Akash Hotels Private Limited,, ... vs Assessee

This appeal filed by assessee is against the order of the Commissioner of Income Tax (Appeals)-II, Hyderabad, dated 11-02-2014 for the Assessment Year (AY) 2006-07.

2. The facts of the case in brief that, assessee-company filed its return of income on 03-11-2006 declaring a loss of Rs. 1,10,37,354/- under normal provisions and income of Rs. 42,46,919/- u/s. 115JB of the Income Tax Act, 19691 [Act].

3. In the assessment order, the AO has observed that the tax liability of prior period income of Rs. 2,65,17,247/- which was credited as the -: 2 :- I.T.A. No. 577/Hyd/2014 Akash Hotels Pvt. Ltd.,

below line entry but not considered as income for income tax purposes. The Ld. Counsel for the assessee has explained that the amount pertains to write back of interest, which was no more payable to the financial institutions and submitted that in the AY. 2003-04 to 2005-06, the company has disallowed an amount of Rs. 2,19,37,899/- towards unpaid interest. Out of the total write back of Rs. 2,65,17,247/-, an amount of Rs. 2,19,37,899/- having already disallowed in the earlier years. It is submitted that write back of the same cannot be now brought to tax. Accordingly, the assessee filed a revised computation of income offering the difference amount of Rs. 45,79,348/- is now offered to tax under normal computation. Consequently, the loss was reduced to Rs. 68,77,747/- as against original loss claimed by the assessee. The AO accepted the revised computation. Thereafter, the AO proceeded to determine the book profit u/s. 115JB and observed that the assessee admitted the book profit of Rs. 42,46,919/- u/s. 115JB of the Act which is the above line of the profit shown in the annual account. However, there is a credit of Rs. 2,65,17,246/- towards prior period income of which was shown as the below the line entry in the annual account. The assessee has not considered this item for the purpose of income u/s. 115JB. AO had asked the assessee to explain with regard to prior period income, it was submitted before the AO that since certain income pertains to earlier period, the same was shown as prior period income and it could not be accounted for the purpose of book profits u/s. 115JB. However, the AO has not agreed with the submissions of assessee and the prior period income shown below line of entry of Rs. 2,65,17,246/-, added to the total income of the assessee. Accordingly, assessment was completed. Assessee carried the appeal before CIT(A). Ld.CIT(A) confirmed the order of AO.

-: 3 :- I.T.A. No. 577/Hyd/2014 Akash Hotels Pvt. Ltd.,

4. Ld. Counsel has submitted that the AO having accepted the revised computation filed by the assessee and offered an amount Rs. 45,79,348/- for taxation, the AO has no power to change the computation made by the assessee u/s. 115JB of the Act. Further, relied on the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd., Vs. CIT [255 ITR 273].

5. On the other hand, Ld. DR relied on the orders of the authorities below.

6. We have heard both the sides. Perused the records and gone through the orders of the authorities below. The only issue for consideration is whether the AO has power u/s. 115JB to change the computation made by the assessee. The assessee has credited an amount of Rs. 2,65,17,246/-, below line of entry and not considered as income for income tax purpose. When the AO has asked the assessee to explain the reason it was submitted that the above amounts pertains to interest which is no more payable to the financial institutions and the company has disallowed an amount of Rs. 2,19,37,899/- towards unpaid interest relating to AY. 2003-04 to 2005-06. Accordingly, the assessee filed revised computation by offering difference amount of Rs. 45,79,348/- offered to tax under normal computation and the same was accepted by the AO. The AO after accepting the revised computation filed by the assessee, has considered the amount of Rs. 2,65,17,246/- which was credited by the assessee below line of entry and considered as income. In the case of Apollo Tyres Ltd., Vs. CIT (supra), the Hon'ble Supreme Court has observed that the AO while computing the income u/s. 115J has only the power to examine whether the Books of Accounts are certified by the by the various authorities under the Companies Act as having properly maintained in accordance with Companies Act. The -: 4 :- I.T.A. No. 577/Hyd/2014 Akash Hotels Pvt. Ltd.,

AO thereafter has a limited power of making increase and reductions as provided for in the explanation to the said section. To put it differently, the AO does not have a jurisdiction to go beyond the net profit shown in the P&L A/c except to the extent provided in the Explanation to Section 115JB.

7. In the present case, the addition made by the AO on account of waiver of interest is not covered by the adjustments permissible as per Explanation to Section 115JB and this position is not disputed by the Ld. DR. We therefore respectfully follow the decision of Hon'ble Supreme Court and hold that the AO has exceeded the jurisdiction as provided under the Act while making the impugned addition. The said addition made by AO is therefore liable to be deleted. We order accordingly.

8. In the result, appeal is allowed.

Order pronounced in open Court on 5th June, 2015

Sd/- Sd/-

(P.M. JAGTAP) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated 5th June, 2015 TNMM -: 5 :- I.T.A. No. 577/Hyd/2014 Akash Hotels Pvt. Ltd.,

Copy to :

1. Akash Hotels Pvt. Ltd., C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, I Floor, Somajiguda, Hyderabad.

2. Dy. Commissioner of Income Tax, Circle-1(1), Hyderabad.

3. CIT(Appeals)-II, Hyderabad.

4. CIT-I, Hyderabad.

5. D.R. ITAT, Hyderabad.

6. Guard File.