M/s Ashirwad Hgiene Pvt. Ltd., Ludhiana V. ITO, Ludhiana

ITA 72/CHANDI/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8552 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 13-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation
• Section: 115JB; 12; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L. KARWA, HONBLE VICE PRESIDENT AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 72/CHD/2014 ASSESSMENT YEAR:2010-11 M/S ASHIRWAD HGIENE PVT. LTD. VS. THE ITO BASEMENT, 165-L, WARD VI(I) MODEL TOWN LUDHIANA LUDHIANA PAN NO. AAFCA5867R (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUDHIR SEHGAL RESPONDENT BY : SH. SUSHIL KUMAR DATE OF HEARING : 21/01/2016 DATE OF PRONOUNCEMENT : 21/01/2016 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(APPEALS)-II, LUDHIANA DT. 17/10/2013. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APPE ALS) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 46,64,504- ON ACCOUN T OF DISALLOWANCE OF PRIOR PERIOD ITEMS, INTEREST ON PLA OF RS. 3,635/- AND IN TEREST ON TDS AMOUNTING TO RS. 6,050/- IN THE NET PROFIT OF THE COMPANY FOR THE PU RPOSE OF WORKING OUT THE BOOK PROFIT OF THE COMPANY U/S 115JB OF THE I.T. ACT, 19 61. 2. THAT THE CIT(A) HAS NOT APPRECIATED THE FACT THA T THE WORKING OF PROFIT U/S 115JB HAS TO BE WORKED OUT STRICTLY IN TERMS OF THE ADJUSTMENT PROVIDED UNDER THE ACT AND NOTHING ELSE IS PERMISSIBLE BEYOND THAT. 3. THAT THE VARIOUS DISALLOWANCE AS CONFIRMED BY TH E 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 CHARGEAB LE TO TAX AS PER THE PROVISIONS OF SECTION 115JB OF THE INCOME TAX ACT A ND PAID TAXES ON ITS BOOK 2 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 BEE N ADDED WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE INCOME TAX ACT. TH E AO ACCORDINGLY ADDED THESE TO THE TOTAL INCOME OF THE ASSESSEE AND RECOM PUTED THE BOOK PROFITS U/S 115JB OF THE INCOME TAX ACT. 4. BEFORE THE LD. CIT(A) THE ASSESSEE STATED THAT T HE NET PROFIT HAD BEEN COMPUTED AS PER THE PROVISIONS OF THE COMPANIES ACT AND PRIOR PERIOD EXPENSES, INTEREST ON PLA AND INTEREST ON TDS COULD NOT BE ADDED IN COMPUTING THE BOOK PROFIT U/S 115JB, SINCE THERE WAS NO SUCH CLAUSE IN EXPLANATION 1 TO SECTION 115JB OF THE ACT. THE ASSESSEE FURTHER STAT ED THAT THE AO HAD NO JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN T HE P&L A/C EXCEPT TO THE EXTENT PROVIDED IN EXPLANATION TO SECTION 115JB. IN SUPPOR T OF ITS ABOVE CONTENTION THE ASSESSEE RELIED UPON THE JUDGMENT OF APEX COURT IN APOLLO TYRES LTD. VS. CIT 255 ITR 273 AND A PLETHORA OF OTHER JUDGMENTS. LD. CIT(A), REJECTED THE CONTENTIONS OF THE ASSESSE E, BY HOLDING AT PARA 3.4.5 & 3.4.6 OF ITS ORDER AS FOLLOWS: 3.4.5 IN THIS BACKDROP WE MAY ONCE AGAIN ADVERT TO THE FACTS OF THE CASE. POLICY OF THE APPELLANT ITSELF IS THAT PRIOR PERIOD EXPENSES ARE TO BE ADDED BACK TO THE TOTAL INCOME. THIS IS EVIDENT FROM THE APPELLANTS COMPUTATION OF NET PROFIT UNDER THE NORMAL PROVISIONS OF IT ACT. HOWEV ER APPELLANT DID NOT ADD BACK THESE PRIOR PERIOD EXPENSES TO P&L ACCOUNT WHICH IS CONTRARY TO THE SIGNIFICANT ACCOUNTING POLICY OF THE APPELLANT ITSELF AS WELL A S AGAINST THE REQUIREMENT OF ACCOUNTING STANDARDS AND REQUIREMENT OF PART II OF SCH. VI OF THE COMPANIES ACT. HENCE ASSESSING OFFICER HAS RIGHTLY BROUGHT THESE I TEMS TO TAXATION U/S 115JB. 3.4.6 THUS, KEEPING IN VIEW OF THE PROVISIONS OF SS . 