2016 (10) TMI 1393 - AT - Income Tax

Reopening of assessment - notice issued beyond four years - addition of the provision of FBT and the expenditure incurred on Social Forestry for earning exempt income - HELD THAT - We find that the provision of FBT was mentioned in the Profit and Loss account which was before the AO at the time of original assessment proceedings. Therefore, it cannot be said that there was a failure on the part of the assessee to disclose truly and fully all the material facts before the AO. So far as the expenditure Social Forestry for earning exempt income is concerned, we find that this amount was added by the A.O. in the computation of income as per the normal provisions of the Act. Therefore, it cannot be said full facts related to this issue were not disclosed before the A.O. at the time of original assessment. We find that there was no failure on the part of the assessee to disclose truly and fully all the material facts before the Assessing Officer at the time of original assessment proceedings. In the light of the proviso to Section 147 of the Act, we do not find any error or infirmity in the findings of the ld. CIT(A). Appeal filed by the Revenue is accordingly dismissed. Adjustment of MAT credit entitlement while computing book profit u/s. 115JB - AO noticed that the assessee has credited an amount as MAT credit entitlement which was not reduced from the net profit for computing book profit and there is no provision for any adjustment in respect of MAT credit entitlement credited to the Profit and Loss account - HELD THAT - Provision for current tax is shown at Rs. 7,41,01,907/- and MAT credit entitlement has been separately shown at Rs. 6,13,84,689/- It can be further seen that the provision for current tax is shown at gross amount. The net amount comes to Rs. 1,27,17,218/-, if the MAT credit entitlement is reduced from provision for current tax. If the assessee had shown the net amount of Rs. 1,27,17,218/- and added back the same for the computation of book profit, the revenue would have accepted this computation. But for the accounting principles and set guidelines both the amounts were shown separately. Considering these facts in totality, we do not find any logic in making the addition for computing the book profit; the same has to be deleted. Ground accordingly dismissed. Exchange Fluctuation on repayment of Foreign Currency Term Loan - revenue or capital expenditure - HELD THAT - Foreign Exchange Fluctuation loss on account of working capital is at Rs. 183.67 lacs. Since, this loss is attributable to the working capital requirement, therefore, it has been considered as a revenue loss. This needs to be verified by the A.O. In the interest of justice and fair play, we restore this issue to the files of the A.O. A.O. is directed to examine the aforementioned chart by calling for necessary details from the assessee. The assessee is directed to provide necessary details for examination. Needless to mention, the A.O. shall give a reasonable opportunity of being heard to the assessee before deciding this issue afresh. In the result, Ground treated as allowed for statistical purpose.

Summary

Issues Involved:
1. Validity of the reopening of assessment beyond four years under Section 147 of the Income Tax Act.
2. Adjustment of MAT credit entitlement while computing book profit under Section 115JB.
3. Addition on account of exchange fluctuation on repayment of loan being capital in nature.

Issue-wise Analysis:

1. Validity of the reopening of assessment beyond four years under Section 147 of the Income Tax Act:
The primary grievance of the Revenue was that the CIT(A) erred in annulling the assessment order made under Section 147 read with Section 143(3) of the Act. The original assessment was made under Section 143(3) on 26.12.2008, and the assessment was reopened by a notice issued under Section 148 on 23.03.2012, beyond the period of four years from the end of the relevant assessment year. The reasons for reopening included the omission to add back the provision of FBT of Rs. 1,05,74,900/- and the expenditure of Rs. 58,60,628/- incurred on social forestry to earn exempted income. The Tribunal found that the provision of FBT was mentioned in the Profit and Loss account, which was before the Assessing Officer during the original assessment proceedings, indicating no failure on the part of the assessee to disclose all material facts. Similarly, the expenditure of Rs. 58,60,628/- was added by the Assessing Officer in the computation of income as per the normal provisions of the Act. Therefore, there was no failure to disclose fully and truly all material facts. In light of the proviso to Section 147, the Tribunal found no error in the findings of the CIT(A) and dismissed the Revenue's appeal.

2. Adjustment of MAT credit entitlement while computing book profit under Section 115JB:
The Revenue contended that the CIT(A) was unjustified in deleting the addition of Rs. 6,13,84,689/- made on account of adjustment of MAT credit entitlement while computing book profit under Section 115JB. The Assessing Officer noticed that the assessee credited an amount of Rs. 6,13,84,689/- as MAT credit entitlement, which was not reduced from the net profit for computing book profit. The assessee argued that MAT credit entitlement is a form of deferred tax and should be adjusted accordingly. The CIT(A) agreed with the assessee, stating that MAT credit is deferred tax and should be adjusted as per Explanation 1 to Section 115JB. The Tribunal upheld the CIT(A)'s decision, noting that the MAT credit entitlement was shown separately in the Profit and Loss account and should be deducted while computing book profit. The Revenue's appeal on this ground was dismissed.

3. Addition on account of exchange fluctuation on repayment of loan being capital in nature:
The Revenue challenged the deletion of Rs. 1,83,67,000/- out of the total addition of Rs. 2,88,96,000/- made on account of exchange fluctuation on the repayment of loan, arguing that the repayment was capital in nature. The Assessing Officer had added the entire amount, but the CIT(A) found that Rs. 1,83,67,000/- was on account of revenue and directed its deletion. The Tribunal noted that the bifurcation of the foreign currency loss was not verified by the Assessing Officer and remanded the issue back to the Assessing Officer for verification. The Tribunal directed the Assessing Officer to examine the details provided by the assessee and decide the issue afresh, giving the assessee a reasonable opportunity of being heard. The appeal on this ground was allowed for statistical purposes.

Conclusion:
The Tribunal dismissed the Revenue's appeal regarding the reopening of assessment and the adjustment of MAT credit entitlement while computing book profit. However, it remanded the issue of exchange fluctuation loss for verification, allowing the appeal in part for statistical purposes. The cross objections of the assessee were dismissed as not pressed.