfully submits that the order of the commissioner of Income Tax (Appeals) – 14, Chennai – 600 034 in ITA No.133/CIT(A)-14/2013-14 dated 06/11/2019 is contrary to law and facts prevailing in the case of the appellant for the Asst. year 2008-09, and is against all canons of law, equity and justice.
2. The appellant submits that the Learned Commissioner of Income Tax (Appeal) ought to have appreciated the fact that the issue before him for adjudication was the computation of book profits for the purpose of MAT under the provisions of sec.115JB of the IT Act 1961 and not the computation of income for assessment purposes under the normal provisions of the IT Act 1961.
3. The appellant submits that the book loss for the assessment year 2008-09 had been recomputed by making two adjustments viz :-