209,210 AND 211 OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT AND THE ACCOUNT ING STANDARDS AS DISCUSSED ABOVE, I HOLD THAT PRIOR PERIOD EXPENSES CAN BE ADD ED UNDER S. 115JB(2) ITSELF AND THE AO HAS CORRECTLY RECOMPUTED THE P&L A/C BY ADDING THERETO THE PRIOR YEAR EXPENSES SO AS TO MAKE THE PROFIT AS SHOWN IN THE P&L ACCOUNT IN 3 ACCORDANCE WITH THE PROVISIONS OF PART II OF SCH. V I TO THE COMPANIES ACT, 1956. I, THEREFORE, HOLD THAT NO INTERFERENCE IS CALLED FOR WITH THE ORDER OF THE AO IN NOT ALLOWING THE DEDUCTION OF RS. 46,64,504/- RELATING TO PRIOR YEAR EXPENSES OUT OF THE PROFIT FOR THE YEAR FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT UNDER S. 115JB. 5. BEFORE US, THE LD. AR AT THE OUTSET STATED THAT IT IS NOT PRESSING THE ADDITION OF INTEREST ON PLA OF RS. 3,635/- AND INTEREST ON T DS AMOUNTING TO RS. 6050/- TO THE NET PROFIT FOR WORKING OUT THE BOOK PROFIT OF THE C OMPANY U/S 115JB. ON THE ISSUE OF ADDITION OF PRIOR PERIOD EXPENSES A MOUNTING TO RS. 46,64,504/- TO THE NET PROFITS OF THE ASSESSEE U/S 115JB THE AR RE ITERATED THE ARGUMENTS MADE BEFORE THE LD. CIT(A) AND FURTHER RELIED ON THE FOL LOWING JUDICIAL DECISION. 1. CIT VS. KHAITAN CHEMICALS & FERTILIZERS LTD. (20 08) 307 ITR 150(DEL) 2. CIT VS. RTCL LTD. ITA NO. 612/2009 DT. 28/03/201 2 3. GULF OIL CORPORATION LTD. VS. ACIT (2007) 112 TT J (HYD) 138 4. RIDDHI SIDDHI GLUCO BIOLS LTD. IN ITA NO. 3234/H YD/2007 DT. 29/12/2011. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF T HE CIT(A). LD. DR FURTHER RELIED UPON THE DECISION OF THE KERALA HIGH COURT I N THE CASE OF SREE BHAGAWATHY TEXTILES LTD. VS. ACIT 342 ITR 244 AND S TATED THAT AFTER CONSIDERING THE DECISION RENDERED BY THE DELHI HIGH COURT IN TH E CASE OF KHAITAN CHEMICALS & FERTILIZERS LTD. (2008) 307 ITR 150, THE KERALA H IGH 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 BEFO RE US. THE ONLY ISSUE TO BE ADJUDICATED UPON IS WHETHER FO R THE PURPOSE OF CALCULATING BOOK PROFIT U/S 115JB, PRIOR PERIOD EXPENSES ARE TO BE ADDED BACK TO THE NET PROFITS OF THE ASSESSEE. AT THE OUTSET IT MAY BE STATED THAT SECTION 115JB I S A SPECIAL PROVISION BY VIRTUE OF WHICH A MINIMUM TAX IS LEVIED AND COLLECTED ON T HE BOOK PROFITS OF COMPANIES EVEN IF LESSER TAX IS TO BE LEVIED AS PER THE PROVISIONS OF THE INCOME 4 TAX ACT. THE SECTION ENSURES LEVY OF MINIMUM TAX IN CIRCUMSTANCES WHERE COMPANIES OTHERWISE SHOW PROFITS IN THE BOOKS, BUT ON ACCOUNT OF ADJUSTMENTS STATUTORILY AVAILABLE, THE TAX LEVIED IS LESS THAN THE PRESCRIBED MINIMUM. SECTION 115JB IS A COMPLETE CODE IN ITSELF AND HAS TO BE ST RICTLY INTERPRETED. THE CALCULATION OF BOOK PROFITS IS CENTRAL TO THE PROVI SION OF SECTION 115JB AND THE SAME HAS BEEN DEFINED IN SECTION 115JB. FOR BETTER UNDERSTANDING OF THE ISSUE UNDER CONSIDE RATION THE R ELEVANT PROVISIONS OF SECTION - 115JB ARE REPRODUCED HEREUNDER. SPECIAL PROVISION FOR PAYMENT OF TAX BY CERTAIN COM PANIES. 