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Facts
The assessee company, engaged in software development and training, filed its return for AY 2016-17 declaring 'nil' income. The assessment was completed under Section 143(3) accepting the returned income. Subsequently, a notice under Section 148 was issued for re-assessment due to deduction of prior period expenses. The Assessing Officer (AO) added back a sum of Rs. 13,13,012/- to the book profit.
Held
The Tribunal held that TDS of Rs. 13,000/- is part of income-tax and should be added to book profits. However, ESI payment of Rs. 1,94,280/- is not to be added as it is not mentioned in Explanation 1 to Section 115JB(2) of the Act. Therefore, the book profit needs to be recomputed.
Key Issues
Whether prior period expenses, specifically ESI and TDS, are to be included in the computation of book profit under Section 115JB of the Income Tax Act.
Sections Cited
250, 143(1), 143(3), 148, 115JB, 147, 144B, 115JB(2)
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Income Tax Appellate Tribunal, ‘B’ (SMC
Before: SHRI GEORGE GEORGE K
आदेश/ O R D E R
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 13.09.2023 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2016-17.
2 -: 2. There is a delay of 468 days in filing the appeal. The assessee has filed a petition for condonation of delay and affidavit of the Managing Director of the assessee company stating there in the reasons for belated filing of this appeal. The reasons stated for late filing of this appeal is the accountant who is responsible for handling this case was hospitalized due to serious chronic liver illness and had to undergo constant medical attention which had led to missing out of filing this appeal on time. The assessee has also placed on record a medical certificate vouching the above reasons for the medical issue of the accountant. On perusal of the same, I find there is sufficient reason for delay in filing this appeal before the Tribunal. I also find that the assessee has got a prima facie case on merits. For all these reasons, I condone the delay in filing the appeal and proceed to dispose off the appeal on merits.
Brief facts of the case are as follows: The assessee is a company engaged in the business of software development and training. For the assessment year 2016-17, return of income was filed on 17.10.2016 declaring ‘nil’ income. The return of income was processed u/s.143(1) of the Act and also assessment was
Subsequently, notice u/s.148 of the Act was issued on 29.03.2021. The reasons for issuing notice u/s.148 of the Act was assessee in its computation of book profit u/s.115JB of the Act has deducted Rs.38,25,486/- as prior period expenses which included income-tax paid of Rs.11,05,732/- and TDS of Rs.2,07,280/-. During the course of reassessment, assessee was directed to explain why the aforesaid amount totaling to Rs.13,13,012/- should not be added to the computation of book profits. In reply, assessee submitted a letter dated 29.01.2022 stating as under:- "we would like to add the below mentioned observation for your perusal. The company in its computation of book profit under section 115JB has deducted Rs. 38,25,486 as prior year expenses which included income tax paid of Rs. 11,05,732/-, ESI Of Rs 1,94,280 and TDS of Rs 13, 000 paid by us but not able to recover from parties. The breakup of the ESI & TDS paid by us but not able to recover from parties has been provided below as attachments. We have also attached the Bank statement as a proof of actual payment made for your reference. We request the Assessing officer to kindly consider the above-mentioned facts and treat ESI & TDS paid by us but not able to recover from parties as allowable expense for section 115JB working. Further while calculating taxable income under the normal computation we have added back the above said income tax paid of Rs. 11, 05, 732/- and ESI & TDS irrecoverable of Rs. 2, 07, 280 and computed correctly. But at the time of calculation tax payable as per Section 115JB we have not considered the above said Prior year expenses.”
Aggrieved by the reassessment order completed on 29.03.2022 passed u/s.147 r.w.s. 144B of the Act, assessee filed appeal before the First Appellate Authority. The FAA confirmed the view taken by the AO. The relevant finding of the FAA reads as follows:- “3.3 All 4 grounds of appeal relate to the addition of Rs.1,94,280/- on account of ESI and Rs.13,000/- on account of TDS which the appellant claims to have paid but was not able to recover from parties. The appellant has claimed that the same is not to be added to net profit so as to arrive at book profit u/s 115JB of the Act.
3.4 I have gone through the submission of the appellant and the material on record as well as the Assessment order. In view of provisions of section 115JB of the Act, I find no reason to interfere in the Assessment Order. The prior year expenses pertaining to income tax paid ESI and TDS are to be included for the purposes of book profit calculated under section 115JB of the Act. Accordingly, the grounds of appeal raised by the appellant are dismissed.”
Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal. The Ld.AR submitted that in the prior period expenses which has been deducted in the computation of assessee’s book profit u/s.115JB of the Act, an amount of Rs.1,94,280/- which is ESI payment and TDS of 5 -: Rs.13,000/- (Rs.2,07,280/- mentioned in the assessment order as income-tax paid). The Ld.AR submitted that as regards the ESI of Rs.1,94,280/- the said sum cannot be increased/added for computation of book profits under Explanation 1 to section 115JB(2) of the Act. Therefore, it was submitted that increase of book profit by a sum of Rs.1,94,280/- ought to be deleted.
The Ld.DR supported the orders of the AO and the FAA.
I have heard rival submissions and perused the material on record. As regards the TDS of Rs.13,000/- which was part of prior period expenses deducted while computing the book profits, the judicial pronouncements have clearly state that TDS is part of income-tax paid/payable. Therefore, the said sum of Rs.13,000/- is to be added to the book profits. As regards ESI of Rs.1,94,280/-, the same is not to be increased while computing the book profits as per Explanation 1 to Section 115JB(2) of the Act. There is no mention of the said sum in Explanation 1 to Section 115JB(2) of the Act. Therefore, the book profits is to be recomputed after excluding the ESI payment of Rs.1,94,280/-. It is ordered accordingly.
Order pronounced in the open court on 4th July, 2025 at Chennai.