The Income Tax Appeals Tribunal (ITAT), Chennai, ruled that there was no error in the calculation of accounting profit under section 115JB of the Law of income tax, 1961 excluding the item from the previous period.
The quorum composed of Duvvuru RL Reddy (judicial member) and G. Manjunatha (accounting member) considered that the provisions of article 115JB of the law deal with the calculation of accounting profit. Explanation (1) of article 115JB of the law provides for positive and negative adjustments. It is a principle of law well established by various court decisions that the valuation agent cannot make any adjustment to the accounting profit calculated according to article 115JB of the law.
In this case, the appraised suffered an accounting loss of Rs 20 19,930, while the valuation agent considered an accounting profit of Rs 40,783,793 / -. The reason for the difference in net income taken by the The appraised and appraiser is the provision for gratuity relating to prior years as part of the prior period. In accordance with the provisions of the law and accounting principles, the item for the previous period, whether the expenses or income is a deductible expense item or an income item, is always below the line of the income statement. This means that, for all practical purposes, the net profit according to the books of account for the period concerned is net profit calculated without making any adjustment by deducting items from the previous period or other credits made during the financial year. In progress. the heading “items from the previous period” is located below the line of the income statement. If you consider a provision for gratuity relating to prior years because the item is below the profit and loss account line, then for the purposes of calculating accounting profit, net profit according to the books of account should be taken into account. account before authorizing the deduction for provision for gratuities relating to previous years.
T. Banusekar’s lawyer for the appellant argued that in the order of the Income Tax Commissioner (appeals) they did not understand that the valuation officer had accepted an accounting loss of Rs 20 19 390 / – for tax calculation in accordance with normal provisions. income tax, however, when calculating accounting profit for the purposes of Section 115JB of the Income Tax Act 1961, the valuation officer determined that accounting profit was 40 78,793 Rs. Is contrary to the law, the facts and the circumstances of the case the measure prejudicial to the interests of the appellant and is contrary to the principles of equity, natural justice and fair play.
R. Anitha’s attorney for revenue relied on the Hon’ble Supreme Court ruling on ApolloTyres Ltd. vs. CIT (255 ITR 273), in which the court held that this provision relating to the gratuity relating to previous years is not in conformity with the provisions of Article 115JB of the Law. He further noted that the explanation of article 115JB of the law does not provide for an adjustment made by the appraisee. , then the adjustment made by the appraised to recognize the calculated profit u / s.115JB of the Acttowards provision for the gratuity relating to prior years is not covered.
The Tribunal, while dismissing the appeal, held that there was no error in the reasons given by the OA for calculating the accounting profit u / s.115JB of the Act by taking the net profit according to the profit and loss account before examining the deduction requested for the article of the previous period being a provision for gratuity relating to previous years
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