115JB. (1) NOTWITHSTANDING ANYTHING CONTAINED IN AN Y OTHER PROVISION OF THIS ACT, WHERE IN THE CASE OF AN ASSESSEE, BEING A COMPANY, THE INCOME-TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESP ECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AF TER THE 1ST DAY OF APRIL, 2012, IS LESS THAN EIGHTEEN AND ONE-HALF PER CENT O F ITS BOOK PROFIT, SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF TH E ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME-TAX AT THE RATE OF EIGHTEEN AND ONE-HALF PER CENT. (2) EVERY ASSESSEE, (A) BEING A COMPANY, OTHER THAN A COMPANY REFERRED TO IN CLAUSE (B), SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AN D LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956); OR (B) BEING A COMPANY, TO WHICH THE PROVISO TO SUB-SE CTION (2) OF SECTION 211 OF THE COMPANIES ACT, 1956 (1 OF 1956) IS APPLICABLE, SHAL L, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR TH E RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF THE ACT GOVERNING SUCH COMPANY: PROVIDED THAT WHILE PREPARING THE ANNUAL ACCOUNTS I NCLUDING PROFIT AND LOSS ACCOUNT, (I) THE ACCOUNTING POLICIES; (II) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARIN G 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 PURP OSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVI SIONS 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), WHI CH IS DIFFERENT FROM THE PREVIOUS YEAR UNDER THIS ACT, (I) THE ACCOUNTING POLICIES; (II) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARIN G SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, SHALL CORRESPOND TO THE ACCOUNTING POLICIES, ACCOUN TING STANDARDS AND THE METHOD AND RATES FOR CALCULATING THE DEPRECIATION W HICH HAVE BEEN ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS A CCOUNT FOR SUCH FINANCIAL YEAR OR PART OF SUCH FINANCIAL YEAR FALLING WITHIN THE R ELEVANT PREVIOUS YEAR. EXPLANATION 1.FOR THE PURPOSES OF THIS SECTION, 'B OOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE REL EVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS INCREASED BY (A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AND THE PROVISION THEREFOR; OR (B) THE AMOUNTS CARRIED TO ANY RESERVES, BY WHATEV ER NAME CALLED, OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC; OR 5 (C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; OR (D) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF S UBSIDIARY COMPANIES; OR (E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PRO POSED ; OR (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 APPLY; OR FOLLOWING CLAUSES (FA), (FB) AND (FC) SHALL BE INSE RTED AFTER CLAUSE (F) IN EXPLANATION 1 BELOW SUB-SECTION (2) OF SECTION 115JB BY THE FIN ANCE ACT, 2015, W.E.F. 1-4-2016 : (FA) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO, INCOME, BEING SHARE OF THE ASSESSEE IN THE INCOME OF AN ASSOCIATION OF PER SONS OR BODY OF INDIVIDUALS, ON WHICH NO INCOME-TAX IS PAYABLE IN ACCORDANCE WITH T HE PROVISIONS OF SECTION 86; OR (FB) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO INCOME ACCRUING OR ARISING TO AN ASSESSEE, BEING A FOREIGN COMPANY, FR OM, (A) THE CAPITAL GAINS ARISING ON TRANSACTIONS IN S ECURITIES; OR (B) THE INTEREST, ROYALTY OR FEES