MAT book profit cannot be revised under section 263 for CSR or section 14A disallowances that do not affect taxable profit.

Revisional jurisdiction under section 263 was held unsustainable where the proposed adjustments could not affect MAT book profit. CSR expenditure was not among the items specifically permitted to be added back under the Explanation to section 115JB, so the book profit could not be disturbed on that ground. Likewise, a disallowance under section 14A read with Rule 8D could not be imported into MAT computation when the assessee's tax liability was under MAT, and the omission caused no prejudice to the Revenue. The assessment was restored in favour of the assessee.

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Issues: (i) Whether the revisional order under section 263 of the Income-tax Act, 1961 was sustainable in relation to the treatment of CSR expenditure of Rs. 3 crores in computation of book profit under section 115JB of the Income-tax Act, 1961. (ii) Whether the revisional order under section 263 of the Income-tax Act, 1961 was sustainable in relation to proposed disallowance under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962 when the assessee's tax liability was under MAT.

Issue (i): Whether the revisional order under section 263 of the Income-tax Act, 1961 was sustainable in relation to the treatment of CSR expenditure of Rs. 3 crores in computation of book profit under section 115JB of the Income-tax Act, 1961.

Analysis: The CSR expenditure had already been considered in the regular computation and the disputed question was whether it could be separately added back while determining book profit under section 115JB of the Income-tax Act, 1961. The adjustment to book profit is confined to the items specifically permitted by the statutory Explanation. CSR expenditure was not shown to fall within that permissible list. The principle that the Assessing Officer cannot go behind the audited net profit except to the limited extent authorised by the MAT provision supported the view that the book profit could not be disturbed on this ground.

Conclusion: The revisional interference on this issue was not justified and was against the assessee.

Issue (ii): Whether the revisional order under section 263 of the Income-tax Act, 1961 was sustainable in relation to proposed disallowance under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962 when the assessee's tax liability was under MAT.

Analysis: Although the Assessing Officer had not examined the applicability of section 14A and Rule 8D, the assessee's liability for the year was under the MAT regime. A disallowance computed under section 14A read with Rule 8D could not be imported into book profit for MAT purposes. In that situation, the omission did not cause prejudice to the Revenue for the purpose of section 263.

Conclusion: The revisional interference on this issue was not justified and was against the assessee.

Final Conclusion: The prerequisites for revision under section 263 of the Income-tax Act, 1961 were not met, and the assessment was restored in favour of the assessee.

Ratio Decidendi: For invoking revision under section 263 of the Income-tax Act, 1961, the order must be both erroneous and prejudicial to the interests of the Revenue, and a disallowance not permissible in computation of MAT book profit cannot justify revision where it cannot affect the taxable book profit.

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