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Issues: Whether the revision under section 263 of the Income-tax Act, 1961 was justified for failure to examine clause (f) of Explanation 1 to section 115JB, and whether the disallowance computed under section 14A could be mechanically imported into MAT book-profit computation.
Analysis: The assessment order was held to be erroneous and prejudicial to the interests of revenue because the Assessing Officer had accepted the book profit under section 115JB without examining the applicability of clause (f) of Explanation 1. At the same time, the direction of the Principal Commissioner to adopt the section 14A disallowance as the amount to be added under MAT was held to be contrary to the Special Bench view that the amount for clause (f) must be computed independently from the profit and loss account and cannot be imported from section 14A disallowance.
Conclusion: Revision under section 263 was maintainable to the extent of requiring examination of clause (f) to Explanation 1 to section 115JB, but the addition could not be directed mechanically by taking the section 14A disallowance as the MAT adjustment. The issue was decided partly in favour of the assessee.
Final Conclusion: The assessment was sent back for independent examination of the MAT adjustment, and the impugned revision order was modified to remove the mechanical linkage with section 14A.
Ratio Decidendi: A disallowance made under section 14A cannot be automatically transplanted into clause (f) of Explanation 1 to section 115JB; the MAT adjustment must be computed independently, even though failure to examine that clause can render the assessment order erroneous and prejudicial to the revenue.
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