FOR TECHNICAL SE RVICES CHARGEABLE TO TAX AT THE RATE OR RATES SPECIFIED IN CHAPTER XII, IF THE INCOME-TAX PAYABLE THEREON IN ACCORDANCE WIT H THE PROVISIONS OF THIS ACT, OTHER THAN THE PROVISIONS OF THIS CHAPTER, IT IS A RATE LESS THAN THE RATE SPECIFIED IN SUB-SECTION (1); OR (FC) THE AMOUNT REPRESENTING NOTIONAL LOSS ON TRANS FER OF A CAPITAL ASSET, BEING SHARE OR A SPECIAL PURPOSE VEHICLE TO A BUSINESS TR UST IN EXCHANGE OF UNITS ALLOTTED BY THE TRUST REFERRED TO IN CLAUSE (XVII) OF SECTIO N 47 OR THE AMOUNT REPRESENTING NOTIONAL LOSS RESULTING FROM ANY CHANGE IN CARRYING AMOUNT OF SAID UNITS OR THE AMOUNT OF LOSS ON TRANSFER OF UNITS REFERRED TO IN CLAUSE (XVII) OF SECTION 47; OR (G) THE AMOUNT OF DEPRECIATION, (H) THE AMOUNT OF DEFERRED TAX AND THE PROVISION T HEREFOR, (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION F OR DIMINUTION IN THE VALUE OF ANY ASSET, (J) THE AMOUNT STANDING IN REVALUATION RESERVE REL ATING TO REVALUED ASSET ON THE RETIREMENT OR DISPOSAL OF SUCH ASSET, FOLLOWING CLAUSE (K) SHALL BE INSERTED AFTER CLAUSE (J) IN EXPLANATION 1 BELOW SUB- SECTION (2) OF SECTION 115JB BY THE FINANCE ACT, 20 15, W.E.F. 1-4-2016 : (K) THE AMOUNT OF GAIN ON TRANSFER OF UNITS REFERR ED TO IN CLAUSE (XVII) OF SECTION 47 COMPUTED BY TAKING INTO ACCOUNT THE COST OF THE SHA RES EXCHANGED WITH UNITS REFERRED TO IN THE SAID CLAUSE OR THE CARRYING AMOU NT OF THE SHARES AT THE TIME OF EXCHANGE WHERE SUCH SHARES ARE CARRIED AT A VALUE O THER 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 PROVI SION (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 CRE DITED TO THE PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO A N ASSESSEE IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVI SIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1997 SHALL NOT BE REDUCED FROM THE BOOK PROFIT UNLE SS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXPLANATIO N BELOW THE SECOND PROVISO TO SECTION 115JA, AS THE CASE MAY BE; OR (II) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROV ISIONS OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 APPLY, IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR (IIA) THE AMOUNT OF DEPRECIATION DEBITED TO THE PRO FIT AND LOSS ACCOUNT (EXCLUDING THE DEPRECIATION ON ACCOUNT OF REVALUATI ON OF ASSETS); OR (IIB) THE AMOUNT WITHDRAWN FROM REVALUATION RESERVE AND CREDITED TO THE PROFIT AND LOSS ACCOUNT, TO THE EXTENT IT DOES NOT EXCEED THE AMOUNT OF DEPRECIATION ON ACCOUNT OF REVALUATION OF ASSETS REFERRED TO IN CLAUSE (IIA); OR FOLLOWING CLAUSES (IIC), (IID), (IIE) AND (IIF) SHA LL BE INSERTED AFTER CLAUSE (IIB) IN EXPLANATION 1 BELOW SUB-SECTION (2) OF SECTION 115J B BY THE FINANCE ACT, 2015, W.E.F. 1-4-2016 : 6 (IIC) THE AMOUNT OF INCOME, BEING THE SHARE OF THE ASSESSEE IN THE INCOME OF AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS, ON W HICH NO INCOME-TAX IS PAYABLE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 86, IF ANY, SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR (IID) THE AMOUNT OF INCOME ACCRUING OR ARISING TO A SSESSEE, BEING A FOREIGN COMPANY, FROM, (A) THE CAPITAL GAINS ARISING ON TRANSACTIONS IN SECURITIES; OR (B) THE