M/s. Sujana Metal Products Ltd, Hyd, Hyderabad V. DCIT, Circle-3(2), Hyderabad

ITA 878/HYD/2012

• Counselvise Citation: 87822514 RSA 2012
• Duration Of Justice: 2 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 03-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 01-06-2012
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Rejection of books of accounts; Depreciation; Opportunity of being heard; Additional depreciation; Assessment record; Revenue expenditure
• Section: 143(3); 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER I.T.A. NO. 878/HYD/2012 ASSESSMENT YEAR: 2006-07 M/S. SUJANA METAL PRODUCTS LIMITED, HYDERABAD [PAN: AACCS8614H] VS DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO , AR FOR REVENUE : S HRI D.SUDHAKAR RAO , DR DATE OF HEARING : 0 3 - 0 2 - 201 5 DATE OF PRONOUNCEMENT : 13 - 03 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE FILED AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX-III, HYDERABAD DATED 29- 03-2012 U/S.263 OF THE INCOME TAX ACT (ACT). THE ISSUES IN THIS AP PEAL ARE WITH REFERENCE TO TAXABILITY OF INTEREST WAIVED BY IDBI U/S.41(1) AND ALSO U/S.115JB AND CLAIM OF DEPRECIATION. THESE ARE DECIDED AFTER HEARING THE LD.COUNSEL AND LD.DR. ITA NO. 878 /HYD/2012 M/S. SUJANA METAL PRODUCTS LTD., :- 2 -: 2. BRIEFLY STATED, ASSESSEE-COMPANY FILED ITS RETUR N OF INCOME ON 30-11-2006 DECLARING LOSS AT RS.11,04,66,667/-. AS SEEN FROM THE ASSESSMENT ORDER, THE ASSESSMENT HAS BEEN COMPLETED AFTER DIRECTING ASSESSEE TO GET ITS ACCOUNTS AUDITED AS PER THE PRO VISIONS OF SECTION 142(2A). IT IS OBSERVED THAT ASSESSEE CREDITED TO P&L A/C AN AMOUNT OF RS.16,23,01,015/- REPRESENTING THE WAIVER OF INTERE ST BY IDBI UNDER THE HEAD 'PRIOR PERIOD ADJUSTMENT'. THE ABOVE WAIVER O F INTEREST WAS NOT OFFERED FOR TAXATION UNDER THE NORMAL PROVISIONS OF I.T. ACT AS ASSESSEE CLAIMS THAT NO DEDUCTION WAS ALLOWED IN EARLIER YEA RS. THE ABOVE PRIOR PERIOD ADJUSTMENT (INCOME) OF RS.16,23,01,015/- HAD NOT BEEN TAKEN INTO RECKONING WHILE COMPUTING BOOK PROFIT UNDER TH E PROVISIONS OF SECTION 115JB OF THE ACT. ASSESSING OFFICER ALLOW ED NORMAL DEPRECIATION @80% AND ADDITIONAL DEPRECIATION @20% ON ADDITIONS MADE TO PLANT AND MACHINERY OF RS.30,44,73,896/-. 3. LD.CIT AFTER EXAMINING THE ASSESSMENT RECORD HA S COME TO A CONCLUSION THAT ORDER PASSED BY ASSESSING OFFICER I S ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AS ASSESSING OFFICER HAD NOT VERIFIED THE CREDIT OF PRIOR PERIOD EXPENDITURE WHI CH SHOULD HAVE BEEN CONSIDERED UNDER THE PROVISIONS OF SECTION 41(1) AN D ALSO UNDER THE PROVISIONS OF SECTION 115JB. ACCORDINGLY, HE ISSU ED A NOTICE ASKING ASSESSEE TO FILE ITS OBJECTIONS IF ANY. ASSESSEE F ILED DETAILED WRITTEN SUBMISSIONS AGAINST THE PROPOSED REVISION, POINT-WI SE TO SUBMIT THAT ASSESSING OFFICER HAS ASKED FOR DETAILS OF THE PRIO R PERIOD ADJUSTMENTS AND ALSO THE FINANCIAL INTEREST CLAIMS MADE AND THE RE IS NO OMISSION FROM ASSESSEE. FURTHER, IT WAS SUBMITTED THAT SPEC IAL AUDIT ALSO HAD EXAMINED ISSUES IN DETAIL AND HAD NOT PROPOSED ANY DISALLOWANCE OR ADDITIONS UNDER THE ABOVE TWO