2005 (6) TMI 273 - AT - Income Tax

Tribunal Rules on Book Profit Deductions under Sec 115JA; Dismisses MAT Credit Debate under Sec 154 as Non-Rectifiable.

The tribunal dismissed the appeal on the validity of re-opening assessments under section 147 as it was not pressed. It allowed the appeal regarding the ... Minimum Alternate Tax - deduction u/s 80HHC - HELD THAT:- We are of the view that Hon'ble Hyderabad 'B' Bench in the case of Starchik Specialties Ltd v. Dy. CIT[2003 (7) TMI 283 - ITAT HYDERABAD-B] placed somewhat liberal interpretations on aforesaid clause (viii) of the section. Nonetheless, the Hon'ble members clearly held that deduction under clause (viii) has to be computed with respect to the book profit. In spite of the difference in language of section 115J and section 115JA in the matter, pointed out earlier by us, we are of the view that judicial propriety demands that we follow the decision in the case of Starchik Specialities Ltd. In view thereof, it is held that deduction u/s 115JA, Clause (viii) of the Explanation, is to be computed on the basis of book profits. Therefore, appeals are partly allowed. Interest under sections 234B and 234 - We have considered the facts of the case and rival submissions. We have also considered the decision of Hon'ble Tribunal in the case of Chemplast Sanmar Ltd. [2004 (3) TMI 62 - ITAT CHENNAI] and Synthetic Industrial Chemicals Ltd [2004 (1) TMI 310 - ITAT COCHIN]. On combined reading of various sections, namely, 115JA, 115JAA, 208, 209, 234B & 234C, the Hon'ble Tribunal came to the conclusion that MAT credit is akin to advance tax because it goes to reduce the liability of the assessee of the year and, accordingly, it reduces the liability of assessee by an equivalent amount from payment of advance tax. It has been mentioned by the Tribunal that MAT credit is not mentioned specifically in Explanation 1 to section 234B. Therefore, it can be said that the issue whether MAT credit is advance tax paid or not is a debatable issue and any independent conclusion can be arrived at only after detailed arguments on the harmonious construction of aforesaid sections. Even after that, it cannot be said that MAT credit is tax deducted at source, tax collected at source or advance tax paid. Therefore, we are of the opinion that the question of law on this issue requires considerable debate. If the issue requires debate and discussion, it cannot become a subject-matter of rectification u/s 154 because under this section only patent and obvious mistake of law can be rectified. In view of this discussion, we are of the considered view that the ld. CIT(A) was right in dismissing the appeals of assessee on the issue of computation of interest under sections 234B and 234C. The result of this discussion that the appeal of the assessee is dismissed. Issues Involved:1. Validity of re-opening assessments under section 147 of the Income-tax Act.2. Computation of deduction under Explanation (viii) below section 115JA of the Income-tax Act.3. Calculation of interest under sections 234B and 234C considering tax-credit under section 115JAA of the Income-tax Act.Issue-wise Detailed Analysis:1. Validity of Re-opening Assessments under Section 147:The first ground of appeal concerned the validity of re-opening assessments under section 147 of the Income-tax Act. However, this ground was not pressed by the appellant's counsel during the hearing. Consequently, the tribunal did not address this issue, and it was dismissed as not pressed.2. Computation of Deduction under Explanation (viii) below Section 115JA:The primary issue was whether the deduction under Explanation (viii) below section 115JA should be computed based on book profits or in accordance with the provisions of section 80HHC.- Arguments by the Assessee:The assessee argued that section 115JA is a self-contained code for computing profits for the purpose of minimum alternate tax (MAT). They contended that the deduction under section 80HHC should be computed with reference to book profits, as indicated by the non obstante clause in section 115JA. The counsel cited various circulars and the ITAT Hyderabad Bench decision in Starchik Specialties Ltd. to support this interpretation.- Arguments by the Revenue:The revenue argued that the deduction under section 80HHC should be computed in accordance with the provisions of that section, not based on book profits. They cited the decision of the Hon'ble Kerala High Court in CIT v. Fertilizers and Chemicals Travancore Ltd., which emphasized that the eligibility for deduction under section 80HHC must first be established before any deduction can be allowed under clause (viii) of the Explanation to section 115JA.- Tribunal's Analysis and Decision:The tribunal reviewed the language of clause (viii) of section 115JA and compared it with the language of clause (iii) of section 115J. It noted that the language of the two clauses was not in pari materia. Despite this, the tribunal followed the decision in Starchik Specialties Ltd., which held that the deduction under clause (viii) should be computed based on book profits. Consequently, the tribunal allowed the assessee's appeal on this ground, holding that the deduction under section 115JA, clause (viii) of the Explanation, should be computed on the basis of book profits.3. Calculation of Interest under Sections 234B and 234C Considering Tax-Credit under Section 115JAA:The issue was whether for calculating interest under sections 234B and 234C, the tax-credit allowed under section 115JAA should be set off and reduced from the amount of assessed tax.- Arguments by the Assessee:The assessee relied on decisions of the Chennai Tribunal in Chemplast Sanmar Ltd. and the Cochin Bench in Synthetic Industrial Chemicals Ltd., which held that MAT credit is akin to advance tax and should reduce the liability of the assessee for the purpose of calculating interest under sections 234B and 234C.- Arguments by the Revenue:The revenue contended that the appeal was against an order under section 154 of the Income-tax Act, which only allows rectification of patent and obvious mistakes. They argued that the issue of whether MAT credit is considered advance tax is debatable and cannot be rectified under section 154.- Tribunal's Analysis and Decision:The tribunal agreed with the revenue's argument that the issue of whether MAT credit is advance tax is debatable and requires detailed arguments. Since section 154 only permits rectification of patent and obvious mistakes, the tribunal held that the issue could not be addressed under this section. Therefore, the tribunal upheld the CIT(A)'s decision and dismissed the assessee's appeal on this ground.Conclusion:- The appeal regarding the validity of re-opening assessments under section 147 was dismissed as not pressed.- The appeal concerning the computation of deduction under Explanation (viii) below section 115JA was allowed, with the tribunal holding that the deduction should be computed based on book profits.- The appeal regarding the calculation of interest under sections 234B and 234C considering tax-credit under section 115JAA was dismissed.