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2014 (1) TMI 853 - AT - Income TaxLevy of MAT u/s 115JB of the Act - Whether the provisions made for doubtful loans and advances can be added back or not while ascertaining the book profit for the purpose of levy of MAT u/s 115JB of the Act Held that - The decision in ASSTT COMMISSIONER OF INCOME TAX Versus M/s ESSAR STEEL LTD 2012 (7) TMI 123 - ITAT MUMBAI followed - Section 115JB of the Act provides for levy of MAT on the basis of book profit of the company - As per Explanation (1), after sub-section (2), the expression book profit means net profit as shown in the profit and loss account in previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 as increased or reduced by certain adjustments, as specified in that section - the amendment made by inserting a new clause (i) in Explanation (1) to Sub-section (2) of Section 115JB will apply in relation to from the assessment year 2001-02 and for subsequent assessment years while computing book profit for levy of Minimum Alternate Tax - order of the CIT(A) set aside - decided in favour of Revenue.
Issues Involved:
1. Applicability of the decision in Apollo Tyres 255 ITR 273 in the context of section 115JB. 2. Classification of the provision for doubtful loans and advances as an ascertained liability. 3. Retrospective amendment by Finance (No.2) Act, 2009 affecting the computation of book profits under section 115JB. Issue-wise Detailed Analysis: 1. Applicability of the decision in Apollo Tyres 255 ITR 273 in the context of section 115JB: The Department argued that the CIT(A) erred in relying on the case of Apollo Tyres 255 ITR 273, which was rendered in the context of section 115J and not section 115JB. Section 115JB, inserted by the Finance Act 2000 w.e.f. 1.4.2001, has different provisions and context. The Tribunal noted that the reliance on the Apollo Tyres decision was misplaced as the amendment to section 115JB by the Finance (No.2) Act, 2009 with retrospective effect from 1.4.2001, specifically addressed the inclusion of provisions for doubtful debts in the computation of book profits. 2. Classification of the provision for doubtful loans and advances as an ascertained liability: The CIT(A) had held that the provision of Rs.75,00,000/- for doubtful loans and advances was an ascertained liability and no adjustment was required in computing the book profits. This decision was based on the Tribunal's earlier decision in the assessee's own case for assessment year 2003-04, where provisions for gratuity and leave encashment were considered as ascertained liabilities. However, the Tribunal clarified that the earlier decision was not relevant to the current issue, as it dealt with different types of provisions. The Tribunal emphasized that the provision for doubtful loans and advances was not an ascertained liability and should be added back while computing book profits under section 115JB. 3. Retrospective amendment by Finance (No.2) Act, 2009 affecting the computation of book profits under section 115JB: The Tribunal highlighted the retrospective amendment made by the Finance (No.2) Act, 2009, which inserted clause (i) to Explanation (1) to sub-section (2) of section 115JB, effective from 1.4.2001. This amendment mandated that provisions for diminution in the value of any assets, including doubtful debts, be added back to the net profit for computing book profits. The Tribunal also referenced the decision in the case of Essar Steel Ltd., which supported the inclusion of such provisions in book profits. The Tribunal concluded that the CIT(A)'s decision to exclude the provision for doubtful loans and advances was contrary to the amended provisions of the Act and the relevant judicial precedents. Conclusion: The Tribunal reversed the order of the CIT(A) and allowed the Department's appeal, holding that the provision for doubtful loans and advances should be added back to the book profits for the purpose of computing Minimum Alternate Tax (MAT) under section 115JB. The Tribunal's decision was based on the retrospective amendment to section 115JB and the relevant judicial precedents, including the case of Essar Steel Ltd. The appeal of the Department was allowed, and the order was pronounced in the open court on 19th June, 2013.
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