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2023 (8) TMI 1581 - AT - Income TaxRectification u/s 154 filed by the assessee for deduction of revenue expenditure from book profits under section 115JB - assessment order u/s 143(3) was passed wherein the tax liability was determined by the AO under the provisions of section 115JB of the Act being higher than the tax liability computed under the normal provision of the Act HELD THAT - There is no dispute that the assessee has incurred revenue expenditure during the year however only a part has been shown and debited in the P L Account and the remaining amount has been shown in the balance sheet. Where the book profit have to be determined in terms of profit/loss account prepared in accordance with Part II Schedule VI of the Companies Act, the profit and loss account shall be so made out as clearly to disclose the results of the working of the company during the period and shall disclose every material feature including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature, the whole of the revenue expenditure incurred by the assessee amounting to Rs 35,67,94,891 (and not just a part thereof as shown currently at Rs. 15,313,959/-) during the previous year has to be reduced while calculating the net profit. There is no concept of part recognition of revenue expenditure in Part II Schedule VI of the Companies Act and therefore, where the assessee has debited a part of the revenue expenditure in the profit/loss account, the profit/loss account so prepared is not in accordance with Part II Schedule VI of the Companies Act and has apparently been done for presentation to and consumption of the shareholders. We therefore find that these facts are clearly emerging from the books of accounts so prepared by the assessee and as so reflected on the face of the balance sheet and profit/loss account and does not require any long drawn process of reasoning or analysis and therefore where the tax liability has been computed under section 115JB of the Act, the book profit have to be determined in terms of Part II of Schedule VI of the Companies Act which necessarily include the book profit after allowing deduction for whole of the Revenue expenditure. We therefore find that the facts of the present case are pari materia with the facts as well as the issue (Section 115JA has been substituted by Section 115JB) before Hon ble Karnataka High Court and the application of the assessee seeking rectification under section 154 of the Act drawn support rightly from the decision of the Hon ble Karnataka High Court 2015 (1) TMI 1023 - KARNATAKA HIGH COURT if we look at the order of the AO rejecting assessee s application under section 154, he has merely rejected the application stating that since the assessee has not claimed the deferred revenue expenditure in the return of income, its claim does not came under the purview of Section 154 of the Act. We therefore find that even the AO has not disputed that these facts are emerging on the face of the record and only because the assessee has not claimed the same while filing the return of income, the said claim has been denied. We find that the AO is apparently guided by the decision of Goetze (India) Ltd. 2006 (3) TMI 75 - SUPREME COURT wherein dealing with the power of the Assessing officer, it was held that the AO cannot entertain a claim for deduction otherwise than by filing a revised return. We find that the matter has since travelled to the ld CIT(A) and even the ld CIT(A) has not allowed the claim of the assessee and there is nothing under law that the ld CIT(A) cannot entertain such claim during the course of appellate proceedings. All that is required is that there has to be mistake apparent from record which we have seen above is clearly emerging from the records that the profit/loss account so prepared by the assessee doesn t account for whole of the revenue expenditure which is a mandatorily requirement under the Companies Act and which forms the basis for determination of book profits for the purposes of computing the MAT liability in terms of sub-section (2) of section 115JB of the Act. We set-aside the order of the CIT(A) and direct the AO to allow the necessary relief to the assessee by allowing whole of the revenue expenditure while computing the book profits for the purposes of levy of MAT liability u/s 115JB of the Act. Assessee appeal allowed.
Issues Involved:
1. Whether the rectification application under section 154 filed by the assessee for deduction of revenue expenditure from book profits under section 115JB was valid. 2. Whether the dismissal of the Special Leave Petition (SLP) by the Supreme Court constitutes a binding precedent for rectification under section 154. 3. Whether the entire revenue expenditure should be deducted while calculating book profits under section 115JB, despite not being debited in the Profit & Loss account. Issue-wise Detailed Analysis: 1. Validity of Rectification Application under Section 154: The assessee filed a rectification application under section 154, claiming a mistake apparent on record regarding the non-deduction of revenue expenditure from book profits for MAT liability calculation. The application was initially rejected by the AO on the grounds that the claim was not raised in the original return of income, and considering it would amount to a fresh determination of facts. However, the Tribunal found that the facts were apparent from the records, as the revenue expenditure was reflected in the balance sheet, and thus, rectification was permissible. The Tribunal emphasized that the book profit should be determined by accounting for all expenditures incurred during the year to arrive at the correct net profit, as mandated by Part II of Schedule VI of the Companies Act. 2. Dismissal of SLP by Supreme Court as a Binding Precedent: The Tribunal addressed whether the dismissal of the SLP by the Supreme Court in the Karnataka Soaps & Detergents case constituted a binding precedent. The CIT(A) had held that the dismissal of the SLP at the admission stage did not interpret or lay down the law and could not be considered under CBDT Circular No. 68. However, the Tribunal noted that the Karnataka High Court's decision, which allowed the deduction of deferred revenue expenditure from book profits, had attained finality with the dismissal of the SLP, making it a binding precedent. The Tribunal followed this decision, as there was no contrary decision from any other High Court. 3. Deduction of Entire Revenue Expenditure in Book Profits Calculation: The assessee argued that the entire revenue expenditure incurred during the year, though not debited to the P&L account, should be deducted while calculating book profits under section 115JB. The Tribunal agreed, stating that the P&L account must reflect all expenses to disclose the company's true financial position. The Tribunal referred to the Karnataka High Court's judgment, which held that the entire expenditure should be deducted to arrive at the net profit for MAT liability purposes. The Tribunal found that the assessee's accounting treatment of deferring revenue expenses was for shareholder presentation and did not align with the requirements of Part II of Schedule VI of the Companies Act. Conclusion: The Tribunal allowed the appeals, directing the AO to recompute the book profits after allowing the deduction of the entire revenue expenditure for the relevant assessment years. The decision emphasized the importance of reflecting true financial results in the P&L account for tax computation under section 115JB and upheld the binding nature of the Karnataka High Court's decision post-SLP dismissal.
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