2012 (6) TMI 569 - AT - Income Tax

Adding back of interest waiver to the book profit u/s. 115JB - CIT invoked the provisions of section 263 - assessee contention that the amount withdrawn from a reserve or provision has to be considered for book profit if it is allowed as deduction in earlier years - Held that - The amount withdrawn from reserve or provision i.e., waiver of interest cannot be considered as part of book profit since it was never allowed in the computation of book profit of the company in any of the earlier years since the company never had any book profit being sick industrial undertaking as decided in Narayanan Chettiar Industries vs. ITO 2005 (7) TMI 71 (HC) - the provision for interest was made in earlier year as interest payable was added back to the income of the assessee as the liability was not paid while computing the regular income of the assessee - the Assessing Officer having computed the income of the assessee in accordance with the normal provisions of the Act, thus cannot hold that the assessment order passed is erroneous so far as prejudicial to the interest of revenue - in favour of assessee.

Issues Involved:
1. Inclusion of interest waived by the bank in the computation of book profit under section 115JB of the Income-tax Act, 1961.
2. Validity of the CIT's direction under section 263 of the Act regarding the computation of book profit.
3. Impact of prior assessments and appeals on the current computation of book profit.
4. Applicability of section 41(1) of the Act in the context of interest waiver.
5. Legal interpretation of statutory provisions and judicial precedents related to book profit computation.

Detailed Analysis:

1. Inclusion of Interest Waived by Bank in Book Profit Computation:
The primary issue is whether the interest waived by the bank should be included in the computation of book profit under section 115JB of the Income-tax Act, 1961. The assessee argued that the interest was previously debited to the Profit and Loss Account and added back under section 43B in earlier years. The CIT contended that since there was no provision made for interest in earlier years, the waived interest should be included in the book profit computation for the current year.

2. Validity of CIT's Direction under Section 263:
The CIT invoked section 263 of the Act, arguing that the Assessing Officer's failure to call for and examine the report prescribed under Rule 40B in Form 29B rendered the assessment order erroneous and prejudicial to the interest of revenue. The CIT directed that the waived interest be included in the book profit computation. However, the Tribunal noted that the Assessing Officer had completed the assessment under normal provisions and had not computed the book profit under section 115JB in the assessment order. Therefore, the CIT's direction was challenged as unjustified.

3. Impact of Prior Assessments and Appeals:
The assessee highlighted that the assessment for the relevant year had already been completed under section 143(3), and the issue of interest waiver was addressed in an appeal before the CIT(A), who had allowed the appeal. Consequently, the order of the Assessing Officer had merged with the CIT(A)'s order. The Tribunal agreed with the assessee, noting that the CIT could not invoke section 263 to re-examine an issue already decided in appeal.

4. Applicability of Section 41(1):
The Tribunal referred to judicial precedents, including Narayanan Chettiar Industries vs. ITO and Rayala Corporation Pvt. Ltd. vs. ACIT, which held that remission of liability could not be added unless an allowance or deduction had been made in earlier years. The Tribunal concluded that since the interest liability was not allowed as a deduction in the computation of book profit in earlier years, it could not be added back in the current year under section 115JB.

5. Legal Interpretation of Statutory Provisions and Judicial Precedents:
The Tribunal emphasized the clear distinction between commercial profits and assessable profits, as highlighted in various judicial decisions. It referred to the Supreme Court's judgment in Apollo Tyres Ltd. vs. CIT, which limited the Assessing Officer's power to examine the books of account certified under the Companies Act. The Tribunal also cited the case of NCL Industries Ltd. v. JCIT, which underscored that the legislative intent behind minimum alternative tax (MAT) was not to burden sick companies that had just turned profitable.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the interest waiver could not be included in the computation of book profit under section 115JB. It found the CIT's invocation of section 263 unjustified, as the issue had already been addressed in an appeal. The Tribunal dismissed the Stay Application and Miscellaneous Application as infructuous, given the disposal of the main appeal. The order was pronounced in the open court on 17.2.2012.

← Previous Next →