HEADS. ASSESSEE RELI ED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR IN DUSTRIAL COMPANY LTD., VS. CIT [243 ITR 83] FOR THE PROPOSITION THAT ASSESSEE HAVING ITA NO. 878 /HYD/2012 M/S. SUJANA METAL PRODUCTS LTD., :- 3 -: SUBMITTED THE REQUIRED DETAILS ASKED FOR AND ACCORD INGLY ASSESSMENT ORDER HAS BEEN PASSED, CIT DOES NOT ACQUIRE JURISDI CTION BY MERE CHANGING OF OPINION. IT WAS CONTENDED THAT THE ORD ER CANNOT BE TREATED AS AN ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UN-SUSTAINAB LE IN LAW. 4. LD.CIT HOWEVER DID NOT ACCEPT THE SAME. AS FAR AS JURISDICTION IS CONCERNED, HE HAS REJECTED THE SAME ON THE BASIS OF THE DECISION OF FULL BENCH OF THE GAUHATI HIGH COURT IN THE CASE OF CIT VS. SHRI JAWAHAR BHATTACHARJEE IN ITA NO.02/2008 DT. 07-02-2012 [201 2 (4) TMI 222 (GAU.) (HC)] VIDE PARA 7 & 8 OF THE ORDER OF LD.CIT DISCUSSED TH AT ASSESSEE DID NOT ADDUCE ANY DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CONTENTIONS AND THEREFORE HE HELD THAT THE OBJECTIO NS OF ASSESSEE AGAINST ASSUMPTION OF JURISDICTION ARE DEVOID OF MERIT. 5. COMING TO THE ISSUES TAKEN UP BY LD.CIT, ON THE ISSUE OF TAXABILITY OF PRIOR PERIOD INCOME OF RS.16,23,01,015/-, THE CI T GAVE DIRECTION TO EXAMINE AND CONSIDER THE AMOUNT AFTER GIVING DUE OP PORTUNITY TO ASSESSEE. WE WERE INFORMED THAT ASSESSING OFFICER HAS ADDED THE ENTIRE AMOUNT U/S.41(1) ON THE REASON THAT ASSESSEE FAILED TO PROVE THAT AMOUNT WAS NOT ALLOWED AS DEDUCTION IN EARLIER YEAR S. WITH REFERENCE TO THE ISSUE OF ADDITION FOR THE PURPOSE OF SECTION 11 5JB, LD.CIT AFTER CONSIDERING THE LEGAL PRINCIPLES, DIRECTED THE ASSE SSING OFFICER TO ADOPT THE BASIC FIGURE OF RS.26,06,94,469/- AS AGAINST RS .16,89,24,325/- ADOPTED BY ASSESSEE-COMPANY. WITH REFERENCE TO THE CLAIM ON NORMAL AND ADDITIONAL DEPRECIATION ON ADDITIONS TO PLANT A ND MACHINERY, THE ISSUE IS RESTORED TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION AND EXAMINATION IN ACCORDANCE WITH LAW AFTER AFFORDING ASSESSEE AN OPPORTUNITY OF BEING HEARD. IN THE CONSEQUENTIAL O RDER, ASSESSING ITA NO. 878 /HYD/2012 M/S. SUJANA METAL PRODUCTS LTD., :- 4 -: OFFICER DID NOT DISALLOW ANY AMOUNT. THEREFORE, AF TER EXAMINATION, IT SEEMS THAT HE ACCEPTED THAT ASSESSEE'S CLAIMS ARE C ORRECT. 6. LD.COUNSEL REFERRING TO THE PAPER BOOK FILED IN THIS REGARD STATED THAT COMPANY'S BOOKS OF ACCOUNTS WERE AUDITED UNDER THE COMPANIES ACT. FURTHER ASSESSING OFFICER HAD DIRECTED A SPECI AL AUDIT UNDER THE PROVISIONS OF I.T. ACT AND ALSO ISSUED SHOW CAUSE N OTICES AND ASSESSEE CLARIFIED THE AMOUNTS CREDITED TO P&L A/C AS PRIOR PERIOD EXPENDITURE. IT WAS EXPLAINED THAT THE SAME CAN NOT BE CONSIDERED A S INCOME UNDER THE PROVISIONS OF SECTION 41(1) AS ASSESSEE HAS NOT CLA IMED ANY INTEREST AS DEDUCTION IN EARLIER YEARS, AS THE SAME WAS GOVERNE D BY THE PROVISIONS OF SECTION 43B. THEREFORE, DIRECTION OF THE LD.CIT IN DIRECTING FURTHER EXAMINATION OF THE AMOUNT OF RS.16,23,01,015/-, IS NOT CORRECT ON THE FACTS OF THE CASE. 7. LD.COUNSEL FURTHER SUBMITTED THAT AS FAR AS THE APPLICABILITY OF PRIOR PERIOD INCOME OF RS.16,23,01,015/- UNDER THE