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| The Tax Publishers2020 TaxPub(DT) 3717 (Hyd-Trib) INCOME TAX ACT, 1961
Section 263
Where assessee-company rightly redrawn its profit & loss account disclosing actual loss accrued to it by way of making provision towards gratuity and warranty, which was in accordance with the provisions of the Companies Act and said fact was brought to the notice of AO subsequent to filing of return of income and the AO accepted the same while passing the assessment order, thus, there was no error committed by the AO, which was erroneous and prejudicial to the interest of Revenue.
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Revision under section 263 - Erroneous and prejudicial order - AO examined the case properly -
CIT invoked jurisdiction under section 263 alleging that assessment order passed by AO was erroneous and prejudicial to the interest of Revenue because the said order was passed without making inquiries or verification with respect to claim of deduction towards gratuity, which was not debited to profit & loss account of the assessee and the amount debited towards provision for warranty, while arriving at book profit of the assessee under the provisions of section 115JB. It was submitted on behalf of the assessee that since the provisions of section 115JB mandates that the book profit of the assessee-company shall be prepared in accordance with the provisions of the Companies Act, accordingly, the assessee redrafted its statement of affairs complying with the provisions of the Companies Act by taking into account of the qualification made by the statutory auditors in their report. Further, the AO passed the assessment order after considering the same and hence, the revisional power was not required to be invoked. Held: Book profit of assessee-company has to be mandatorily drawn as per the provisions of the Companies Act. Further, Companies Act recognizes the Accounting Standards which stipulates that the financial statements ought to be free from material misstatements and faithfully represent the financial performance and position of the entity. Hence, in the case of the assessee, it had rightly redrawn the profit & loss account disclosing the actual loss accrued to it during the relevant assessment year by way of making provision towards gratuity and warranty, which was in accordance with the provisions of the Companies Act. Since such fact was brought to the notice of the AO subsequent to filing of return of income and the AO accepted the same while passing the assessment order. Therefore, the CIT was not justified in invoking his powers under section 263.
REFERRED :
FAVOUR : In assessee's favour
A.Y. :
IN THE ITAT, HYDERABAD BENCH
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