TaxTMI 
TaxTMI 
TaxTMI 
2014 (5) TMI 1063
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....en off actually represented a net debit arrived at after setting off a credit of Rs. 2,38,41,187/- being the amount withdrawn from provisions for bad debts created in F.Y.s 1997-98 to 2002-03, and this credit was deductible from the book profits under clause (i) of Explanation 1 below section 115JB(2). It was also submitted that the credit of Rs. 2.38 crores is in fact an appropriation of profits and does not form part of the book profits. However, the AO did not accept the assessee's contention. 3. The assessee filed an appeal against the assessment for A.Y. 2004-05 before the CIT(A). The CIT (A) vide its order dated 16.3.2007 passed in appeal No.IT/329/2006-07/SML had dismissed the appeal of the assessee. 4. The assessee then filed further appeal before the ITAT. The ITAT vide its order dated 8.10.2008 passed in ITA No.456/Chandi/2007 had allowed the appeal of the assessee, for the same reasons as stated in the same order for A.Y.2003-04. 5. This Court on 16.3.2009 admitted the appeal on following substantial question of law: - Whether doubtful loans written off as bad debts and subsequently credited to the profit and loss account by way of contra-entry, could be deducted fro....
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....sequent years were actually not provisions for non-performing assets. The assessee had not filed any details to identify the provisions from which the amount of Rs. 2.38 crores was stated to have been withdrawn. The CIT therefore held that the A.O. had erroneously accepted the claim of the assessee without due verification. The CIT also held that the credit of Rs. 2.38 crores was only a contra-entry or book adjustment and not a substantive credit, and could in any case not be deducted from book profits. 9. Lastly, the CIT held that the proviso to the said clause (i) of the Explanation in section 115JB had not been considered by the A.O. and accordingly set aside the order u/s 263 dated 24.10.2007 with directions to the A.O. to examine in detail the provisions created in earlier years, the years to which the provisions written back pertained and whether any tax u/s 115-JA or 115 JB had actually been paid in earlier years on such provisions and then apply the relevant law. 10. The assessee filed an appeal against the said order of the CIT, before the ITAT. By the present impugned order, the ITAT has held that the CIT was not justified in invoking the provisions of section 263. The ....
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....A.O. that this effective credit of Rs. 3.53 crores was deductible from the book profits under clause (i) of the Explanation below section 115JB(2). The amount written back was withdrawn from provisions created in earlier years only by way of debit to the P&L Appropriation account and not to the P&L A/c and further that no deduction had ever been claimed in the relevant years on account of such provisions. These contentions of the assessee were not accepted by the A.O. who held that the tax under section 115JB had to be levied on the profit figure shown in the profit & loss account, as increased by certain unascertained liabilities. Accordingly, the A.O. assessed book profits u/s 115 JB at Rs. 5,32,57,492/- disallowing the deductions claimed. 16. The assessee filed an appeal against the assessment before the CIT(A). The CIT(A) vide her order dated 5.9.2008 passed in appeal No.IT/196/07-08/SML, has dismissed the appeal of the assessee. The assessee then filed further appeal before the ITAT. The ITAT vide its order dated 29.1.2009 passed in ITA No.897/Chandi/2008 has allowed the appeal of the assessee on the issue of computation of book profits following its order dated 8.10.2008 in....
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....e attracted. The assessee had shown net profit of Rs. 14,55,46,507/-. In the P&L account for the year after adjustment of income/expenditure pertaining to earlier years. While declaring such profit, the assessee had written off bad and doubtful debts of Rs. 7,83,61,154/- and credited an amount of Rs. 8.50,96,686/- stated to be created on account of non-performing assets in earlier years and written back in the Profit & loss Account . 20. In the computation of book profits under section 115 JB filed with the return, the assessee reduced such alleged provision written back to the extent of Rs. 8,44,76,686/- and declared the book profit u/s 115 JB at Rs. 6,11,23,579/-. It was contended that this amount of Rs. 8.45 crores was deductible under clause (i) of the Explanation in section 115JB, as it represented the amount written back out of provision created in earlier years for non-performing assets. These provisions had been created in earlier years only by way of debit to the P& L Appropriation Account and not to the P& L Account. 21. In the assessment order dated 31.10.2008, the A.O. held, on the basis of the order passed u/s 263 by the commissioner for A.Y 2003-04, that such amount....
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....inable in the eyes of law and there is complete misreading and misinterpretation of section 115JB of the Income Tax Act, 1961 ( for short Act). The concept of Minimum Alternate Tax (for short MAT) is applicable only where the normal total income computed is less than 30% of the book profit. He for this submission has placed reliance upon the judgment of the Hon'ble Supreme Court in Indo Rama Synthetics India Limited vs. Commissioner of Income Tax, New Delhi (2011) 2 SCC 168:- "8. MAT is applicable only where the normal total income computed is less than 30% of the book profit. 9. MAT was introduced by the Finance Act of 1996 w.e.f. 1.4.1997. This was necessary due to a rise in the number of zero-tax companies paying marginal tax which situation arose in view of preferences granted in the form of exemptions, deductions and high rates of depreciation. The rate of minimum tax was kept at 30% of the book profit as deemed total income. MAT was levied under Section 115JA from assessment year 1997-98. Section 115JA is made inoperative w.e.f. 1.4.2001. In its place, the Finance Act, 2000 inserted Section 115JB. The new provision provides that all companies having book profit under the....