PROVISIONS OF SECTION 115JB, THE DIRECTION OF THE CIT IS NOT TENABLE AS S UB-SECTION 2 OF 115JB DOES NOT SPECIFY THE ADDITION OF PRIOR PERIOD INCOM E. ASSESSEE'S COMPUTATION BEING THAT YEAR'S PROFIT IS ACCORDING T O THE PROVISIONS OF THE ACT. FURTHER, IT WAS SUBMITTED THAT ASSESSEE DID NO T MAKE ANY CLAIM OR GOT ANY BENEFIT IN EARLIER YEARS AS MOST OF THE AMO UNTS WERE TREATED AS 'DEFERRED REVENUE EXPENDITURE' AND THERE IS NO IMPA CT ON COMPUTATION OF 115JB IN EARLIER YEARS. CONSEQUENTLY, THE TREAT MENT OF THE ABOVE AMOUNT AS PRIOR PERIOD INCOME DURING THE YEAR SHOUL D NOT AFFECT THE COMPUTATION OF 115JB. 8. AT OUR INSTANCE, LD.COUNSEL ALSO PLACED ON RECOR D THE COMPUTATIONS AND DETAILS SO AS TO EXAMINE THE CLAIM S OF NOT CLAIMING THE AMOUNTS TREATED AS PRIOR PERIOD INCOME DURING THE Y EAR. ITA NO. 878 /HYD/2012 M/S. SUJANA METAL PRODUCTS LTD., :- 5 -: 9. LD.DR HOWEVER, DEFENDED THE ORDER OF THE CIT BOT H ON THE FACTS AND ON LAW. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE PAPER BOOK PLACED ON RECORD. COMING TO THE ISSUE OF ADDI TION OF PRIOR PERIOD EXPENDITURE AS INCOME, LD.CIT DIRECTED THE ASSESSIN G OFFICER TO EXAMINE AND CONSIDER THE AMOUNTS U/S.41(1). IT WAS THE CON TENTION OF ASSESSEE THAT THIS AMOUNT HAS NEVER BEEN CLAIMED AS A DEDUCT ION. AS SEEN FROM THE CONSEQUENTIAL ORDER PASSED BY ASSESSING OFFICER ON THE DIRECTIONS OF THE CIT, ASSESSING OFFICER WITHOUT EXAMINING THE AM OUNTS, ADDED THE ENTIRE AMOUNT AS INCOME U/S.41(1) ON THE PRETEXT OF ASSESSEE'S FAILURE TO PROVE AS THE AMOUNT WAS NOT CLAIMED AS A DEDUCTION U/S.43B. WE ARE SURPRISED ABOUT THE ACTION OF THE ASSESSING OFFICER . ASSESSEE IS IN A POSITION TO FURNISH THE DETAILS AND RECONCILE THE A MOUNTS OF HOW MUCH WAS CLAIMED AS EXPENDITURE, HOW MUCH WAS DISALLOWED AND AMOUNTS WAIVED BY THE BANK. SINCE THESE DETAILS ARE NOT CO NSIDERED BY ASSESSING OFFICER AND NOT EXAMINED IN ITS CORRECT PERSPECTIVE , WE ARE OF THE OPINION THAT THESE REQUIRE RECONCILIATION YEAR-WISE. PRIMA FACIE, WE ARE OF THE OPINION THAT ASSESSEE HAS NOT CLAIMED ANY AMOUNT AS DEDUCTION, THEREFORE, ADDITION U/S.41(1) MAY NOT ARISE. SINCE THIS ISSUE WAS NOT EXAMINED BY ASSESSING OFFICER IN CORRECT PERSPECTIV E, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAS TO EXAMINE T HE SAME BEFORE CONSIDERING ANY AMOUNT OF DISALLOWANCE. THEREFORE, REITERATING THE DIRECTION OF THE CIT WE DIRECT THE ASSESSING OFFICE R TO EXAMINE AND CONSIDER THE SAME FOR ADDITION, IF ANY U/S.41(1). 11. THE NEXT ISSUE TO BE CONSIDERED IS ABOUT THE DI RECTION OF THE CIT ON THE INCLUSION OF PRIOR PERIOD INCOME OF RS.16,23 ,01,015/- UNDER THE PROVISIONS OF SEC.115JB. DURING THE YEAR, ASSESSEE GOT WAIVER OF INTEREST ON A RESTRUCTURING SCHEME WITH THE BANKS. CONSEQUE NTLY, ASSESSEE HAS ITA NO. 878 /HYD/2012 M/S. SUJANA METAL PRODUCTS LTD., :- 6 -: WRITTEN BACK AN AMOUNT OF RS.16,23,01,015/- IN THE P&L A/C AS PRIOR PERIOD INCOME, GENERALLY KNOWN AS BELOW THE LINE AD JUSTMENTS. ASSESSEE'S PROFIT OF THE YEAR BEFORE TAXATION AS PE R P&L A/C STOOD AT RS.16,89,24,325/-. THIS IS THE AMOUNT WHICH WAS ADO PTED BY ASSESSEE FOR THE