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2011 (3) TMI 811 - AT - Income TaxDisallowance of claim for reduction of profits earned during sick period while computing book profit u/s 115JA(2)(vii) - It is submitted that the objection of the CIT (A) on the words designedly omitted as stated by him are creation of his own imagination - According to CIT (A) there is no ambiguity because S.115JA never states that all the profits of all the years during the sickness period shall be adjusted against the profits of a future year for determination of book profits under section 115JA - The book profit of the assessee is to be computed with reference to each assessment year and the provisions of section 115JA(2)(vii) cannot be applied for assessment year 2000-01 after the assessee went out of the sickness - Interpreting the meaning of the section 115JA (2)(vii)/115JB (2) (vii) as supposed by the AR would perhaps lead to a positions and results the dimensions and implications of which are not to say the least fully explored - Held that The deduction cannot be claimed year after year as interpreted by the assessee even after assessee recovered from the sickness - Appeal is dismissed Regarding prior period expenditure - Held that earlier expenses debited to the profit and loss account of the years under consideration the deduction of such expenses either from the book profit or from normal computation of income cannot be allowed - Appeal is dismissed Regarding provision for doubtful debts - this issue is covered against the assessee by the judgement of Supreme Court in the case of CIT vs. HCL Comnet Systems and Services Ltd. (2008 -TMI - 30808 - SUPREME COURT) wherein it was held that any provision made towards ir-recoverability of a debt cannot be said to be a provision for liability Regarding interest u/s 234B and 234C while computing income u/s 115JA/JB - this issue is squarely covered by the recent judgement of Supreme Court in the case of JCIT vs. Rolta India Ltd. (2011 -TMI - 201466 - SUPREME COURT OF INDIA) wherein it was held that interest is chargeable u/s 234B and 234C on failure to pay advance tax in respect of tax payable u/s 115JA/JB Regarding treating the expenditure of Rs. 119.46 lakhs on plantations pertaining to earlier assessment year 2003-04 and debited it to the P and L A/c - During this assessment year assessee changed the accounting policy with regard to this expenditure because of which expenditure incurred in the previous year relevant to the assessment year 2003-04 considered as a revenue expenditure - if the assessee treated the plantation expenditure as a current asset in the earlier year and the same was valued at cost or market price whichever is lower and same method to be followed in the assessment year under consideration also. But there should be basis for such valuation of the asset - Appeal is allowed by way of remand to AO
Issues Involved:
1. Disallowance of claim for reduction of profits earned during the sick period while computing book profit under section 115JA(2)(vii). 2. Exclusion of prior period expenditure from the net profit while computing both under normal computation and under section 115JA and 115JB. 3. Addition of provision for bad and doubtful debts and other provisions debited to the profit and loss account while computing book profit. 4. Chargeability of interest under sections 234B and 234C while computing income under sections 115JA/JB. 5. Non-granting of MAT credit under section 115JA. 6. Invoking the provisions of section 263 of the IT Act. 7. Treating expenditure on plantations pertaining to earlier assessment years as deductible expenditure for the current year. 8. Adjustment of MAT credit for the purpose of charging interest under section 234B. Detailed Analysis: 1. Disallowance of Claim for Reduction of Profits Earned During the Sick Period: The assessee claimed a reduction of profits earned during the sick period from the book profit computation under section 115JA(2)(vii). The Assessing Officer disallowed this, arguing that the assessee's net worth exceeded cumulative losses in the assessment year 1994-95, making the deduction inapplicable for the years 2000-01 to 2003-04. The Tribunal upheld the disallowance, stating that the book profit must be computed with reference to each assessment year, and the provisions of section 115JA(2)(vii) cannot be applied after the assessee recovered from sickness. 2. Exclusion of Prior Period Expenditure: The assessee argued for the exclusion of prior period expenses from the net profit while computing both under normal computation and under section 115JA and 115JB. The Tribunal dismissed this claim, stating that prior period expenses cannot be deducted from the book profit or normal computation of income. The income of the previous year under consideration alone must be computed. 3. Addition of Provision for Bad and Doubtful Debts: The Tribunal upheld the addition of provision for bad and doubtful debts to the book profit, citing the retrospective amendment by Finance Act, 2009, which included such provisions in the computation of book profit. The Tribunal referred to the Supreme Court judgment in CIT vs. HCL Comnet Systems and Services Ltd., which held that provision for bad and doubtful debts is a provision for diminution in the value of an asset. 4. Chargeability of Interest under Sections 234B and 234C: The Tribunal upheld the chargeability of interest under sections 234B and 234C for failure to pay advance tax in respect of tax payable under sections 115JA/JB, following the Supreme Court judgment in JCIT vs. Rolta India Ltd. 5. Non-Granting of MAT Credit: The Tribunal allowed the assessee's claim that MAT credit should be considered as advance tax paid, and interest under section 234B should be calculated after giving credit for the MAT tax under section 115JA. The Tribunal relied on the judgment of Madras High Court in CIT vs. Chemplast Sanmar Ltd. 6. Invoking the Provisions of Section 263: The Tribunal upheld the invocation of section 263 by the CIT, which directed the disallowance of the deduction under section 35E. The Tribunal found that the Assessing Officer had completed the assessment in a mechanical manner without examining the facts, making the order erroneous and prejudicial to the interest of the revenue. 7. Treating Expenditure on Plantations: The Tribunal remanded the issue back to the Assessing Officer to consider the basis of valuation of the plantation. The Tribunal noted that the assessee cannot change the accounting policy and claim earlier expenditure as revenue expenditure in the present year without a basis for such valuation. 8. Adjustment of MAT Credit for Charging Interest: The Tribunal upheld the CIT(A)'s decision to give set off to the MAT credit at par with TDS and advance tax before charging interest under sections 234B and 234C, following the judgment of Madras High Court in CIT vs. Chemplast Sanmar Ltd. Conclusion: The Tribunal dismissed the assessee's appeals on most issues, except for the issue of MAT credit adjustment, which was allowed. The Revenue's appeal was partly allowed for statistical purposes, with directions for remand on the issue of plantation expenditure valuation.
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