2016 (6) TMI 738 - HC - Income Tax

AO cannot disregard audited accounts for MAT computation. Corrected return beyond time limit should be considered.

The court held that the Assessing Officer (AO) cannot disregard the audited profit and loss account for Minimum Alternate Tax (MAT) computation under ... Computation of book profit under section 115JB - acceptance of audited accounts prepared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956 - limited jurisdiction of the Assessing Officer to go behind audited profit and loss account - treatment of belated corrected return filed for assessment proceedingsComputation of book profit under section 115JB - acceptance of audited accounts prepared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956 - limited jurisdiction of the Assessing Officer to go behind audited profit and loss account - Whether the Assessing Officer was justified in determining book profit under section 115JB by ignoring the audited profit and loss account prepared in accordance with Schedule VI to the Companies Act, 1956. - HELD THAT: - The Court applied the principle that section 115JB contains a deeming provision making book profit, as reflected in a company's audited accounts prepared in conformity with Parts II and III of Schedule VI to the Companies Act, 1956, the basis for MAT unless the accounts are shown not to comply with those requirements. Following Apollo Tyres Ltd. and Malayala Manorama Co. Ltd., the Assessing Officer's power is limited to examining whether the books are certified and maintained in accordance with the Companies Act and to making adjustments only to the extent permitted by the Explanation to section 115JB. In the present case the Department did not determine that the audited profit and loss account was non-compliant with Schedule VI; therefore the Assessing Officer had no jurisdiction to substitute his own computation or otherwise 'tinker' with the audited figures for computing book profit under section 115JB. The Tribunal's conclusion that the assessment to tax by taking into account a figure other than that reflected in the audited accounts was unjustified thus accords with the settled ratio.The assessment under section 115JB by ignoring the audited profit and loss account was impermissible and the Tribunal was justified in quashing that assessment.Treatment of belated corrected return filed for assessment proceedings - acceptance of audited accounts prepared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956 - Whether the corrected return filed after the time limit should have been taken into account for computation of book profit under section 115JB. - HELD THAT: - Although the Assessing Officer rejected the belated corrected return and proceeded on the basis of the original electronically filed return, the Court held that when the corrected return mirrored figures in the audited accounts prepared in accordance with Schedule VI and there was no finding that those accounts were non-compliant, the corrected figures should have been the basis for determining book profit. The procedure adopted by the Assessing Officer-ignoring the corrected return and adjusting the audited accounts without establishing non-compliance-was inconsistent with the requirement to accept audited accounts and with the authorities cited.The Assessing Officer ought to have taken into account the corrected return consistent with the audited profit and loss account; failure to do so vitiated the MAT determination.Final Conclusion: The appeal is dismissed; the order of the Income-tax Appellate Tribunal setting aside the MAT assessment under section 115JB is affirmed. Issues Involved:1. Whether the Assessing Officer (AO) can disregard the audited profit and loss account for the computation of Minimum Alternate Tax (MAT) under section 115JB of the Income-tax Act.2. The validity of the corrected return filed by the assessee beyond the statutory time limit.3. The jurisdiction of the AO in determining book profit under section 115JB of the Income-tax Act.4. The acceptance of figures in the audited accounts prepared as per Schedule VI to the Companies Act, 1956.Detailed Analysis:Issue 1: Whether the Assessing Officer (AO) can disregard the audited profit and loss account for the computation of Minimum Alternate Tax (MAT) under section 115JB of the Income-tax Act.The court noted that the assessee had electronically filed their return showing nil income, which was later corrected due to an inadvertent error. The AO, however, did not consider the corrected return as it was filed beyond the statutory time limit and proceeded to assess the MAT liability based on the original return. The Income-tax Appellate Tribunal quashed this assessment, stating that the AO should not have disregarded the audited profit and loss account prepared according to Parts II and III of Schedule VI to the Companies Act, 1956. The court upheld this view, emphasizing that the AO has no jurisdiction to re-determine the book profit by substituting figures from the audited return filed by the assessee.Issue 2: The validity of the corrected return filed by the assessee beyond the statutory time limit.The assessee explained that the error in the initial return was due to the first-time electronic filing, and a corrected return was subsequently filed. The AO rejected this corrected return as it was beyond the statutory time limit. The Commissioner of Income-tax (Appeals) upheld this rejection, but the Tribunal found that the AO should have considered the corrected return for the purpose of assessment. The court agreed with the Tribunal, stating that the figures in the corrected return should have been the basis for determining the MAT liability.Issue 3: The jurisdiction of the AO in determining book profit under section 115JB of the Income-tax Act.The court referred to the Supreme Court's rulings in Apollo Tyres Ltd. v. CIT and Malayala Manorama Co. Ltd. v. CIT, which established that the AO has limited power to examine whether the books of account are certified as properly maintained under the Companies Act. The AO cannot embark upon a fresh inquiry into the entries made in the books of account. The court reiterated that the AO's jurisdiction is confined to making corrections as provided in the Explanation to section 115JB and cannot go behind the net profit shown in the audited profit and loss account.Issue 4: The acceptance of figures in the audited accounts prepared as per Schedule VI to the Companies Act, 1956.The court emphasized that the accounts prepared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956, should be accepted by the AO. The AO's failure to take into account the corrected return and the subsequent tinkering with the final accounts prepared according to the Companies Act was deemed unjustified. The court found that the Departmental authorities did not establish that the profit and loss account was not in compliance with the Companies Act, and thus, the determination of MAT liability was not through due process.Conclusion:The court concluded that the AO's assessment of MAT liability by disregarding the audited profit and loss account and the corrected return was unjustified. The Tribunal's decision to quash the AO's assessment was consistent with the Supreme Court's rulings and the Gauhati High Court's own precedents. Consequently, the appeal by the Revenue was dismissed, affirming the impugned order of the Income-tax Appellate Tribunal.