PURPOSE OF 115JB AND ALSO ACCEPTED BY THE A SSESSING OFFICER IN THE ORDER U/S.143(3). HOWEVER, IN THE P&L A/C AFTE R ARRIVING AT THE PROFIT BEFORE TAXATION, ASSESSEE MADE VARIOUS PROVISIONS F OR INCOME TAX, DEFERRED TAX LIABILITY AND ARRIVED AT PROFIT AFTER TAXATION OF RS.9,83,93,454/-. THEREAFTER, ASSESSEE ADDED AMOUN T OF PRIOR PERIOD ADJUSTMENT AT RS.16,23,01,015/-. BY FURTHER INCREA SING THE BALANCE FROM THE BROUGHT FORWARD PROFIT OF RS.19,79,61,863/ -, PROFIT AVAILABLE FOR APPROPRIATION WAS ARRIVED AT RS.45,86,56,332/-. LD .CIT AFTER DISCUSSING THE ISSUE ON LEGAL PRINCIPLES DIRECTED THE ASSESSIN G OFFICER TO ADOPT THE AMOUNT AT RS 26,06,94,469/- IN HIS ORDER AS UNDER : '10. WITH REGARD TO THE FIRST ISSUE OF TAXABILITY OF INTEREST WAIVED BY IDBI AGGREGATING TO RS.16,23,03,016/- U/S.41(1) O F THE I.T.ACT, 1961, THIS ISSUE IS RESTORED TO THE FILE OF THE AS SESSING OFFICER FOR DETAILED VERIFICATION OF THE ASSESSEE'S CLAIM THAT NO DEDUCTION/ALLOWANCE WAS ALLOWED IN EARLIER YEARS I N RESPECT OF ABOVE INTEREST WAIVED. FURTHER, IT IS THE CASE OF THE ASSESSEE THAT INTEREST EXPENSES FOR THE A.YS 2004-2005 AND 2005- 2006 AGGREGATING TO RS.3606.55 LACS WERE DISALLOWED U/S .43B OF THE I.T.ACT, 1961. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ABOVE CLAIM WITH REFERENCE TO THE ASSESSMENT RECORDS OF EARLIER YEARS IN ACCORDANCE WITH LAW AFTER AFFORDING THE ASSESSEE A N OPPORTUNITY OF BEING HEARD. 11. WITH REGARD TO THE SECOND ISSUE OF TAXABILITY OF INTEREST WAIVED OF RS.16,23,03,316/- UNDER THE SPECIFIC PRO VISIONS OF SECTION 115JB OF THE I.T.ACT, 1961, THE CONTENTION OF THE ASSESSEE IS NOT TENABLE. SUB- S.(2) OF S.115JB PROVIDES THAT EVER Y ASSESSEE COMPANY SHALL PREPARE ITS P&L A/C IN ACCORDANCE W ITH THE PROVISIONS OF PART-II AND PART-III OF SCH.VI TO T HE COMPANIES ACT, 1956. THE SAID SCH.VI DOES NOT MAKE ANY DISTINCT ION BETWEEN P&L A/C AND P&L APPROPRIATION ACCOUNT (AFTER CONS IDERING EXTRA ORDINARY ITEMS AND PRIOR PERIOD ADJUSTMENTS ). IN FACT ITA NO. 878 /HYD/2012 M/S. SUJANA METAL PRODUCTS LTD., :- 7 -: THE SCHEDULE DOES NOT SPEAK OF THE APPROPRIATION ACCOUNT AT ALL. IT IS ONLY AS A MATTER OF PRESENTATION THAT MOST OF THE COMPANIES SEGREGATE TO REFLECT AS TO WHAT HAS BEEN APPROPRI ATED OUT OF THE PROFITS EARNED BY THEM. FURTHER, SUB-CLS.(A) AND (B) OF CL.(VIII) OF NOTE II IN PARA 3 OF PART II OF SCH.VI SPECIFIC ALLY PROVIDE THAT THE AGGREGATE AMOUNTS SET ASIDE OR PROPOSED TO BE SET ASIDE TO RESERVES SHOULD BE DISTINCTLY SHOWN IN THE P &L A/C. SIMILARLY, SUB-CL(B) AND SUB-CLS(A) AND (B) OF CL S.(XII) AND (XIII) RESPECTIVELY IN NOTE II OF PART II OF SCH. VI PRO VIDE THAT PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS NOT USUALLY UND ERTAKEN OR UNDERTAKEN IN EXCEPTIONAL CIRCUMSTANCES OR WHICH ARE OF NON- RECURRING NATURE SHOULD BE SHOWN IN THE P&L A/C. THE AGGREGATE AMOUNT OF DIVIDENDS PAID AND PROPOSED IS ALSO TO BE SHOWN IN THE P&L A/C. ALL THE ABOVE ITEMS DISCUSSED ABOVE ARE CLASSIFIED IN THE APPROPRIATION ACCOUNT AND ARE NECESSARILY TO BE INCLUDED IN THE P&L A/C PREPARED AS PER PARTS II AND II OF SCH . VI TO COMPANIES