2021 (10) TMI 98 - AT - Income Tax

Revision u/s 263 - AO has accepted the book profit declared by the assessee u/s 115JB of the Act without considering the addition u/s 14A - HELD THAT - Pr CIT has taken the view that the amount disallowed u/s 14A of the Act while computing total income under normal provisions of the Act should be adopted for making addition to Net profit under clause (f) to Explanation 1 to sec. 115JB - view so expressed by Ld Pr. CIT was against the decision rendered by Special bench of Tribunal in the case of Vireet Investments (P) Ltd 2017 (6) TMI 1124 - ITAT DELHI wherein it was held that the cfor the purpose of computing income under normal provisions of the Act cannot be imported for the purpose of addition to be made under clause (f) to Explanation 1 to sec.115JB for computing book profit, i.e., the amount to be added under above said clause has to be computed from the Profit and Loss account independently. A.R raised the contentions on applicability of provisions of sec.14A, yet we are of the view that the issue agitated here relates to the computation of book profit u/s 115JB of the Act and further the AO did not examine applicability of clause (f) to Explanation 1 to sec. 115JB while framing the assessment order. The same renders the assessment order erroneous and prejudicial to the interests of the revenue. PCIT has expressed the view, which is contrary to the decision rendered by the special bench in the case of Vireet Investments P Ltd (supra). Accordingly, we modify the order passed by Ld Pr. CIT and direct the AO to examine applicability of clause (f) to Explanation 1 to sec.115JB of the Act independently without having regard to the provisions of sec.14A of the Act. After affording adequate opportunity of being heard and untrammeled by the view expressed by Ld PCIT, the AO may take appropriate decision in accordance with law. Appeal filed by the assessee is partly allowed.

Summary

Issues:
Challenge to revision order u/s 263 of the Income-tax Act, 1961 for AY 2014-15.

Analysis:
1. The appeal challenges the revision order by Ld Pr. CIT, Mangaluru u/s 263 of the Income-tax Act, 1961 for AY 2014-15. The issue arose when the AO made an addition u/s 14A but omitted the same while computing book profit u/s 115JB. Ld Pr. CIT considered the assessment order erroneous and prejudicial to revenue, initiating revision proceedings. The Ld A.R argued the debatable applicability of sec.14A to a banking company, citing relevant judgments. The Ld D.R supported Ld Pr. CIT's order, claiming the AO's failure to apply the law correctly rendered the assessment order erroneous.

2. The Tribunal referred to the Malabar Industrial Co. Ltd. v. CIT case, stating that the provision of sec. 263 is invoked only when an order is erroneous, which includes incorrect assumptions of fact or law. The order must be prejudicial to revenue, not merely resulting in a loss of tax. The assessing officer's acceptance of the book profit without considering clause (f) of Explanation 1 to sec. 115JB rendered the order erroneous and prejudicial to revenue due to omitted provisions.

3. The Ld Pr. CIT's view to adopt the disallowance u/s 14A for addition to Net profit under clause (f) to Explanation 1 to sec. 115JB was contrary to the Special bench's decision in Vireet Investments (P) Ltd. The Tribunal held that the disallowance under sec. 14A for normal income provisions cannot be used for computing book profit. The issue primarily focused on the proper computation of book profit u/s 115JB, with the AO's failure to consider clause (f) making the order erroneous and prejudicial to revenue.

4. The Tribunal modified Ld Pr. CIT's order, directing the AO to independently examine clause (f) to Explanation 1 to sec. 115JB without considering sec. 14A. The decision was made after considering the conflicting views and ensuring the AO applies the law correctly. The appeal was partly allowed, emphasizing the importance of proper application of tax provisions for accurate assessment.

This comprehensive analysis covers the issues involved in the legal judgment, detailing the arguments presented by both parties, the relevant legal principles, and the Tribunal's final decision.