2016 (11) TMI 1663 - AT - Income Tax

Computation of tax u/s 115JB - MAT credit utilization - MAT credit excluding Surcharge and Education Cess and not allowing the MAT credit utilization as claimed under section 115JAA - short allowance of credit on account of MAT credit i.e. restriction in the quantum of refund to be issued to the assessee - HELD THAT - Issue of allowance of tax credit for tax paid on deemed income i.e. computation of eligible MAT credit arose before the Hyderabad Bench of Tribunal in Virtusa (India) (P) Ltd. Vs. DCIT 2016 (3) TMI 245 - ITAT HYDERABAD held that the tax liabilities for normal provisions as well as MAT to be calculated with Surcharge and Education Cess and the assessee was entitled to total MAT credit adjustments i.e. against taxes and Surcharge and Cess. In this regard, reference was made to sub-section (5) to section 115JAA of the Act i.e. for setting o ff in respect of brought forward tax credit and it was held that the term used tax included surcharge and AO cannot overlook these formats and (interpret it in his own method of calculating tax credit while making assessment u/s 143(1) of the Act.) proceed to calculate the MAT credit to compute assessment u/s 143(1) applying different methods when the proper and correct method as proposed by CBDT in ITR-6. The Assessing Officer is expected to follow the ITR-6 format to complete the assessment u/s 143(1) or 143(3) of the Act. Thus we hold that the assessee is entitled to MAT credit utilization of ₹ 1.48 crores i.e. MAT credit including surcharge and education cess. Accordingly, we direct the Assessing Officer to re-compute the refund in the hands of assessee. The grounds of appeal raised by the assessee are thus, allowed.

Summary

Issues:
Restriction of MAT credit utilization, Surcharge and Education Cess levy, Refund amount determination.

Issue 1: Restriction of MAT credit utilization
The appellant contested the restriction of MAT credit utilization to &8377; 1,37,42,631 instead of the claimed &8377; 1,48,62,655 under section 115JAA of the Income Tax Act. The CIT(A) upheld the Assessing Officer's decision, citing that MAT credit does not include Surcharge and Education Cess. The appellant argued for parity in tax computation under normal provisions and MAT credit, referencing legal interpretations. The Delhi Bench's decision in Richa Global Exports Pvt. Ltd. Vs. ACIT was relied upon by the CIT(A) to support the exclusion of Surcharge and Education Cess from MAT credit. However, the Hyderabad Bench in Virtusa (India) (P) Ltd. Vs. DCIT held that MAT credit should include Surcharge and Cess, aligning with the tax liabilities calculation for both normal provisions and MAT. The Hyderabad Bench emphasized following the prescribed algorithm for MAT credit adjustments, as per section 115JAA. Consequently, the appellant's claim for MAT credit utilization of &8377; 1,48,62,655 was allowed, directing the Assessing Officer to re-compute the refund accordingly.

Issue 2: Surcharge and Education Cess levy
The appellant challenged the Assessing Officer's decision to levy surcharge and education cess on the entire tax liability under normal provisions, instead of after reducing MAT credit from tax liability. The appellant argued that surcharge and education cess should be applied post-MAT credit adjustment, in line with normal tax computation. The CIT(A) upheld the Assessing Officer's approach, leading to a disparity in tax liability calculation between normal provisions and MAT credit. The appellant's contention was based on the principle of parity in considering tax elements. However, the CIT(A) reasoned that surcharge and education cess are not part of the tax defined under section 2(43) of the Income Tax Act, supported by legal interpretations. The CIT(A) held that tax credit under section 115JAA excludes surcharge and education cess, aligning with the Delhi Bench's ruling in Richa Global Exports Pvt. Ltd. Vs. ACIT. Ultimately, the appellant's plea for surcharge and education cess to be levied post-MAT credit adjustment was not accepted.

Issue 3: Refund amount determination
The appellant sought a refund of &8377; 26,91,070, as claimed in the return of income, but received only &8377; 15,69,207. The discrepancy arose due to the restriction in MAT credit utilization and short credit of TDS. The CIT(A) rectified the demand, allowing MAT credit to the extent of &8377; 1.37 crores instead of the claimed &8377; 1.48 crores. The appellant appealed this decision, emphasizing the correct interpretation of MAT credit and tax liability computation. The CIT(A) consolidated all appeals and ruled in favor of the Assessing Officer's approach, excluding surcharge and education cess from MAT credit. However, the appellant's argument, supported by the Hyderabad Bench's decision in Virtusa (India) (P) Ltd. Vs. DCIT, led to the allowance of the claimed MAT credit utilization of &8377; 1.48 crores. As a result, the appellant's appeal was allowed, directing the Assessing Officer to re-calculate the refund amount to &8377; 26,91,070.

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