ACT. 11.1 THEREFORE, THE STARTING POINT FOR COMPUTATION OF BOOK PROFITS FOR THE PURPOSES OF S.115JB SHOULD BE THE FINAL BALANC E IN THE P&L A/C CARRIED TO BALANCE SHEET (AFTER CONSIDERING PRIOR PERIOD ADJUSTMENTS AND EXTRA ORDINARY ITEMS). FOR THE ABOVE PROPOSIT ION, RELIANCE IS PLACED ON JURISDICTIONAL ITAT'S DECISION IN THE CA SE OF GULF OIL CORPORATION LTD VS. ACIT REPORTED IN 111 ITD AT PP.124 AND THE DECISION OF HON'BLE DELHI HIGH COURT IN THE C ASE OF CIT VS. KHAITAN CHEMICALS AND FERTILIZERS LTD (2008) REP ORTED IN 307 ITR AT PP.150. 11.2 IT MAY ALSO BE NOTED FROM THE ABOVE DISCUSSIO N THAT EVEN EXTRAORDINARY ITEMS AND PRIOR PERIOD ADJUSTMENT HA VE TO BE TAKEN TO THE P&L A/C. THE STARTING POINT ADOPTED AS ABOVE HAS TO BE INCREASED BY THE ITEMS SPECIFIED IN CLS. (A) TO (F ) OF EXPLANATION 1 AND HAS TO BE REDUCED BY THE ITEMS SPECIFIED IN CLS.(I ) TO (VII) GIVEN IN THE SAID EXPLANATION. NO OTHER ADJUSTMENT IS PERMITTE D BY LAW AS LAID DOWN BY THE SUPREME COURT IN THE CASE OF APOLLO TY RES. NONE OF THE CLAUSES GIVEN IN THE EXPLANATION PROVIDES FOR THE INCREASE OR DECREASE OF THE BOOK PROFITS BY EXTRAORDINARY ITEM S AND PRIOR PERIOD ADJUSTMENTS. THE AS-5 MERELY SAYS THAT PRIOR PERI OD AND EXTRAORDINARY ITEMS SHOULD BE SEPARATELY DISCLOSED ALONG WITH THEIR NATURE SO THAT THEIR IMPACT ON THE OPERATING RESUL TS CAN BE PROPERLY GAUGED. IT DOES NOT SAY THAT THEY ARE NOT PART OF THE P&L A/C. SIMILARLY, THE GUIDANCE NOTE ISSUED BY THE ICAI AL SO DOES NOT HELP THE CASE OF THE ASSESSEE, AS IT MERELY SAYS THAT S OMETIMES, APPROPRIATION ACCOUNT IS INCLUDED AS A SEPARATE SE CTION OF THE P&L A/C. BUT, AS DISCUSSED ABOVE, PARTS II AND III OF SCH. VI TO THE ITA NO. 878 /HYD/2012 M/S. SUJANA METAL PRODUCTS LTD., :- 8 -: COMPANIES ACT DO NOT SPEAK OF APPROPRIATION ACCOUN T AT ALL. IN THE LIGHT OF THE ABOVE DISCUSSION, IT WAS IN ACCORDANC E WITH LAW FOR THE ASSESSING OFFICER TO HAVE TAKEN RS.26,06,94,469/- AS THE BASE FIGURE TO COMPUTE THE BOOK PROFITS FOR THE PURPOSE OF SECTION 115JB AS AGAINST THE BASE FIGURE OF RS.16,89,24,325/- AD OPTED BY THE ASSESSEE COMPANY. 11.3 IN VIEW OF THE FOREGOING, THE ASSESSING OFFIC ER IS DIRECTED TO RECOMPUTE BOOK PROFITS OF THE ASSESSEE COMPANY BY ADOPTING RS.26,06,94,469/- AS THE STARTING POINT AND THE SA ME IS TO BE INCREASED BY THE ITEMS SPECIFIED IN CLAUSES (A) TO (F) AND HAS TO BE REDUCED BY THE ITEMS SPECIFIED IN CLAUSES (I) TO ( VII) GIVEN IN THE EXPLANATION'. 12. AS FAR AS PRINCIPLE OF LAW IS CONCERNED, WE HAV E TO UPHOLD THE ORDER OF THE CIT THAT THE COMPUTATION FOR THE PURPO SE OF 115JB SHOULD NOT START FROM THE PROFIT FOR THE YEAR BUT FROM T HE FINAL BALANCE IN THE P&L A/C CARRIED TO BALANCE SHEET. THE CASE LAW RE LIED UPON BY LD.CIT IN PARA 10.1 IS DIRECTLY ON THE ISSUE. HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. KHAITAN CHEMICALS AND FERTILIZERS LTD., REPORTED IN 307 ITR 150 HAS HELD AS UNDER: 'ACCOUNTING STARNDARDS ARE RECOMMENDED BY THE INST ITUTE OF CHARTERED ACCOUNTANTS OF INDIA. ACCOUNTING STANDAR D (A-5) STIPULATES THAT PRIOR PERIOD ITEMS ARE INCOME OR E XPENSES WHICH ARISE 'IN THE