2015 (1) TMI 7 - AT - Income Tax

Validity of notice for reopening of assessment u/s 147 r.w 148 Reopening made because the provisions for FBT and disallowance made u/s 14A were not added to the book profits for the purpose of calculation of MAT - Held that - CIT(A) while holding that there was no income which has escaped assessment so as to issue notice u/s 148 of the Act has given a finding that during the course of scrutiny, the aspect of computation of book profit have been analyzed and after due application of mind, the AO had determined the figure of book profit for the purpose of computation of minimum alternative tax - the reopening to be a case of change of opinion and therefore invalid - no material has been placed on record to controvert the findings of CIT(A) in Cliantha Research Ltd. Versus Deputy Commissioner of Income-tax, Ahmedabad Circle - I 2013 (7) TMI 452 - GUJARAT HIGH COURT it has been held that where during original assessment assessee s claim was processed at length and after calling for detailed explanation same was accepted, merely because a certain element or angle was not in mind of AO while accepting such a claim, could not be a ground for issuing notice u/s 148 for reassessment thus, the order of the CIT(A) is upheld Decided against revenue. Adjustment to book profit - MAT - Validity of direction made to not add the FBT liability Held that - CIT(A) while deleting the addition has inter alia held that the issue of considering FBT for the purpose of MAT is directly covered in favour of the Assessee by the Circular of the Board dated 29.08.2005 which inter alia holds that FBT whether or payable or provision thereof is not required to be added back while computing book profit u/s. 115JB of the Act - the liability of FBT having been crystallized and quantified in the books of account, it cannot be treated as contingent liability and therefore cannot be added back to the amount of book profit thus, the order of the CIT(A) is upheld Decided against revenue. Deletion of disallowance u/s 14A from being added to book profit Held that - CIT(A) after relying on the decision of Apollo Tyres vs. CIT 2002 (5) TMI 5 - SUPREME Court has held that the amount of disallowance made u/s 14A cannot be added to book profit while working out the tax liability under provisions of MAT - revenue has not brought any material on record to controvert the findings of CIT(A) nor has brought any contrary binding decision in its support thus, there is no reason to interfere in the order of the CIT(A) Decided against revenue.

Summary

Issues Involved:
1. Validity of reopening of assessment proceedings under Section 147 and notice under Section 148 of the Income Tax Act.
2. Addition of liability of Fringe Benefit Tax (FBT) while computing book profit under Section 115JB.
3. Addition of disallowance under Section 14A to book profit while computing Minimum Alternate Tax (MAT) under Section 115JB.

Detailed Analysis:

1. Validity of Reopening of Assessment Proceedings under Section 147 and Notice under Section 148:
The Revenue's appeal contested the CIT(A)'s decision regarding the reopening of assessment proceedings. The notice under Section 148 was issued because the Assessee did not add provisions for FBT and disallowance under Section 14A to the book profits for MAT calculation. The Revenue argued that this resulted in income escapement, justifying the reopening.

The CIT(A) found that during the original assessment, the computation of book profit was scrutinized and determined by the A.O. The reopening was considered a change of opinion, which is not permissible. The CIT(A) referenced the Gujarat High Court's decision in Cliantha Research Ltd. vs. D.C.I.T, which states that reassessment cannot be initiated merely because a certain aspect was not in the A.O.'s mind during the original assessment. The Tribunal upheld CIT(A)'s decision, noting no new tangible material was presented to justify the reopening, and thus dismissed the Revenue's ground.

2. Addition of Liability of FBT while Computing Book Profit under Section 115JB:
The A.O. added Rs. 2,20,145 to the book profit, considering it an unascertained liability since the actual FBT paid was less than the provision made. The CIT(A) deleted this addition, citing CBDT Circular No. 8 of 2005, which clarifies that FBT should not be added back while computing book profits under Section 115JB. Moreover, the CIT(A) referenced the Supreme Court's decision in Bharat Earth Movers vs. CIT, which held that crystallized liabilities should not be treated as contingent.

The Tribunal agreed with the CIT(A), noting that FBT is not included in "Income Tax" for the purpose of Clause (a) of Explanation 1 to Section 115JB and that the liability was crystallized and quantified. The Tribunal found no reason to interfere with the CIT(A)'s order, thus dismissing the Revenue's ground.

3. Addition of Disallowance under Section 14A to Book Profit while Computing MAT under Section 115JB:
The A.O. added the disallowance under Section 14A to the book profit, arguing it was required by Clause (f) of Explanation 1 to Section 115JB. The CIT(A) ruled in favor of the Assessee, stating that Section 14A disallowance is not one of the prescribed adjustments under Section 115JB. The CIT(A) relied on the Supreme Court's decision in Apollo Tyres vs. CIT and the Delhi Tribunal's decision in Goetze India Ltd. vs. CIT, which support that only specific adjustments can be made to book profits.

The Tribunal upheld the CIT(A)'s decision, noting the Revenue did not present any contrary binding decision or material to challenge the findings. Thus, the Tribunal dismissed the Revenue's ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s decisions regarding the validity of reopening the assessment, exclusion of FBT liability from book profits, and the non-inclusion of Section 14A disallowance in MAT computation. The judgments were based on established legal principles and precedents, ensuring that only specified adjustments are made to book profits under Section 115JB.