Sikander Khan, A.M. - (1.) IN this appeal the assesses has contested the computation of higher total income at Rs. 1,03,59,205 by making prima facie adjustment under Section 143(1)(a) of the IT Act, 1961, for the asst. yr. 1997-98 which was confirmed by the learned CIT(A) in the first appeal.
(2.) The assesses filed return showing income as per MAT under Section 115JA at Rs. 10,01,856. This was shown as 30 per cent of the book profit of Rs. 33,39,518. This book profit was arrived at by the assessee by making adjustment in the book profit as per P&L a/c as under : JUDGEMENT_3031_TLIT0_20000.htm 3. The AO did not accept the aforesaid profit of Rs. 10,01,856 declared under Section 115JA on the ground that the assessee had not worked out 30 per cent of the real and correct book profit of Rs. 1,03,59,205. He noted that the adjustments made in the real and correct book profit before arriving at the book profit of Rs. 33,39,518 were not correct and permissible. He, therefore, ignored the aforesaid adjustment made by the assessee and making prima facie adjustment under Section 143(1)(a) of the Act, he took the book profit at Rs. 1,03,59,205. 30 per cent of this was worked put by the AO at Rs. 31,07,762 which was determined as the taxable income under Section 115JA of the Act. Aggrieved the assessee preferred first appeal before the learned CIT(A). It was argued before him on behalf of the assessee that the AO was not justified in determining the book profit at Rs. 1,03,59,205 instead of Rs. 33,39,518 shown by the assessee and as such the determination of the taxable income under Section 115JA of the Act by the AO was wrong. It was contended that the book profit means the net profit as shown in the P&L a/c and hence the book profit shown by the assessee should have been accepted. The assessee had enclosed the computation of book profit with the return of income and the AO was not justified in making prima facie adjustment on account of previous years interest decapitalised and previous year excess depreciation written back in the book profit declared in the computation enclosed with the return.
(3.) THE learned CIT(A) was not satisfied and convinced with the aforesaid submissions and contentions. He observed that the assessee was not justified in deducting Rs. 99,94,101 on account of previous year interest decapitalised. In the earlier years the interest paid was capitalised and not charged to P&L a/c and the entire amount was debited in the previous year relevant to the assessment year in question. He added that it was not understandable how this could be considered as prior period expenses. He further added that in principle the purpose of adjustment on account of prior period expenses was to claim expenses of earlier year which could not be claimed on account of the fact that the assessee became aware of the liability after the close of the accounting period though it related to earlier years but the adjustment made by the present assessee was on account of decision to reverse the earlier year accounting practise which could not be said to be a liability of earlier year which arose during the year under consideration. He further added that the narration was clear that it was reversal of previous year interest decapitalised and therefore, it was not prima facie allowable. He held that the AO was correct in adopting the first figure which was the book profit for the year under consideration.;