CURRENT PERIOD' AS A RESULT OF ERROR S OR OMISSIONS IN THE PREPARATION OF THE FINANCIAL STATEMENTS OF ONE OR MORE PRIOR PERIODS. THEREFORE, THE INCOME OR EXPENSES RELATABLE TO PRI OR PERIOD ITEMS ARE THOSE WHICH ARISE IN THE CURRENT PERIOD, I.E., THE PERIOD RELAVANT FOR THE PURPOSE OF COMPUTING THE NET PROFIT OR LOSS. PRIOR PERIOD ITEMS ARE TO BE INCLUDED IN THE DETERMINATION OF NET PRO FIT OR LOSS. IF A PRIOR PERIOD ITEM IS AN EXPENSE, IT WOULD GO TOWARDS RED UCING THE NET PROFIT OR INCREASING THE LOSS, AS THE CASE MAY BE. ON THE OTHER HAND, IF THE PRIOR PERIOD ITEM IS AN INCOME, IT WOULD GO TOWARDS INCREASING THE NET PROFIT OR REDUCING THE LOSS, AS BE INCOME OR EXPENSES. PRIOR PERIOD ITEMS AND EXTRAORDINARY ITEMS FORM PART OF THE NET PROFIT OR LOSS. PARAGRAPH 7 OF AS-5 STIPULATES THAT TEH NET PROFIT OR LOSS, INTER ALIA, COMPRISES EXTRAORDINARY ITEMS AND SHOULD BE DISCLOSED ON THE FACE OF THE STATEMENT OF PROFIT AND LOSS. PARAGRA PH 15 OF AS-5 STIPULATES THAT THE NATURE AND AMOUNT OF PRIOR PER IOD ITEMS SHOULD BE SEPARATELY DISCLOSED IN THE STATEMENT OF PROFIT AND LOSS IN A ITA NO. 878 /HYD/2012 M/S. SUJANA METAL PRODUCTS LTD., :- 9 -: MANNER THAT THEIR IMPACT ON THE 'CURRENT' PROFIT O R LOSS CAN BE PERCEIVED. TWO APPROACHES HAVE BEEN INDICATED IN PARAGRAPH 19 OF THE SAID ACCOUNTING STANDARD (AS-5). THE NORMAL AP PROACH IS TO INCLUDE THE PRIOR PERIOD ITEMS IN THE DETERMINATION OF NET PROFIT OR LOSS FOR THE CURRENT PERIOD. THE ALTERNATIVE APPROACH IS TO SHOW SUCH ITEMS IN THE STATEMENT OF PROFIT AND LOSS AFTER DETERMINATION OF THE CURRENT NET PROFIT OR L OSS. THE OBJECT IS TO INDICATE THE EFFECT OF SUCH ITEMS ON THE CURRENT PROFIT OR LOSS . WHILE CALCULATING THE TAX UNDER SECTION 115JA OF T HE INCOME-TAX ACT, 1961, THE ASSESSEE COMPUTED THE NET PROFIT AS PER THE PROFIT AND LOSS ACCOUNT AFTER REDUCING THE PRIOR PERIOD EXPENSES/EXTRAORDINARY IT EMS AND PROFIT FROM GENERATION OF POWER PLANT. ACCORDING TO THE REVENU E, THE AMOUNT OF THE PRIOR PERIOD EXPENSES/EXTRAORDINARY ITEMS COULD NOT BE D EDUCTED FOR ARRIVING AT THE NET PROFIT FOR THE PURPOSE OF SECTION 115JA. ACCORDING TO THE ASSESSEE, THE NET PROFIT WAS TO BE COMPUTED ON THE BASIS OF THE PROFIT AND LOSS ACCOUNT WHICH, IN TURN , WAS TO BE IN ACCORDANCE WITH THE PROVISIONS OF PART S II AND III OF SCHED ULE VI TO THE COMPANIES ACT, 1956 . THE ASSESSEE CONTENDED THAT SUCH A COMPUTATION OF NET PROFIT, IN VIEW OF THE PRESCRIBED ACCOUNTING S TANDARD ( AS-5) REQUIRED THE PRIOR PERIOD EXPENSES/EXTRAORDINARY ITEMS TO BE SHOWN SE PARATELY. THIS DID NOT MEAN THAT BECAUSE THESE ITEMS WERE SHOWN SEPARATELY THEY D ID NOT CONSTITUTE PART OF THE NET PROFIT. THE TRIBUNAL ACCEPTED THE ASSESSEE 'S CONTENTION. ON APPEAL: HELD, DISMISSING THE APPEAL, THAT BECAUSE OF THE PRESCRIB ED ACCOUNTING STANDARD WHICH HAD TO BE FOLLOWED BY THE ASSESSEE IN VIEW O F THE PROVISIONS OF SECTION 115JA(2) READ WITH SECTION 211 OF THE 1956 ACT, THE ASSESSEE WAS REQUIRED TO SHOW THE PRIOR PERIOD ITEMS/EXTRAORDINARY ITEMS SE PARATELY SO THAT THEIR IMPACT ON THE CURRENT PROFIT OR LOSS COULD BE PERCEIVED. THE FACT THAT THE