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2017 (2) TMI 1439 - AT - Income TaxRevision u/s 263 - MAT computation u/s 115JB - CIT was of the view that the aforesaid order of AO accepting the computation of book profits u/s.115JB as given by the assessee was erroneous and prejudicial to the interest of the revenue - plea of the assessee was that while computing the book profit u/s 115JB the assessee need not exclude the income that arises out of tea manufacturing from tea leaves that are purchased - Whether sec 263 cannot be initiated on the basis of audit objection? - HELD THAT - As decided in SOHANA WOOLLEN MILLS. 2006 (9) TMI 157 - PUNJAB AND HARYANA HIGH COURT no rigid rule can be laid down and that facts of each case will have to be seen to come to a conclusion whether audit objection was sufficient to come to a conclusion that the order of the AO that is sought to be revised in exercise of powers u/s.263 was erroneous and prejudicial to the interest of the revenue. On the facts of the present case, we are satisfied that the CIT applied his mind independently and that he had not proceeded purely on the basis of any audit objection. Therefore the preliminary objection raised by the Assessee in this regard is hereby rejected. It is no doubt true that the assessee had income from growing, manufacturing and sale of tea as well as income from tea leaves purchased from third parties which were processed /manufactured and sold by the assessee. In so far as the first category of income is concerned, the same has to be regarded as part of the composite income for the purpose of applying Rule 8(1) of the Rules. In so far as the second category of income is concerned it cannot be regarded as part of the composite income under rule 8(1) of the Rules. This position has been accepted by the assessee itself in the computation of the total income under the normal provisions of the Act. We have referred to the computation of the total income by the assessee under the normal provisions of the Act in the earlier part of this order. Whether the position will change when it comes to computation of book profit u/s 115JB ? - Section 115J of the Act, the CBDT in Circular No.495 dated 22.09.1987 has set out the manner of computation of book profits and composite income in the case of an Assessee to which Rule 8(1) of the Rules, for the purpose of Sec.115J of the Act. This tribunal in the case of M/s. Kanco Enterprises Ltd. 2015 (11) TMI 1135 - ITAT KOLKATA has taken a view that the aforesaid circular would be applicable in the context of section 115JB of the Act also. AO has to accept the profit as per the profit and loss account prepared in accordance with the companies Act and thereafter he can proceed to make the additions and deletions set out in the Explanation to Sec.115JB. He cannot make any adjustment which is not permitted under Explanation to Sec.115JB of the Act. The interpretation will equally apply to the provisions of Sec.115JB of the Act as well, as those provisions are identical to the provisions of Sec.115J of the Act with certain variations, which does not in any way alter the starting point of computation of book profit u/s.115J of the Act. If the CBDT Circular referred to above and the decision of Apollo Tyres 2002 (5) TMI 5 - SUPREME COURT are read together, the only conclusion that can be reached that the computation of book profit as done by the Assessee is correct and cannot be termed as erroneous and prejudicial to the interest of the revenue. Similar computation has been accepted by the revenue even in A.Y.2012-13 to 2014-15. Orders of assessment for A.Y.2013-14 and 2014-15 have been passed after order passed u/s 263 of the Act. We therefore are of the view that the CIT was not justified in invoking the provision u/s 263 of the Act, in so far as it relates to determination of book profit u/s 115JB of the Act. Invoking Sec.263 on the ground that income from sale of DEPB license ought to have been reduced from the profits eligible for deduction u/s 80IB and 80IE - Counsel had pointed out that there will be no prejudicial to the revenue in as much as tax liability of the assessee is being determined u/s 115 JB of the Act on book profits and therefore the computation of total income under the normal provisions of the Act will have no effect on the tax payable by the assessee. This has been accepted by the CIT in the impugned order in para-8 but nevertheless he has directed the AO to examine as to whether DEPB receipts were received in the course of business eligible for deduction u/s 80IB and 80IE of the Act respectively. In our view such an exercise will be futile when the admitted position is that even if such exercise turns out against the assessee that might not have any impact on the tax liability of the Assessee. In that sense the order of the AO cannot be termed as prejudicial to the interest of the revenue. The law is well settled that for invoking the provision of section 263 of the Act, the order sought to be revised ought to be both erroneous as well as prejudicial to the interest of the revenue. Since the condition that the order should be prejudicial to the interest of the revenue is not satisfied, the order of CIT u/s 263 in so far as it is concerns computation of deduction u/s 80IB and 80IE of the Act, cannot be sustained and the same is hereby quashed. Disallowance under Rule 8D(2)(ii) - Counsel fairly conceded that the action of CIT in the impugned order is justified. Hence the order of CIT to this extent is sustained. Appeal of the assessee is partly allowed.
Issues Involved:
1. Computation of composite income and book profits under Section 115JB of the Income Tax Act. 2. Deduction of income from sale of DEPB license under Sections 80IB and 80IE. 3. Disallowance under Rule 8D(2)(ii) of the Income Tax Rules. Detailed Analysis: 1. Computation of Composite Income and Book Profits under Section 115JB: The Assessee, engaged in growing, manufacturing, and selling tea, filed a return declaring total income under normal provisions and computed book profits under Section 115JB. The Assessee included income from tea leaves purchased from third parties in the composite income, which was contested by the CIT. The CIT argued that only income from growing, manufacturing, and selling tea should be included in the composite income, and not from tea leaves purchased from third parties, leading to a potential underassessment of book profit and tax. The Tribunal referenced the CBDT Circular No.495 and the Supreme Court's decision in Apollo Tyres vs CIT, which restricts the AO from making adjustments to the book profit beyond those specified in the Explanation to Section 115JB(2). The Tribunal concluded that the CIT's proposed adjustment was beyond the permissible scope, and the AO's computation of book profit was correct. The Tribunal noted that similar computations had been accepted by the revenue in subsequent years, thus the CIT's invocation of Section 263 was unjustified. 2. Deduction of Income from Sale of DEPB License under Sections 80IB and 80IE: The CIT observed that the Assessee claimed deductions under Sections 80IB and 80IE, including income from the sale of DEPB licenses, which he argued should not be eligible for such deductions. The Tribunal noted that even if the DEPB receipts were excluded, it would not affect the tax liability of the Assessee, as the tax was being determined under Section 115JB. Consequently, the Tribunal held that the AO's order was not prejudicial to the revenue's interest, and the CIT's direction to re-examine the DEPB receipts was unnecessary and quashed this part of the order. 3. Disallowance under Rule 8D(2)(ii): The CIT noted that the Assessee had set off interest paid against interest earned while computing disallowance under Rule 8D(2)(ii), which he argued should not be allowed. The Assessee contended that this method had been accepted in past assessments. However, the Tribunal upheld the CIT's direction to the AO to re-examine the matter, as the issue was still contentious and not settled. Conclusion: The Tribunal partly allowed the Assessee's appeal, quashing the CIT's order concerning the computation of book profits under Section 115JB and deductions under Sections 80IB and 80IE, while upholding the CIT's direction regarding disallowance under Rule 8D(2)(ii). The Tribunal emphasized adherence to CBDT Circular No.495 and the Supreme Court's ruling in Apollo Tyres, ensuring that only permissible adjustments are made to the book profits under Section 115JB.
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