2010 (5) TMI 54 - HC - Income Tax

Book profit - Minimum alternate tax - MAT - power of the commissioner to revise assessment u/s 263 - The provisions of Section 263 had been invoked by the Commissioner on the ground that the assessment order was erroneous and was prejudicial to the interest of the revenue. According to the Commissioner of Income Tax (Appeals), while calculating the book profits under Section 115JB of the said Act, sales commission of Rs 241.90 lacs claimed in the profit and loss account was not added back, even though this claim had been disallowed in calculating the total income under the normal provisions of the Act. The Commissioner of Income Tax (Appeals) was of the opinion that the mistake had resulted in under assessment of income under Section 115JB to the said extent. It was also observed by the said Commissioner that the assessment was made by the Assessing Officer without an adequate enquiry or investigation. Held that that insofar as the computation of income under Section 115JB is concerned, the powers of the Assessing Officer are very limited. This is clear from the decision of the Supreme Court in the case of Apollo Tyres Ltd v. CIT (2008 -TMI - 6081 - SUPREME Court) which, though it related to Section 115J, would be equally applicable to computation under Section 115JB - Once the profit and loss account was audited and duly certified by the statutory auditors to be in accordance with the Companies Act, 1956, it was not open to the Assessing Officer to go beyond the profits so declared except to the extent of making increases or decreases as per the Explanation to the said Section. It is not the case of the revenue that the Assessing Officer or the Commissioner of Income Tax was purporting to make any adjustments as provided under the Explanation. Consequently, the Tribunal was absolutely right in concluding that the provisions of Section 263 of the said Act could not be attracted because there was nothing erroneous in the original order passed by the Assessing Officer

Summary

Issues:
1. Appeal against the order of the Income Tax Appellate Tribunal relating to the assessment year 2003-2004.
2. Invocation of Section 263 of the Income Tax Act, 1961 due to alleged errors in the assessment order.
3. Allowability of sales commission in calculating book profits under Section 115JB of the Income Tax Act.
4. Powers of the Assessing Officer in computing income under Section 115JB.

Analysis:
1. The High Court heard an appeal by the revenue against the Income Tax Appellate Tribunal's order concerning the assessment year 2003-2004. The Commissioner of Income Tax (Appeals) invoked Section 263 of the Income Tax Act, claiming errors in the assessment order that were prejudicial to revenue interests. The issue revolved around the disallowance of sales commission in calculating book profits under Section 115JB.

2. The Tribunal examined the case of a company engaged in trading and manufacturing gasoline engine management systems, a subsidiary of a Japanese corporation. The company had paid a commission to its selling agent, which was debited to its profit and loss account. The original assessment disallowed this commission, alleging violations of the Companies Act, but the Commissioner of Income Tax (Appeals) allowed it as a legitimate business expense. The Tribunal upheld this decision, emphasizing the approval of the commission payment and proper auditing under the Companies Act.

3. The Court highlighted the limited powers of the Assessing Officer in computing income under Section 115JB, citing the Supreme Court's ruling in Apollo Tyres Ltd v. CIT. The Assessing Officer's authority is restricted to verifying the proper maintenance of accounts under the Companies Act and making adjustments as per the Explanation to the Section. As the profit and loss account was duly audited and certified, the Assessing Officer could not exceed the declared profits without valid adjustments. The Tribunal correctly applied this principle, concluding that Section 263 was inapplicable due to the absence of errors in the original assessment order.

4. The judgment emphasized that no substantial legal question arose, leading to the dismissal of the appeal. The Court reiterated the principles established in the Apollo Tyres Ltd case, affirming the Assessing Officer's limited jurisdiction in computing income under Section 115JB. The decision underscored the importance of adhering to statutory audit requirements and the boundaries of the Assessing Officer's authority in making adjustments to declared profits.