INTEREST, ROYALTY OR FEES FOR TECHNICAL S ERVICES CHARGEABLE TO TAX AT THE RATE OR RATES SPECIFIED IN CHAPTER XII, IF SUCH INCOME IS CREDITED TO THE PROFIT AND LOSS A CCOUNT AND THE INCOME-TAX PAYABLE THEREON IN ACCORDANCE WITH THE PROVISIONS O F THIS ACT, OTHER THAN THE PROVISIONS OF THIS CHAPTER, IS AT A RATE LESS THAN THE RATE SPECIFIED IN SUB-SECTION (1); OR (IIE) THE AMOUNT REPRESENTING, (A) NOTIONAL GAIN ON TRANSFER OF A CAPITAL ASSET, BEING SHARE OF A SPECIAL PURPOSE VEHICLE TO A BUSINESS TRUST IN EXCHANGE OF UNITS AL LOTTED BY THAT TRUST REFERRED TO IN CLAUSE (XVII) OF SECTION 47; OR (B) NOTIONAL GAIN RESULTING FROM ANY CHANGE IN CAR RYING AMOUNT OF SAID UNITS; OR (C) GAIN ON TRANSFER OF UNITS REFERRED TO IN CLAUS E (XVII) OF SECTION 47, IF ANY, CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR (IIF) THE AMOUNT OF LOSS ON TRANSFER OF UNITS REFER RED TO IN CLAUSE (XVII) OF SECTION 47 COMPUTED BY TAKING INTO ACCOUNT THE COST OF THE SHA RES EXCHANGED WITH UNITS REFERRED TO IN THE SAID CLAUSE OR THE CARRYING AMOU NT OF THE SHARES AT THE TIME OF EXCHANGE WHERE SUCH SHARES ARE CARRIED AT A VALUE O THER THAN THE COST THROUGH PROFIT OR LOSS ACCOUNT, AS THE CASE MAY BE; (III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSOR BED DEPRECIATION, WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT . A BARE PERUSAL OF EXPLANATION 1 TO THE SECTION REVE ALS THAT THE STARTING POINT FOR CALCULATING THE BOOK PROFIT IS THE NET PROFIT AS SH OWN IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. THIS PROFIT AND LOSS ACCO UNT HAS TO BE PREPARED IN THE MANNER PRESCRIBED U/S 115JB(2), WHICH STATES THAT I T SHOULD BE IN ACCORDANCE WITH THE PROVISION OF PART-II OF SCHEDULE VI TO TH E COMPANIES ACT, 1956 AND SHOULD HAVE BEEN PREPARED BY ADOPTING THE ACCOUNTIN G POLICIES, AND ACCOUNTING STANDARDS AND METHODS AND RATE OF DEPREC IATION WHICH HAVE BEEN ADOPTED FOR PREPARING THE FINAL ACCOUNTS TO BE LAID BEFORE THE COMPANY IN ITS AGM AS PER SECTION 210. SECTION 211 OF THE COMPANIE S ACT PRESCRIBES THE FORM AND CONTENT OF THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT TO BE LAID BEFORE THE COMPANY IN ITS AGM. SECTION 211(3A) OF THE COMP ANIES ACT STATES THAT THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT SHOULD CO MPLY WITH THE ACCOUNTING STANDARDS, WHICH HAVE BEEN DEFINED IN SECTION 211(3 C) OF THE COMPANIES ACT TO MEAN THOSE WHICH HAVE BEEN RECOMMENDED BY THE IN STITUTE OF CHARTERED ACCOUNTANTS OF INDIA. TO SUM UP, FOR THE PURPOSE OF CALCULATING BOOK PROFITS U/S 115JB, NET PROFIT AS PER PROFIT AND LOSS ACCOUNT, P REPARED IN ACCORDANCE WITH 7 SCHEDULE-VI PART-II OF THE COMPANIES ACT, AND AFTER COMPLYING WITH THE PRESCRIBED ACCOUNTING STANDARDS HAS TO BE TAKEN. FR OM THIS FIGURE OF NET PROFIT CERTAIN ADJUSTMENTS AS SPECIFICALLY PROVIDED IN EXP LANATION 1 TO SECTION 115JB ARE TO MADE, AND THEREAFTER THE BOOK PROFIT IS ARRI VED AT. IN THE PRESENT CASE, THE ISSUE BEFORE US IS WHETHER PRIOR PERIOD EXPENSES ARE TO BE ADJUSTED TO THE NET PROFIT TO ARRIVE AT THE BOOK PR OFITS FOR THE PURPOSE OF SECTION 115JB. AS DISCUSSED ABOVE THERE ARE ONLY TWO WAYS I N WHICH ADJUSTMENT OF PRIOR PERIOD EXPENSES CAN BE DONE TO THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT. 1. IF SCHEDULE-VI PART-II OF THE COMPANIES ACT AND THE PRESCRIBED ACCOUNTING STANDARDS, STATE THAT PRIOR PERIOD ITEMS ARE TO BE EXCLUDED FOR ARRIVING AT THE NET PROFIT. 