ASSESSEE ADOPTED THE ALTERNATIVE APPROACH OF SHOWING SUCH I TEMS IN THE STATE MENT OF PROFIT AND LOSS AFTER DETERMINATION OF CURRENT NET PROFIT OR LOSS, DID NOT MEAN THAT THESE ITEMS WERE NOT TO BE TAKEN INTO ACCOUNT IN COMPUTING THE NET PROFIT AS ENVISAGED IN SECTION 115JA. THUS, WHAT THE ASSESSEE HAD DONE WAS ONLY TO INDICATE THE PRIOR PERIOD ITEMS/EXTRAORDINARY ITEMS SEPARATELY. THIS DID NOT MEAN THAT THE FIGURE OF NET PROFIT WAS TO BE ARRIVED AT DE HORS THESE ITEMS. THUS, THE TRIBUNAL WAS CORRECT IN LAW IN HOLDING THAT THE ASSESSING O FFICER HAD FAILED TO APPRECIATE THAT THE NET PROFIT FOR THE PURPOSE OF SECTION 115 JA WAS TO BE COMPUTED ONLY AFTER DEDUCTING THE PRIOR PERIOD EXPENSES/EXTRAORDINARY ITEMS. EXPENSES/EXTRAORDINARY ITEMS'. NOT ONLY THAT EVEN THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES VS. CIT [255 ITR 273] (SC) AND FOLLOWED BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF TAM IL NADU CEMENTS CORPORATION LTD., VS. JCIT [349 ITR 58] (MAD) ALSO SUPPORTS THE ABOVE. IN FACT IN THE ABOVE REFERRED LATER CASE, WHILE EXA MINING THE ISSUE ITA NO. 878 /HYD/2012 M/S. SUJANA METAL PRODUCTS LTD., :- 10 -: WHETHER THE CLAIM OF PRIOR PERIOD EXPENSES ARE DISA LLOWABLE U/S.115JB, THE HON'BLE MADRAS HIGH COURT HELD AS UNDER: 'IN APOLLO TYRES V. CIT [2002] 255 ITR 273 (SC) THE SUPREME COURT POINTED OUT THAT SUB-SECTION (1A) OF SECTION 115J OF THE INCOME-TAX ACT, 1961, DOES NOT EMPOWER THE ASSESSING OFFICER TO EMBARK UPON A FRESH INQUIRY WITH REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNTS OF THE COMPANY. SUB-SECTION (1A) MANDATE S THE COMPANY TO MAINTAIN ITS ACCOUNTS IN ACCORDANCE WITH THE RE QUIREMENTS OF THE COMPANIES ACT, 1956, AND THE ASSESSING AUTHORITY H AS A LIMITED JURISDICTION TO SATISFY HIMSELF THAT THE ACCOUNTS ARE MAINTAINED IN ACCORDANCE WITH THE PROVISIONS OF THE 1956 ACT. B EYOND THAT, THE ASSESSING AUTHORITY HAS NO JURISDICTION TO GO FURT HER INTO THE ACCOUNTS. HELD, ALLOWING THE APPEAL, THAT IN COMPUTING THE N ET PROFIT THE ASSESSEE HAD ADJUSTED THE PRIOR PERIOD EXPENSES AN D OFFERED THE BOOK PROFIT FOR ASSESSMENT. NO EXCEPTION COULD BE TAKEN TO THE COURSE ADOPTED BY THE ASSESSEE IN ADJUSTING THE PR IOR PERIOD EXPENSES IN COMPUTING THE NET PROFIT'. 13. IN VIEW OF THE ABOVE, IT IS VERY CLEAR THAT THE COMPUTATION HAS TO START FROM THE FINAL FIGURE OF P&L A/C AND NECESSAR Y ADJUSTMENTS AS PROVIDED IN EXPLANATION TO SECTION 115JB HAS TO BE CONSIDERED, WHILE COMPUTING THE BOOK PROFIT FOR THE PURPOSE OF 115JB. THE CIT ALSO MADE A MISTAKE IN DIRECTING TO TAKE A DIFFERENT AMOUNT. THERE SEEMS TO BE NO INQUIRY UNDER THE PROVISIONS OF SECTION 115JB WHILE COMPLETING ASSESSMENT U/S 143(3) THEREFORE TO THAT EXTENT, ORD ER OF THE ASSESSING OFFICER IS NOT ONLY ERRONEOUS ON THE FACTS BUT ALSO ON THE PRINCIPLES OF LAW. WE THEREFORE UPHOLD INVOKING THE JURISDICTION BY CIT ON THE ORDER OF ASSESSING OFFICER. 