|CORAM:||Chandra Poojari (AM), N.R.S. Ganesan (JM)|
|CATCH WORDS:||adjustment, Book Profits|
|DATE:||October 17, 2014 (Date of pronouncement)|
|DATE:||October 21, 2014 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 115JB: AO entitled to tinker with P&L A/c if assessee's claim not permitted by accounting principles|
The question that had arisen was whether the Assessing officer was entitled to disturb the net profit shown by the assessee in the profit and loss account prepared as per the Companies Act, 1956.in order to enable anybody to understand the implication of such deviation, it was made mandatory for the companies to disclose the financial implications of such deviation. Such kind of deviations are acceptable under the Companies Act, however, they are not always acceptable to the income-tax authorities. Under the income-tax, the Assessing officer is entitled to examine the said deviations, particularly when it has an impact on the book profit. There cannot be any dispute that it is the responsibility of the assessee to substantiate the legality of any item of expenditure/income found debited/credited in the profit and loss account by drawing support from any document or business practices or accounting requirements.it was evident that the assessee had passed the entry for prior period credits/charges in the assessment year only to ensure that the final book profit (surplus) was to be reduced. On making careful observations of the facts of the case, the said intention of the assessee was very much apparent and glaring. Besides, the assessee also could not substantiate the said claim with a legally tenable explanation. It was also not shown that the booking of such kind of entries are permitted under the accounting principles. when the assessee could not furnish legally tenable explanation and also could not show that it was in accordance with established accounting principles, then it could not be said that the financial statements had been prepared in accordance with the provision of the Companies Act, even if the management/auditors were silent on that point.