2. IF ADJUSTMENT IS PRESCRIBED BY EXPLANATION-1 TO SEC TION 115JB. AS FAR AS ADJUSTMENTS PRESCRIBED IN THE EXPLANATION 1 TO SECTION 115JB ARE CONCERNED, WE FIND THAT WITH REGARD TO PRIOR PERIOD EXPENSE NO ADJUSTMENT HAS BEEN PRESCRIBED. THEREFORE, WHAT REMAINS TO BE SEEN IS WHETHER, AS PER SCHEDULE VI PART-II OF THE COMPANIES ACT, IN CONJU NCTION WITH THE PRESCRIBED ACCOUNTING STANDARDS, PRIOR PERIOD EXPENSES HAVE TO BE EXCLUDED FOR ARRIVING AT THE NET PROFIT. A BARE PERUSAL OF SCHEDULE-VI PART II SHOWS THAT P ROFIT OR LOSS FOR THE PERIOD IS ARRIVED AT AFTER ADJUSTING EXTRA ORDINARY ITEMS, TH OUGH DISCLOSED SEPARATELY. ACCOUNTING STANDARD5, WHICH DEALS WITH NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES, ST ATES AT PARA 19 THAT PRIOR PERIOD ITEMS ARE TO BE INCLUDED FOR CALCULATING CUR RENT PROFITS BUT THEY SHOULD BE DISCLOSED SEPARATELY. AS-5, PARA 18 IS REPRODUCED H EREIN:- PRIOR PERIOD ITEMS ARE GENERALLY INFREQUENT IN NATU RE AND CAN BE DISTINGUISHED FROM CHANGES IN ACCOUNTING ESTIMATES. ACCOUNTING ES TIMATES BY THEIR NATURE ARE APPROXIMATIONS THAT MAY NEED REVISION AS ADDITIONAL INFORMATION BECOMES 8 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 S CHEDULE 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 STANDAR D, I.E. AS-5. NO ADJUSTMENT, ON ACCOUNT OF PRIOR PERIOD EXPENSES, IS REQUIRED TO BE MADE TO THE SAME. MOREOVER, EVEN AS PER EXPLANATION1 TO SECTIO N 115JB, NO ADJUSTMENT ON ACCOUNT OF PRIOR PERIOD EXPENSES IS REQUIRED TO BE MADE TO THE NET PROFITS REFLECTED IN THE PROFIT AND LOSS ACCOUNT OF THE ASS ESSEE. THEREFORE WE HOLD THAT NO ADJUSTMENT OF PRIOR PERIO D EXPENSES IS TO BE MADE BY THE ASSESSEE TO ARRIVE AT THE BOOK PROFITS FOR THE PURPOSE OF LEVYING TAX U/S 115JB. THE RELIANCE PLACED BY THE LD. DR ON THE DECISION I N THE CASE OF SREE BHAGWATHY TEXTILES LTD. (SUPRA) IS DISTINGUISHABLE ON FACTS, SINCE IN THAT CASE IT WAS FOUND THE ASSESSEE HAD DEBITED THE PRIOR PERIOD EXPENSES TO THE PROFIT AND LOSS APPROPRIATION ACCOUNT. THE COURT IN THAT CASE HELD THAT PROFIT AS PER PROFIT AND LOSS ACCOUNT IS TO BE TAKEN FOR COMPUTING BOOK PROFITS AND ANY ADJUSTMENTS THEREAFTER IN THE APPROPRIATION ACCOUNT ARE NOT TO BE CONSIDERED. SINCE IN THE PRESENT CASE THE PRIOR PERIOD EXPENSE HAVE BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT AND NOT APPROPRIATION ACCOU NT THE RATIO PROPOUNDED THEREIN WILL NOT APPLY TO THE PRESENT CASE. 9 7. IN VIEW OF THE ABOVE WE HOLD THAT NO ADJUSTMENT ON ACCOUNT OF PRIOR PERIOD EXPENSES AMOUNTING TO RS. 46,64,504/- IS TO BE MADE IN THE NET PROFIT OF THE COMPANY FOR ARRIVING AT THE BOOK PROFITS U/S 11 5JB OF THE ACT. THE APPEAL OF THE ASSESSEE IS THEREFORE ALLOWED. 8. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED PARTLY. ORDER PRONOUNCED IN THE OPEN COURT ON 21/01/2016. SD/- SD/- (H.L. KARWA) (ANNAPURNA MEHROTRA) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 21/01/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR