2010 (12) TMI 676 - AT - Income Tax

MAT / Minimum Alternate Tax- Book profit u/s 115JB - Revision / Reopening - Failure to determine tax liability under MAT - Held that - The applicability of MAT comes only when the tax liability under MAT is more than the tax liability under the normal provisions of the Act. In this case, since the AO had computed nil tax liability under the normal provisions of the Act, he was bound to compute the tax liability under the MAT - It is not a case of change of opinion but non-application of provisions of the Act and therefore the order passed by the AO is an error which is prejudicial to the interest of Revenue

Issues:
1. Jurisdiction of CIT under section 263 of the Income Tax Act.
2. Computation of taxable income under section 115JB of the Act.
3. Treatment of Research and Development (R&D) expenditure.
4. Determination of book profits as per the Companies Act, 1956.
5. Fresh claims made by the assessee during proceedings under section 263.
6. Applicability of the decision in the case of Rain Commodities Ltd.
7. Review of the CIT's order and dismissal of the appeal.

Jurisdiction of CIT under section 263 of the Income Tax Act:
The appeal was against the CIT's order under section 263 of the Act for the assessment year 2002-03. The CIT observed that the AO failed to properly compute the taxable income under section 115JB of the Act. The assessee challenged the CIT's jurisdiction, arguing that there was no order under section 115JB by the AO. However, the CIT found that the AO's acceptance of the computation without proper application of mind was prejudicial to the Revenue's interest. The CIT set aside the assessment and directed a fresh assessment after considering the facts elaborately.

Computation of taxable income under section 115JB of the Act:
The CIT noted that the AO's failure to compute the tax liability under Minimum Alternate Tax (MAT) was an error prejudicial to the Revenue. The CIT found that the AO's acceptance of the assessee's computation without considering the provisions of section 115JB was incorrect. The CIT directed the AO to compute the profit chargeable to tax under section 115JB after giving the assessee an opportunity to be heard.

Treatment of Research and Development (R&D) expenditure:
The CIT addressed the issue of R&D expenditure claimed by the assessee during the proceedings under section 263. The CIT held that the fresh claim made by the assessee was not open for consideration at that stage. However, the CIT directed the AO to allow the deduction claimed by the assessee as per the law.

Determination of book profits as per the Companies Act, 1956:
The CIT emphasized the importance of correctly determining "book profits" as per the Companies Act, 1956 before applying the provisions of section 115JB. The CIT held that the incorrect computation of book profits was prejudicial to the Revenue's interest, leading to the setting aside of the assessment for a fresh computation.

Fresh claims made by the assessee during proceedings under section 263:
The assessee made fresh claims during the section 263 proceedings, including R&D expenditure and deduction of brought forward losses. The CIT restricted its consideration to errors prejudicial to the Revenue's interest, directing the AO to compute the profit chargeable under section 115JB.

Applicability of the decision in the case of Rain Commodities Ltd.:
The assessee relied on the decision in Rain Commodities Ltd. case to support its contentions. However, the Tribunal found the decision distinguishable on facts, emphasizing the need for correct computation under section 115JB and dismissing the appeal.

Review of the CIT's order and dismissal of the appeal:
After considering the submissions and material on record, the Tribunal upheld the CIT's order, confirming the setting aside of the assessment for a fresh computation under section 115JB. The appeal filed by the assessee was dismissed.

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