14. SINCE AMOUNTS ADOPTED BY CIT IS NOT CORRECT, WH ILE UPHOLDING THE JURISDICTION OF THE ORDER OF THE CIT ON 263, WE SET ASIDE CONSEQUENTIAL ORDER PASSED BY ASSESSING OFFICER AND RESTORE THE I SSUE TO THE FILE OF ASSESSING OFFICER TO RE-DO THE EXERCISE OF RECONCIL IATION OF AMOUNTS OF PRIOR PERIOD INCOME AND COMPUTING THE INCOME U/S.11 5JB AS PER THE ITA NO. 878 /HYD/2012 M/S. SUJANA METAL PRODUCTS LTD., :- 11 -: PROVISIONS OF THE ACT, AFTER GIVING DUE OPPORTUNITY TO ASSESSEE TO MAKE SUBMISSIONS WHICH SHOULD BE EXAMINED AND PROPERLY C ONSIDERED. 15. ANOTHER GROUND RAISED BY ASSESSEE WITH REFERENC E TO DIRECTION OF CIT ON CLAIMING OF NORMAL DEPRECIATION AND ADDITION AL DEPRECIATION. THIS ISSUE HAS BEEN EXAMINED BY ASSESSING OFFICER I N THE ORIGINAL ASSESSMENT PROCEEDINGS, THEREFORE, THE CIT DIRECTIO N TO RE-EXAMINE THE ISSUE DOES NOT ARISE, AS IT IS CONTRARY TO THE PROV ISIONS OF THE ACT. CIT CANNOT SUBSTITUTE HIS OPINION AND DIRECT THE ASSESS ING OFFICER TO RE-EXAMINE THE ISSUE WHICH WAS ALREADY EXAMINED AND ACCEPTED BY ASSESSING OFFICER. AS SEEN FROM THE CONSEQUENTIAL ORDER PASSED BY ASSESSING OFFICER ALSO, HE DID NOT MAKE ANY DISALLO WANCE ON THIS ISSUE WHICH INDICATE THAT THERE IS NO ERROR IN THE ORIGIN AL ORDER PASSED. TO THAT EXTENT, ASSESSEE'S GROUNDS ON THIS ISSUE ARE A LLOWED AND THE ORDER OF THE CIT ON THIS ISSUE IN PARA NO.11.4 IS SET ASI DE. 16. LD.COUNSEL IN THE COURSE OF ARGUMENTS RELIED ON THE DECISION OF ITAT BENCH 'B' IN THE CASE OF BARTRONICS INDIA LTD. , VS. ACIT [22 TAXMANN.COM 5 (HYD)] FOR THE PROPOSITION THAT ONCE THE ACCOUNTS WERE REFERRED TO SPECIAL AUDIT U/S.142(2A) AND ASSESSING OFFICER ACCEPTING THE SAME, LD.CIT HAS NO JURISDICTION TO REVISE THE ORDE R. 17. WE HAVE PERUSED THE ORDER OF THE CO-ORDINATE BE NCH IN THE ABOVE REFERRED CASE AND NOTICED THAT THE FACTS IN THE ABO VE CASE ARE DIFFERENT FROM THE FACTS OF ASSESSEE'S CASE. IN THE ABOVE RE FERRED CASE, ASSESSING OFFICER HAVING REFERRED THE ACCOUNTS TO UNDERGO SPE CIAL AUDIT, HOWEVER, DID NOT CONSIDER THE REPORT AND REJECTED THE BOOKS OF ACCOUNTS. IN THOSE SET OF FACTS, THE ITAT HELD THAT ASSESSING OFFICER WAS NOT CORRECT IN IGNORING THE SPECIAL AUDIT REPORT AND RE-ALLOCATING COMMON EXPENDITURE. THE ISSUE THEREIN IS ENTIRELY DIFFERENT FROM THE IS SUE BEFORE US. ITA NO. 878 /HYD/2012 M/S. SUJANA METAL PRODUCTS LTD., :- 12 -: THEREFORE, THE SAID CASE LAW RELIED ON BY THE COUNS EL DOES NOT APPLY. HAVING EXAMINED THE RECORD AND EVIDENCES PLACED BEF ORE US IN THE PAPER BOOK, WE ARE OF THE OPINION THAT THERE WAS LIMITED ENQUIRY ON THE CLAIMS U/S.43B AND PRIOR PERIOD EXPENDITURE AND NO ENQUIRY BY THE ASSESSING OFFICER ON THE ISSUE OF COMPUTATION U/S.115JB. IN VIEW OF THIS, WE HAVE PARTLY UPHELD LD.CIT'S DIRECTIONS ON THE ISSUE OF J URISDICTION. 18. IN THE RESULT, ASSESSEE'S APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 13 TH MARCH, 2015. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUN TANT MEMBER HYDERABAD, DATED 13 TH MARCH, 2015. TNMM COPY TO : 1. M/S. SUJANA METAL PRODUCTS L IMI T E D, HYDERABAD ; C / O. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3 , 1ST FLOOR, SOMAJIGUDA, HYDERABAD-82. 2. DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(2), HYD ERABAD. 3. CIT-III, HYDERABAD 4. ADDL.CIT, RANGE-3, HYDERABAD 5. D.R. ITAT, HYDERABAD