2015 (8) TMI 1094 - AT - Income Tax

Manner in which brought forward business loss and unabsorbed depreciation is to be dealt with under MAT provisions - Held that - According to the provisions of section 115JB Explanation 1 Clause (iii) while computing book profit, the amount of loss brought forward (before depreciation) or unabsorbed depreciation, whichever is less (as per books of account), shall be reduced from net profit. In the present case, the issue involved is identical. We do not find any infirmity in the order of Commissioner of Income Tax (Appeals) for assessment year 2008-09 in allowing the claim of the assessee in the light of order of Tribunal rendered in the case of Kirloskar Ferrous Industries Ltd. Vs. Addl. CIT (2011 (11) TMI 633 - ITAT PUNE). After perusal of the order of the Tribunal, we also find that Ruling in the case of Rashtriya Ispat Nigam Ltd. (2006 (7) TMI 656 - AUTHORITY FOR ADVANCE RULINGS) was considered by the Co-ordinate Bench. We concur with the findings of the order of Commissioner of Income Tax (Appeals) in assessment year 2008-09 in directing the Assessing Officer to calculate book profits in accordance with the method detailed by the Tribunal in aforesaid case. Accordingly, the appeal of Revenue is dismissed. Disallowance made u/s. 14A r. W. Rule 8D - Held that - Assessee in its return of income did not make any disallowance with respect to exempt income. The stand of assessee is that no expenditure was incurred for earning tax free income. However, the Assessing Officer made disallowance of ₹ 1,48,820/- without assigning cogent reasons. The burden lies on the Assessing Officer to prove the nexus between the expenditure to be disallowed and non-taxable income. The Assessing Officer cannot simply brush aside the claim of assessee, in respect of disallowance u/s. 14A of the Act. The Assessing Officer has not refuted the claim of assessee that there was direct credit of dividend through ECS and no interest bearing funds were utilized for making investment. A perusal of assessment order shows that the Assessing Officer has mechanically applied the provisions of Rule 8D without giving reasons for rejecting the assertions for making no disallowance by the assessee. Thus the disallowance made u/s. 14A r. W. Rule 8D is deleted. - Decided in favour of assessee. MAT provisions - Whether the profits of Bangalore and Pune units that have been merged with the assessee company are to consider for the purpose of computation of book profits u/s. 115JB? - Held that - As per Clause 31 the scheme is to be effective on complying with two conditions, i. E. (i) Sanction of scheme by BIFR and (ii) Filing of certified copy of order of BIFR with Registrar of Companies (ROC), Kanpur and Mumbai. The assessee has placed on record a copy of challan/receipt to show that the BIFR order was filed with ROC on 07-11-2008. Thus, from the analysis of the above it is evident that both the conditions as set out in Scheme of Arrangement were complied on 07-11-2008, therefore, scheme of arrangement was to be implemented w. E. F. 07-11-2008. Therefore, by no stretch of imagination the profits of amalgamating units could have been included in financial year ending on 31-03-2008. Thus the authorities below have erred in including profits of Bangalore and Pune units while computing book profits u/s. 115JB for the period relevant to assessment year 2008-09. Accordingly, we accept the second ground of appeal of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Set off of carried forward loss and unabsorbed depreciation under MAT provisions.
2. Disallowance under Section 14A read with Rule 8D.
3. Inclusion of profits of amalgamated units for computation of book profits under Section 115JB.

Issue-wise Detailed Analysis:

1. Set off of Carried Forward Loss and Unabsorbed Depreciation Under MAT Provisions:
The assessee filed appeals against the disallowance of set off of carried forward loss and unabsorbed depreciation under MAT provisions for assessment years 2007-08 and 2008-09. The Assessing Officer (AO) disallowed the set off based on the decision in Rashtriya Ispat Nigam Ltd. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision for 2007-08 but allowed the set off for 2008-09, following the Tribunal's decision in Kirloskar Ferrous Industries Ltd. The Tribunal agreed with the CIT(A) for 2008-09, stating that the methodology for determining book profits under Section 115JB should follow the principles established in Kirloskar Ferrous Industries Ltd., which allows set off of the lower of carried forward losses or unabsorbed depreciation. Consequently, the appeal for 2007-08 was allowed, and the Revenue's appeal for 2008-09 was dismissed.

2. Disallowance Under Section 14A Read with Rule 8D:
The assessee contested the disallowance of Rs. 1,40,820 under Section 14A read with Rule 8D for assessment year 2008-09, arguing that investments were made from interest-free funds and no expenditure was incurred for earning tax-free income. The Tribunal noted that the AO mechanically applied Rule 8D without providing reasons for rejecting the assessee's claim. The Tribunal emphasized that the application of Rule 8D requires the AO to record dissatisfaction with the assessee's claim, which was not done in this case. Citing various judgments, the Tribunal held that Rule 8D cannot be invoked without examining the correctness of the assessee's claim. Consequently, the disallowance under Section 14A was deleted.

3. Inclusion of Profits of Amalgamated Units for Computation of Book Profits Under Section 115JB:
The assessee argued that the profits of Bangalore and Pune units, merged post-finalization of accounts, should not be included in the book profits for assessment year 2008-09. The Tribunal considered the sequence of events, noting that the BIFR order was received after the finalization of accounts and the Annual General Meeting. The Tribunal referred to the BIFR order and Scheme of Arrangement, which indicated the effective date of merger as 07-11-2008, post the financial year ending 31-03-2008. The Tribunal concluded that the profits of the amalgamated units could not be included in the book profits for the financial year 2007-08. Therefore, the inclusion of profits by the AO was incorrect, and the Tribunal accepted the assessee's appeal on this ground.

Conclusion:
The Tribunal allowed the appeals of the assessee for assessment years 2007-08 and 2008-09, and dismissed the Revenue's appeal for assessment year 2008-09. The Tribunal's decision was based on the proper application of legal principles regarding the set off of losses, disallowance under Section 14A, and the inclusion of profits from amalgamated units.