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....unt(s) mentioned in clauses (a) to (f) and as reduced by the amount(s) covered by clauses (i) to (vii) of the said explanation. 14. It is, thus, clear that what is "book profit" has been defined and explained in the above explanation. Section 115JB is a self-contained code. It applies notwithstanding other provisions of the Act. There is no scope for any allowances or deductions under any other section from what is deemed to be total income of the company (assessee). 15. The first step for arriving at the "book profit" is that the net profit as shown in the P & L Account for the relevant previous year prepared under Section 115JB(2) has to be increased by the amount(s) in clauses (a) to (f) if such amount(s) is debited to the P & L Account. Clause (b) refers to amount(s) carried to any reserves by whatever name called. As stated above, such increase needs to be made only if any amount referred to in clauses (a) to (f) is debited to P & L Account. 16. The second step for arriving at the "book profit" is that the net profit as shown in the P & L Account for the relevant previous year prepared under Section 115JB(2) and as increased by any amount, as stated above, has to be r....
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....vided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second proviso to section 115JA, as the case may be;" 27. Taking cue from the aforesaid provision, it is then argued by learned counsel for the appellant(s) that an amount withdrawn from a reserve and apparently credited to the P&L account could not be reduced from the book profit for the purposes of section 115 JB, if such credit merely represented a contra entry of book adjustment and not an effective credit. In that case the ITAT had held that a credit by way of contra adjustment is not a credit in substance and deduction of the same from the book profit would not be in consonance with the intention of the legislature. In these cases the provisions have been created in earlier years in respect of doubtful loans. During ....
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....at the time it was created, the benefit of reduction cannot be allowed. " 30. The main thrust of the learned counsel for the appellant is that the order passed by the ITAT below is not in consonance with law as the same is based on total misconstruction of the provision of section 115JB, particularly, the explanation has not been taken into consideration and therefore, this has resulted in total erroneous findings. 31. On the other hand, it is contended by learned counsel for the respondent that the appellant had not allowed deduction strictly in accordance with Section 115 JB and what has been missed out and ignored by the CIT is the explanation to the section which was correctly noticed by the ITAT and it accordingly arrived at correct decision. The learned counsel for the respondent has further contended that no question of law much less the substantial question of law on which the appeal was admitted for consideration. Lastly, it is contended that the deduction claimed by the respondent is in accordance with law and therefore, no interference is warranted in the order passed by the ITAT. 32. We have given our deep and thoughtful consideration to the rival contention of the ....
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....he profit and loss account. It may be noticed that this exception to the general rule had only been inserted by the Finance Act, 2002 w.e.f. 1.4.2001 (supra). 34. Therefore, in view of the discussion above, it can be safely concluded that section 115JB of the Act, provides that any amount credited to the profit and loss account on account of amounts withdrawn from the reserve or provision had to be reduced from the book profit with an exception that if such reserve or provision is out of reserve created prior to or before 1.4.1997 and, such reserve has been created not by way of debit to the profit and loss account, then the same will not be permitted to be reduced from the net profit as per profit and loss account. 35. Now, adverting to the facts and applying the aforesaid provisions to the present case, it would be seen that it had not been disputed before the ITAT that the sum of Rs. .2,37,76,034/- represents the provision for non-performing assets created earlier years, not out of reserve created before 1.4.1997. Therefore, the same had to be reduced for computation of book profit in accordance with section 115JB. The ITAT has come to categorical findings of fact that followi....
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....ITR 872, the High Court of Karnatka in CIT v. T.Narayana Pai [1975]98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd [1993] 203 ITR 108 and the High Court of Gujarat in CIT v. Smt. Minalben S.Parikh [1995] 215 ITR 81 treated loss of tax as prejudicial to the interests of the Revenue. Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v. CIT [1987] 163 ITR 129 interpreting "prejudicial to the interests of the Revenue." The High Court held (page 138): " In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue administration." In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income Tax Officer,....
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....Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. " 38. The scope of provision of section 263 of the Income Tax Act then came up for interpretation before the Hon'ble Supreme Court in Commissioner of Income Tax, Shimla vs. Greenworld Corporation Parwanoo (2009) 7 SCC 69, wherein it has been held as under:- "28. Before, however, adverting to the jurisdictional issue raised by the Assessee herein, we may consider the jurisdiction of the Commissioner of Income-tax to issue notice in terms of Section 263 of the Act. It provides for a revisional power. It has its own limitations. An order can be interfered suo motu by the said authority not only when an order passed by the Assessing Officer is erroneous but also when it is prejudicial to the interests of the Revenue. Both the conditions precedent for exercising the jurisdiction under Section 263 of the Act ar....