2024 (12) TMI 491 - AT - Income Tax

Computation of book profit u/s 115JB - enhancement notice u/s 251(2) was issued by NFAC to the assessee - HELD THAT - It is pertinent to note that that after seeking initial clarification from the assessee asking the assessee to upload certain documents for financial computation of book profit u/s 115JB of the Act, the NFAC either at the time of seeking clarification or thereafter did not issue any enhancement notice at all u/s 251(2) of the Act. It is trite law that without issuance of mandatory enhancement notice u/s 251(2) of the Act specifically showcasing the assessee as to how its income should not be enhanced by a particular figure on particular issues the ld NFAC does not have power as per statutory to enhance the income. Since, in the present case the book profit u/s 115JB of the Act has been enhanced by Rs. 1,54,79,03,84,000/- and Rs. 6,13,51,23,330/-. Hence, additional grounds 6 and 7 raised by the assessee in this regard, being legal in nature is hereby admitted as stated supra, these two additions would have no legs to stand in the eyes of law accordingly, the same is hereby directed to be deleted. Additional ground No. 6 and 7 is hereby allowed. Addition made in the computation of book profit of book profit u/s 115JB pursuant to recasting of account. We find that this ground was not adjudicated by NFAC at all in its entire order.

Summary

Issues:
1. Addition of Rs. 146,24,18,751/- to Book Profit
2. Addition of Rs. 613,51,23,330/- to Book Profit on account of Income Tax Paid/Payable
3. Addition of Rs. 15479,03,84,000/- to Book Profit on account of Reserves/Provisions
4. Compliance with Faceless Appeal Scheme, 2021
5. Enhancement notice issued by National Faceless Appeal Centre (NFAC)

Analysis:

1. Addition of Rs. 146,24,18,751/- to Book Profit:
The appeal challenged the addition made by the Assessing Officer (AO) to the Book Profit of the assessee, despite the revised income tax return and restated financial statements. The contention was that the AO ignored the revised figures, violating the principles of natural justice. The CIT (Appeals) was criticized for accepting the addition without proper consideration, leading to double taxation. The Tribunal directed a de novo adjudication on this issue by the NFAC.

2. Addition of Rs. 613,51,23,330/- to Book Profit on account of Income Tax Paid/Payable:
The CIT (Appeals) added this amount to the Book Profit based on assumptions without considering the actual figures declared by the assessee. The Tribunal found the addition irrational and without proper application of mind. The NFAC was faulted for not issuing an enhancement notice as required by law, leading to the allowance of the additional grounds raised by the assessee.

3. Addition of Rs. 15479,03,84,000/- to Book Profit on account of Reserves/Provisions:
The CIT (Appeals) made a substantial addition to the Book Profit based on reserves and provisions without proper understanding of the financial statements submitted by the assessee. The Tribunal found the addition arbitrary and without proper application of mind. The NFAC failed to issue a mandatory enhancement notice, resulting in the allowance of additional grounds raised by the assessee.

4. Compliance with Faceless Appeal Scheme, 2021:
The Tribunal noted that the Appellate Order was passed without complying with the procedures laid down in the Faceless Appeal Scheme, 2021. The CIT (Appeals) did not provide an opportunity for oral submissions through video conferencing as requested by the assessee, leading to surprising additions in the order. This was deemed a violation of the principles of natural justice.

5. Enhancement notice issued by National Faceless Appeal Centre (NFAC):
The NFAC was criticized for issuing an enhancement notice seeking to make enhancements without proper formal notice or confrontation with the assessee. The Tribunal found that the NFAC proceeded to enhance the income without issuing a mandatory enhancement notice as required by law, leading to the deletion of the additions made by the NFAC.

In conclusion, the Tribunal directed a fresh adjudication on the issues related to additions to Book Profit and emphasized the importance of following procedural requirements and principles of natural justice in appellate proceedings.