Profit and Loss adopted in AGM Qualified by Auditors can’t be Altered: ITAT [Read Order]

The Hyderabad bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the profit and loss adopted in the annual general meeting (AGM) which was subsequently qualified by the statutory auditors cannot be altered later.

The assessee claimed that it had not followed AS – 13 in finalizing the financial statement which was laid before the company at its annual general meeting in accordance with section 210 of the Companies Act, 1956. The assessee incurs a loss on sale of investment and adjusted the above loss in the special reserve. It did not route the above transaction through the profit or loss account. The same was also qualified by the statutory auditors. Even then, the company preferred to lay the same before the shareholders and the same was ratified by the company in the annual general meeting.

The Tribunal noted that for the purpose of section 115JB, the financial statements including profit or loss statement shall be prepared duly following the required accounting standards, policies, accepted methods and the same should also lay before the company at its AGM. Therefore, it requires two conditions to be fulfilled. One, the annual accounts should be prepared duly following accounting standards and the annual account should also be laid before the AGM.

“Thus, the intention of the legislature is clear that the profit or loss prepared by the company as per the Companies Act duly following the accounting policies, standards and method and the P&L A/c laid before AGM are the same for the purpose of section 115JB,” the Tribunal said.

While dismissing the appeal of the assessee, the Tribunal held that “the provisions of section 115JB is very clear that the profit or loss should be the same as laid before AGM. The assessee cannot alter the book profit by not following an Accounting Standard. What is relevant is the profit adopted in the AGM even after the qualification by the statutory auditors in the given case. Therefore, the profit adopted by the company in the AGM overlooking the qualification of the auditor is the final book profit for the purpose of section 115JB, in our view, the assessee cannot alter the same by claiming that it had not followed certain Accounting Standards. All the judicial pronouncements relied on by the assessee are the direction to the AO to go beyond and modify the book profit if the assessee has not followed the Accounting Standard. The assessee has no right to modify the profit declared as per Companies Act and adopt differently for the purpose of MAT provisions.”