22 July 2014
My company has filed a tax return of AY 13-14 in which there is a loss as per normal income tax. However there was MAT profit of Rs.20 cr
While finalising the account of AY 14-15 (PY 13-14) we came across prior period income of Rs. 95 crores which was omitted to be accounted in AY 13-14(PY 12-13).
our question is that - while assessing the income of AY 13-14, will the AO re assess (or re calculate) the MAT profit as Rs. 115 cr (Rs. 20 cr book profit as per account and Rs. 95 cr being the prior period income shown in the account of AY 14-15.
In my opinion, AO can not re-assess the book profit of AY 13-14 on the basis of prior period income shown in AY 14-15
22 July 2014
No, there are various rulings which restricts AO to assess the book profit.
like -
The Supreme Court has in the decision of Apollo Tyres Ltd. v. CIT, [2002] 255 ITR pointed out that sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh inquiry with regard to the entries made in the books of account of the company. The said sub-section mandates the company to maintain its account in accordance with the requirements of the Companies Act for the limited purpose to find out whether the computation is done in accordance with the provisions of the Companies Act. The assessing authority has a limited jurisdiction to satisfy himself that the accounts are maintained in accordance with the provisions of the Companies Act. Beyond that, the assessing authority has no jurisdiction to go further into accounts.
The Delhi High Court in the case of CIT v. Khaitan Chemicals and Fertilizers Ltd.[2008] 307 ITR 150 while dealing with facts similar to instant case had pointed to the Accounting Standard(AS-5) and stated that Accounting Standards clearly stipulates that prior period items are income or expenses which arise ‘in the current period’ as a result of errors or omissions in the preparation of the financial statement of one or more prior periods. Referring to paragraph 7 of AS-5, the Delhi High Court pointed out that the net profit or loss comprise of extraordinary items and the same should be disclosed on the face of the statement of profit and loss. Prior period items are also enumerated in paragraphs 15 and 19 of Accounting Standard. Dealing with the Accounting Standard-5, the Delhi High Court pointed out that income or expenses relating to prior period items, merit to be included in the determination of net profit or loss. It reasoned out that both the prior period items and extraordinary items are to be included in the determination of the net profit or loss and as per paragraph 15 of the AS-5, that prior period items should be separately disclosed in the statement of profit and loss.
Thus, the Delhi High Court held that whether the prior period expenses were shown separately or not, the assessee would nevertheless be entitled to have the adjustment of the prior period expenses in the matter of computing the net profit of the assessee. Thus on mere fact that the assessee had shown its prior period expenses in the extraordinary items separately, did not mean the net profit was arrived at de hors these items. The Delhi High Court further pointed out that the assessee had not claimed any deduction with the net profit on the basis of any clauses given in the Explanation to section 115JA(2). Consequently the question was answered in favour of the assessee. The view expressed by the Delhi High Court is agreed with and is applied to the instant case.
Thus going by the decision of the Supreme Court in Apollo Tyres Ltd.’s case(supra) and applying the facts thus found that in computing the net profit the assessee had adjusted prior period expenses, rightly, the assessee offered the book profit for assessment. No exception could be taken to the course adopted by the assessee in adjusting the prior period expenses in computing the net profit. In the light of the law declared by the Supreme Court as to the jurisdiction of the Assessing Officer in respect of the matter of MAT assessment, it is to be held that once the Officer accepts the book profit, he cannot travel beyond what had been disclosed in the book profit. In the matter of granting adjustment to the prior period expenses, applying the decision of the Delhi High Court in the Khaitan Chemical & Fertilizers Ltd.’s case (supra), the order of the Tribunal is to be set aside and the appeal is to be allowed. The substantial question of law is decided in favour of the assessee.
22 July 2014
but in ur case u have not checked that u have ommited to show the income and already filed return so even penalty u/s 271(1)(c) can be invoked.
In the financial year 2013-14, my company is going to disclose the Rs. 95 cr under prior period which occurred due to error and omission in FY 2012-13. This complies the respective accounting standard.
Supreme Court has in the decision of Apollo Tyres Ltd. v. CIT, [2002] 255 ITR pointed out that sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh inquiry with regard to the entries made in the books of account of the company. The said sub-section mandates the company to maintain its account in accordance with the requirements of the Companies Act for the limited purpose to find out whether the computation is done in accordance with the provisions of the Companies Act. The assessing authority has a limited jurisdiction to satisfy himself that the accounts are maintained in accordance with the provisions of the Companies Act. Beyond that, the assessing authority has no jurisdiction to go further into accounts.
So while assessing the income of AY 2013-14, AO can not go beyond the book profit shown as per audited account.
In the financial year 2013-14, my company is going to disclose the Rs. 95 cr under prior period which occurred due to error and omission in FY 2012-13. This complies the respective accounting standard.
Supreme Court has in the decision of Apollo Tyres Ltd. v. CIT, [2002] 255 ITR pointed out that sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh inquiry with regard to the entries made in the books of account of the company. The said sub-section mandates the company to maintain its account in accordance with the requirements of the Companies Act for the limited purpose to find out whether the computation is done in accordance with the provisions of the Companies Act. The assessing authority has a limited jurisdiction to satisfy himself that the accounts are maintained in accordance with the provisions of the Companies Act. Beyond that, the assessing authority has no jurisdiction to go further into accounts.
So while assessing the income of AY 2013-14, AO can not go beyond the book profit shown as per audited account.
In the financial year 2013-14, my company is going to disclose the Rs. 95 cr under prior period which occurred due to error and omission in FY 2012-13. This complies the respective accounting standard.
Supreme Court has in the decision of Apollo Tyres Ltd. v. CIT, [2002] 255 ITR pointed out that sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh inquiry with regard to the entries made in the books of account of the company. The said sub-section mandates the company to maintain its account in accordance with the requirements of the Companies Act for the limited purpose to find out whether the computation is done in accordance with the provisions of the Companies Act. The assessing authority has a limited jurisdiction to satisfy himself that the accounts are maintained in accordance with the provisions of the Companies Act. Beyond that, the assessing authority has no jurisdiction to go further into accounts.
So while assessing the income of AY 2013-14, AO can not go beyond the book profit shown as per audited account.
22 July 2014
yes i agree that ao cannot go beyond book profit as shown in audited accounts but still he can invoke section 148 for income escaping assessment till u dont revise your return. subsequently he can also invoke 271(1)(c) as said earlier.
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