| Question And Answer | |
|---|---|
| Subject: | Book profit (MAT), mistake in earlier years ? |
| Category: | Income-Tax |
| Querist: | Ravi aiftp |
| Answered by: | Chartered Accountant ., Mr . H. N. Motiwalla |
| Tags: | Book profit (MAT), mistake in earlier years |
| Date: | January 15, 2024 |
A Limited has adopted IND AS for the first time in assessment year 2021/22. During the assessment year, company found that there were certain mistakes in the earlier years. Therefore, it rectified the error by recording prior period expenses and as well as income. The said prior period adjustments have been routed through “Other equity and not through Other comprehensive income” as per IND AS – requirements. Whether, can AO make the adjustments while making the assessment under MAT?
In Apollo Tyres v. CIT [255 ITR 273] the Supreme Court held that while computing the income under section 115J (predecessor to section 115JA and this section), the AO has only the power of examining whether the books of account are certified by the authorities under the companies Act, as having been maintain in accordance with the Act. The AO thereafter has the limited power of making increases and reductions as provided for in the explanation to the said section. This observation shall equally apply while making the assessment under section 115JB of the Act i.e. MAT.
Sub section 2(A) of section 115JB of the Act provides that “For a company whose financial statements are drawn up in compliance to the Indian Accounting Standards Specified in Annexure to the Companies (Indian Accounting Standard) Rules 2015, the book profit as computed in accordance with Explanation 1 to sub section (2) shall be further:
a) Increased by all amounts credited to other comprehensive income in the statement of profit and loss under the head “Items that will not be re-classified profit or loss”;
b) Decreased by all amounts debited to other compressive income in the statement of profits and loss under the head “Items that will not be reclassified to profit or loss—————–“
Thus, the prior period expenses and income which have routed through : “other equity” the AO cannot make the adjustment while making the assessment under section 115JB of the Act, i.e. MAT.
This point has been clarified by CBDT vide circular no. 24/2017 dated July 25,2017, while answering question 2 of the said circular the Board states that “Starting point for computing Book profits for Ind AS compliant companies shall be Profit before other comprehensive income (Item number XIII in Part 2 (statement of Profit and Loss) of Division II, of Schedule III to the companies Act, 2013. Further while answering question 7, the Board says “that item which is re-classified to other equity on transaction date shall not be considered for the purpose of computing transition amount.
Source : AIFTP Journal September 23