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2016 (3) TMI 1056 - AT - Income TaxMAT computation - Assessment u/s 115JA - Held that - Retrospective amendment in Section 115JA of the Act, the provision for doubtful debts and advances requires to be added back to the book profits u/s 115JA of the Act. The provision made for incremental wages remains an ascertained liability and not a contingent liability in the facts and circumstances of this case and accordingly does not requires to be added back as per Clause (c) of Explanation to Section 115JA(2) of the Act. Since the purchases were not debited in the profit and loss account for the financial year 1998-99 relevant to Asst Year 1999- 2000, the same is not eligible for deduction from computation of book profits u/s 115JA of the Act. However, we hold that the same is liable to be granted deduction in Asst Year 2000-2001 , being the year in which the purchases were debited by the assessee, while computing book profits u/s 115JA of the Act. The Learned AO is directed to grant relief for the same in Asst Year 2000-2001 in section 115JA computation in order to avoid double disallowance of genuine expenditure incurred by the assessee. AO does not have the jurisdiction to go beyond the net profit shown in the profit and loss account except to the extent provided in Explanation to Section 115JA of the Act. Disallowance of u/s 14A - Held that - Provisions of Clause (f) of Explanation to Section 115JA of the Act cannot be invoked in the facts of the present case. We hold that unless an item is debited in the profit and loss account, the same cannot be the subject matter of addition to book profits under clause (f) of Explanation to section 115JA of the Act. The disallowance made u/s 14A of the Act read with Rule 8D is only artificial disallowance and obviously the same is not debited in the profit and loss account and the same cannot be imported into clause (f) of Explanation to Section 115JA of the Act.Thus we hold that no disallowance u/s 14A of the Act could be made for the purpose of computing book profits u/s 115JA of the Act.
Issues Involved:
1. Validity of reopening of assessment under Section 147 of the Income Tax Act. 2. Provision for doubtful debts and advances. 3. Provision for wages. 4. Adjustment of purchase of materials. 5. Provision for estimated loss in writing down the value of Salt Lake factory to realizable value. 6. Disallowance under Section 14A in computing book profits under Section 115JA. Issue-wise Detailed Analysis: 1. Validity of Reopening of Assessment under Section 147: The assessee challenged the reopening of assessment under Section 147, arguing that no additions were made by the Assessing Officer (AO) on the specific items mentioned in the reasons for initiating the proceedings. The tribunal upheld the reopening, stating that the AO had material at the stage of issuing the notice to form a belief of escapement of income. The subjective satisfaction of the AO based on relevant material was deemed sufficient to uphold the reopening. The additional ground raised by the assessee was dismissed. 2. Provision for Doubtful Debts and Advances: The revenue contended that the provision for doubtful debts and advances amounting to Rs. 5,35,63,000 should be added back to the book profits under Section 115JA. The tribunal noted the retrospective amendment in the statute, which required such provisions to be added back to the book profits. Consequently, the revenue's grounds were allowed. However, the assessee's additional claim for deduction of Rs. 2,53,87,000 was remanded to the AO for verification, as there was no evidence on record regarding whether the same was added back in the earlier years. 3. Provision for Wages: The assessee argued that the provision for wages amounting to Rs. 14,78,000 was an ascertained liability and should not be added back to the book profits. The tribunal found that the provision was made on a scientific basis and was not an unascertained liability. The provision was based on minimum incremental wages agreed upon with the labor union. The tribunal allowed the assessee's grounds, holding that the provision for incremental wages was an ascertained liability. 4. Adjustment of Purchase of Materials: The assessee claimed a deduction for purchases amounting to Rs. 2,86,10,000, which were erroneously omitted in the profit and loss account for the assessment year 1999-2000 but were debited in the subsequent year. The tribunal held that since the purchases were not debited in the profit and loss account for the relevant year, they were not eligible for deduction from book profits under Section 115JA. However, the tribunal directed the AO to grant relief for the same in the assessment year 2000-2001 to avoid double disallowance. 5. Provision for Estimated Loss in Writing Down the Value of Salt Lake Factory: The revenue argued that the provision for diminution in the value of the Salt Lake factory amounting to Rs. 6,84,79,000 was an unascertained liability and should be added back to the book profits. The tribunal found that the provision was made as per the Accounting Standards and was based on the expected realizable value of the factory. The tribunal held that the amount was not a mere provision for diminution in value but an anticipated loss recognized in the profit and loss account. The tribunal dismissed the revenue's grounds. 6. Disallowance under Section 14A in Computing Book Profits: The assessee contended that no disallowance under Section 14A should be made in computing book profits under Section 115JA, as the disallowance was not debited in the profit and loss account. The tribunal agreed, noting that the disallowance under Section 14A read with Rule 8D is an artificial disallowance and cannot be added to the book profits if not debited in the profit and loss account. The tribunal allowed the assessee's grounds, holding that no disallowance under Section 14A could be made for the purpose of computing book profits under Section 115JA. Conclusion: Both the appeals of the assessee and the revenue were partly allowed. The tribunal provided detailed rulings on each issue, addressing the validity of reopening the assessment, the treatment of provisions for doubtful debts, wages, and estimated losses, and the applicability of disallowance under Section 14A in computing book profits.
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