2010 (8) TMI 398 - AT - Income Tax

Tribunal: Book profit calculated as per Companies Act. Penalty unjustified. Revenue appeals dismissed.

The Tribunal upheld the decision that the book profit should be calculated in accordance with the provisions of the Companies Act, rather than the profit ... Minimum Alternate Tax (MAT) - Section 115J - two sets of books of account - one for AGM and other under companies act - whether the book profit should be computed with respect to profit declared in the profit and loss account prepared for the purpose of AGM or the profit and loss account prepared under the Companies Act. - Held that: it was open to the assessee to compute the book profit either on the basis of profit and loss account prepared under the provisions of Part II and Part III of Schedule VI of the Companies Act or as per the annual accounts placed before the AGM. Subsequently amendment was made and sub-section (1A) was introduced from assessment year 1990-91 as per which accounts for the purpose of book profit has to be prepared as per Part II and Part III of the Schedule VI of the Companies Act. - stand taken by the assessee upheld.Levy of penalty u/s 271(1)(c) - the book profit had been rightly computed by the assessee with respect to profit and loss account prepared as per Part II and Part III of the Schedule VI of the Companies Act and on that basis there is no income assessable on the basis of book profit. In view of this decision the penalty levied by the Assessing Officer cannot survive and the same had been rightly deleted by the CIT(A). - Decided in favor of assessee. Issues:1. Computation of book profit under section 115J - Difference in profit computation methods.2. Dispute regarding penalty imposition under section 271(1)(c) based on book profit determination.Analysis:Issue 1: Computation of book profit under section 115J - Difference in profit computation methodsThe dispute revolved around whether the book profit under section 115J should be calculated based on the profit determined in accordance with the provisions of Part II and Part III of Schedule VI of the Companies Act or as per the profit and loss account approved by the board of directors and presented at the Annual General Meeting (AGM). The Assessing Officer computed the total income based on the profit shown in the accounts presented at the AGM, while the assessee prepared the profit and loss account as per the provisions of the Companies Act, resulting in a difference in income computation. The CIT(A) held that the book profit should be worked out in accordance with the provisions of the Companies Act. The Tribunal also supported this view, stating that section 115J could be applied only when the total income under the normal provisions of the Act was finally determined. The subsequent amendment reinforced the requirement to prepare accounts as per Part II and Part III of Schedule VI of the Companies Act. The Tribunal upheld the CIT(A)'s decision, concluding that the assessee was allowed to compute the book profit based on the Companies Act provisions.Issue 2: Dispute regarding penalty imposition under section 271(1)(c) based on book profit determinationThe Assessing Officer imposed a penalty under section 271(1)(c) on the assessee for allegedly deliberately computing the book profit at nil to evade tax. However, the CIT(A) observed that the book profit should be prepared in accordance with the Companies Act provisions, and since the Tribunal upheld this view, the penalty was canceled. The Tribunal agreed with the CIT(A)'s decision, stating that the penalty could not be sustained based on the correct computation of book profit. Therefore, the penalty imposed by the Assessing Officer was deemed unjustified and rightly deleted by the CIT(A).In conclusion, both appeals by the revenue were dismissed, affirming the decisions made in favor of the assessee regarding the computation of book profit and the cancellation of the penalty imposed under section 271(1)(c).