2016 (5) TMI 332 - AT - Income Tax

Deduction under section 80IB - AO disallowed the same on technical ground i.e. non-filing of ITR within the due date as specified under section 139(1) - Held that - CIT(A) rightly held that the profit declared in the assessment year 2008- 09 actually belongs to the assessment years 2005-06, 2006-07 and 2007-08 as the assessee for those years was following the percentage completion method in accordance with the accounting Standard 7 issued by the ICAI of India. The ld. AR before us submitted a chart showing the profit shown as per the wrong calculation of profit in terms of AS 7 and the correct profit that would been shown in terms of AS 7 which is part of the order as per annexure 1 of this order. We also understand that The AO cannot take the benefit with regard to the inadvertent mistake committed by the assessee in filing the return of its income. The AO should not act against the principal of natural justice. The assessee quoted and relied in the Departmental Circular No. 14(XL-35) dated 11-4-1955 regarding the administrative instructions issued for the guidance of the Income Tax Officers on the matters pertaining to the assessments. The law is well settled that tax authorities entrusted with the power to make assessment of tax discharge quasi judicial functions and they are bound to observe principles of natural justice in reaching their conclusions, taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax, which is legitimately due from the assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. It is impossible to subscribe to the view that unless those authorities exercise the power in a manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed to have exercised it in a proper and judicious manner. In view of above, we are not inclined to interfere in the order of the ld. CIT(A) in allowing the claim - Decided against revenue MAT applicability - Re-computing the profit under section 115JB - Held that - The assessee is liable to pay the tax under MAT in spite of the fact that we have given relief to the assessee under the normal provisions of Act. Accordingly we find no infirmity in the order ld. CIT(A)directing for re-computing the profit under section 115JB - Decided against revenue

Summary

Issues Involved:
1. Reduction of the assessee's declared profit to 'nil'.
2. Apportionment of profits declared by the assessee to be chargeable to tax in previous assessment years.
3. Allowance of deduction under section 80IB during the reassessment for earlier years.
4. Re-computation of book profit under section 115JB.

Detailed Analysis:

Issue 1: Reduction of the Assessee's Declared Profit to 'Nil'
The Revenue challenged the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] to reduce the assessee's declared profit of ?3,95,88,640/- to 'nil'. The assessee, a Private Limited Company engaged in the development of housing complexes, declared a profit at NIL for the assessment year (AY) 2008-09 after claiming a deduction under section 80IB(10) of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed this deduction as the income tax return (ITR) was filed after the due date specified under section 139(1).

Issue 2: Apportionment of Profits to Previous Assessment Years
The CIT(A) held that the profits declared for AY 2008-09 should be apportioned and taxed in the AYs 2005-06, 2006-07, and 2007-08. The assessee had changed its accounting policy from AS-7 to AS-9, recognizing that the profit declared in AY 2008-09 pertained to earlier years. The CIT(A) found merit in the assessee's alternative argument to allocate the reported profit over the years when the related work was done. The CIT(A) directed the AO to re-compute the income for AY 2008-09 based on this allocation, thereby reducing the declared profit for AY 2008-09 to 'nil'.

Issue 3: Deduction under Section 80IB for Earlier Years
The CIT(A) allowed the assessee to claim the deduction under section 80IB during the reassessment for AYs 2005-06, 2006-07, and 2007-08. The CIT(A) noted that the AO should not take advantage of any inadvertent errors by the assessee and must determine the income chargeable to tax correctly. The CIT(A) granted liberty to the AO to take appropriate action for these years and allowed the assessee to make legal claims regarding the admissibility of the deduction under section 80IB during the reassessment proceedings.

Issue 4: Re-computation of Book Profit under Section 115JB
The CIT(A) directed the re-computation of book profit under section 115JB, which pertains to the Minimum Alternate Tax (MAT) provisions. The provisions of section 115JB mandate that if the income tax payable on the total income of a company is less than a specified percentage of its book profit, then the book profit shall be deemed to be the total income, and the tax payable shall be calculated accordingly. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee was liable to pay tax under MAT despite the relief granted under the normal provisions of the Act.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The profits declared by the assessee for AY 2008-09 were to be apportioned to earlier years, and the deduction under section 80IB was allowed during the reassessment for those years. The re-computation of book profit under section 115JB was also confirmed, ensuring the assessee's compliance with MAT provisions. The Tribunal emphasized the importance of fair determination and adherence to principles of natural justice in tax assessments.