2014 (12) TMI 632 - HC - Income Tax

Addition of provision made for NPAs u/s 36(viia) - Whether the Tribunal was justified in holding that the provision made for Non-Performing Assets (NPAs) u/s 36(viia) cannot be added back to the net profit as shown in the profit and loss account prepared u/s 115JB (2) - Held that - In M/s. Trent Ltd. 2014 (12) TMI 631 - BOMBAY HIGH COURT the same question of law admitted for adjudication - The Tribunal was rightly of the view that section 263 could not have been invoked by the Commissioner in respect of depreciation of investment and to the extent of ₹ 81.32 crores, that amount has already been added back to the assessee s income and by giving the effect to the Appellate order - the claim of the Department that section 115JB applies also to Dena Bank, which may be a banking company, cannot be prima facie straightway accepted after the perusal of sub-section (2)(b) of section 115JB of the Income Tax Act, 1961 and sub-section (2) of section 211 of the Companies Act, 1956, it is extremely doubtful as to why these powers under section 263 of the Income Tax Act, 1961 have been invoked by the Commissioner the view taken by the Tribunal is upheld and as such the question raised cannot be termed as substantial question of law Decided against revenue.

Summary

Issues:
1. Substantial question of law regarding the treatment of Non Performing Assets (NPAs) under section 36(viia) and section 115JB.
2. Whether the provisions for NPAs and investment depreciation should be added back while computing book profit for Minimum Alternate Tax (MAT).
3. Invocation of section 263 of the Income Tax Act, 1961 in relation to depreciation of investment.
4. Applicability of section 115JB to nationalized banks and the correctness of financial reporting by such banks.

Analysis:

1. The High Court admitted the appeal based on a substantial question of law related to the treatment of NPAs under section 36(viia) and section 115JB. The question raised was whether the provision for NPAs amounting to a specific sum should be added back to the net profit for the purpose of calculating the book profit under section 115JB(2). This issue was considered significant and admitted for further examination.

2. Another substantial question of law was raised regarding the treatment of both NPAs and investment depreciation in computing book profit for MAT. The Tribunal had opined on this matter, stating that the Commissioner's invocation of section 263 for depreciation of investment was not justified. The Tribunal had already added back the amount related to investment depreciation to the Assessee's income, and the powers of revision under section 263 were deemed unnecessary in this context.

3. The Court discussed the applicability of section 115JB to nationalized banks, particularly in relation to the Commissioner's invocation of section 263. It was observed that the Department's claim that section 115JB applies to nationalized banks like Dena Bank was not straightforward and required further scrutiny. The Court expressed doubts about the Commissioner's decision to invoke section 263 without proper satisfaction regarding its application to nationalized banks.

4. Ultimately, the Court refused to entertain the question related to the applicability of section 115JB to nationalized banks, as it did not consider it a substantial question of law. The appeal was dismissed on this specific issue. The Court emphasized the need for proper examination and satisfaction before invoking provisions like section 263, especially in the context of nationalized banks and their financial reporting practices.

5. In conclusion, the High Court's judgment highlighted the importance of addressing substantial questions of law related to tax provisions, such as the treatment of NPAs, investment depreciation, and the applicability of specific sections to entities like nationalized banks. The Court's decision to dismiss the appeal on certain grounds underscored the significance of thorough analysis and proper application of legal provisions in tax matters.