Case Law Details
International Bakery Products Ltd. Vs ACIT (ITAT Chennai)
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 account. If you consider provision for gratuity relating to earlier years as item comes below the line of profit & loss account, then for the purpose of computation of book profit, net profit as per books of accounts should be considered before allowing deduction for provision for gratuity relating to earlier years. In this case, profit for the year before allowing deduction for provision for gratuity was at Rs.40,78,793/- and if you consider said figure, then adjustment made by the assessee to book profit computed u/s.115JB of the Act towards provision for gratuity relating to earlier years is not covered under Explanation (1) to Section 115JB of the Act. Further, it is a well settled principle of law that the AO does not have power to make any adjustment to book profit except as provided under Explanation (1) to Section 115JB of the Act. This is amply clear from the decision of Hon’ble Supreme Court in the case of M/s. Apollo Tyres Ltd., vs. CIT, supra. Therefore, we are of the considered view that there is no error in reasons given by the AO to compute book profit u/s. 115JB of the Act by taking net profit as per profit & loss account before considering deduction claimed for prior period item being provision for gratuity relating to earlier years.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against order of learned Commissioner of Income Tax (Appeals) – 13, Chennai, dated 22.02.2018 and pertains to assessment year 2006-07.
2. The assessee has raised the following grounds of appeal:-
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