Section 147 Assessment bad in law when facts were duly disclosed Tax Audit Report and Profit & Loss: ITAT

During the subject assessment year, the assessee has debited prior period expenses amounting to Rs. 1,08,63,174 /- to its profit and loss account to arrive at the net profit for the year under consideration, in accordance with the provisions of Accounting Standard 5. In computing the book profits for the purposes of Minimum Alternate Tax (‘MAT’) computation, the Appellant had considered the net profit after deduction of prior period expense and computed profits as per of section 115JB of the Income Tax Act. The AO disallowed the deduction of prior period expenses in the computation of the book profits on the contention that the book profits are to be calculated only on the basis of current year operational profits. In the reasons recorded, the AO stated that an amount of Rs. 2,74,88,169/- needs to be added back to the book profits computed under section 115JB of the Act and that the Appellant has failed to disclose his income fully and truly and all material facts necessary for the assessment.

In the present case, the financial statements for the year ended March 31, 2010, disclosed the prior period expenses of Rs. 1,08,63,174/- on the face of the profit and loss account itself as well as the break-up of the same is depicted at Schedule 16 of the financial statements (copy of financials on pages 62 to 86 of the PB). The Tax Audit Report (TAR) in Form 3CD for AY 2010-11 (clause 22( b) of TAR and attachment 9 of TAR) depicts the prior period expenses of Rs. 1,08,63,174 /-. A copy of the TAR has been duly furnished before the AO vide Annexure-4 of submission dated May 30, 2013. The computation of Income including the MAT (‘Minimum Alternative Tax’) computation under section 115JB of the Act along with Form 29B for AY 2010-11 depicts that the Company had disallowed the prior period expense of Rs. 1,08,63,174 /- in the normal computation of income. Further, the same is not disallowed in the MAT computation in line with Form 29B for the subject year. The said documents have been duly furnished before the AO vide Annexure-2 and Annexure-3A of the submission dated May 30, 2013 (copy of submission dated May 30, 2013, along with relevant extract of the annexures – pages 87 to 100 of the PB).

Thus, in the present case, there is no failure on the part of the Appellant to file its Return of Income. Further, the Appellant has disclosed fully and truly all material facts necessary for his assessment. The facts have been duly disclosed in the Tax Audit Report and vide the Profit and Loss Account. Hence keeping in view the proviso to section 147, the reassessment proceedings initiated under section 147 of the Income Tax Act 1961 beyond a period of four years are bad in law and deserve to be quashed.