2019 (9) TMI 446 - HC - Income Tax

MAT computation - reserve created for unexpired risk - HELD THAT - We admit this appeal on the following questions of law - (i) Whether on the facts and in the circumstances of the case the learned tribunal has erred in law in holding that a sum of ₹ 161,86,66,000/- being the reserve created for unexpired risk not to be added while computing the book profit under Section 115JB of the Income Tax Act, 1961 without considering the fact that Clause- (b) to explanation 1 of Section 115JB(2), book profit has to be increased by the said reserve? (ii) Whether on the facts and in the circumstances of the case the learned tribunal has erred in law in holding that a sum of ₹ 87,78,52,000/- being the reserve created for unexpired risk should be considered as reserve for computing the book profit under Section 115JB of the Income Tax Act, 1961?

Summary

Issues:
1. Whether the reserve created for unexpired risk should be considered for computing book profit under Section 115JB?
2. Whether investment written off is allowable as a deduction?
3. Whether amortization of premium paid on purchase of investment should be allowed?
4. Whether the reserve created for unexpired risk should be added while computing book profit under Section 115JB?
5. Whether the conclusion reached by the tribunal is perverse?

Analysis:

1. The appellant raised concerns regarding the treatment of a reserve created for unexpired risk in computing book profit under Section 115JB of the Income Tax Act, 1961. The tribunal's decision to consider the sum of ?87,78,52,000 as a reserve for computing book profit was challenged on the grounds of legality and error in law.

2. Another issue raised was the allowance of investment written off as a deduction. The tribunal's decision to allow the write-off without considering the nature of the depreciated investment was questioned. The appellant argued that such deductions may not be admissible in the profit and loss account.

3. The appellant contested the tribunal's decision regarding the amortization of premium paid on the purchase of investment. The tribunal allowed the amortization without considering the capital nature of the amount, which the appellant argued is not permissible under the Income Tax Act.

4. A further issue was the treatment of a reserve created for unexpired risk amounting to ?161,86,66,000 while computing book profit under Section 115JB. The tribunal's decision not to add this reserve in the book profit calculation was challenged based on the specific clause in the explanation of Section 115JB(2) requiring an increase in book profit by such reserves.

5. Lastly, the appellant questioned the tribunal's conclusion, alleging it to be perverse. The general nature of this issue was considered covered by the admitted questions of law in the appeal. The court admitted the appeal on specific questions related to the treatment of reserves and scheduled a hearing for further proceedings.

This detailed analysis outlines the various legal issues raised by the appellant concerning the computation of book profit, treatment of reserves, and deductions under the Income Tax Act, as well as the court's decisions and directions for the upcoming hearing.