2016 (6) TMI 642 - HC - Income Tax

Rectification of mistake - Whether the Tribunal was correct in holding that prohibition mentioned in section 40(a)(ic) of the act does not apply to the computation of the book profit for the purpose of section 115JB and according to that the FBT is an allowable deduction ? Held that - So far as Fringe Benefit Tax (F.B.T.) is concerned, the Tribunal has not interfered with the view taken by the CIT(A), which was based on the Board circular dated 29-08-2005. When the Board has issued the circular and the FBT is found to be allowable while computing book profit, we do not see that any substantial question of law would arise on such aspect as sought to be canvassed. Same is the situation for the other two items, one for prior period expenditure and another for Security Transaction Tax, but on a different scrutiny that such amounts were already excluded for the purpose of computation of book profit at the time when the assessment order under Sec. 143 was passed. Thereafter, in the purported exercise of power under Sec. 154, such could not be upset. After hearing him at length, we do not find that such would fall in the arena of mistake on the face of record within the scope and ambit of Sec. 154 of the Act, which is limited to rectification of the mistake or error. When the initial order of rectification is found to be beyond the scope of Sec. 154, as has been rightly held by the Tribunal, everything would fall to ground.The Tribunal has rightly held that such type of rectification is neither permissible under Sec. 154 read with Sec. 115JB. Hence, we do not find that any substantial question of law would arise for consideration. - Decided against revenue

Summary

Issues:
1. Interpretation of section 40(a)(ic) in relation to the computation of book profit under section 115JB and the allowability of Fringe Benefit Tax (FBT) as a deduction.
2. Exclusion of prior period expenditure from book profit computation under Explanation-1 to section 115JB(2).
3. Exclusion of Security Transaction Tax (STT) from book profit computation under Explanation 1 to section 115JB(2).

Interpretation of section 40(a)(ic) and Allowability of FBT:
The Tribunal upheld the CIT (A)'s exclusion of FBT from the book profit computation based on a circular stating that FBT is allowable for computing book profit under section 115JB, despite being prohibited under section 40(a)(ic) for regular income computation. The Tribunal found no error in this decision, emphasizing that FBT is a deductible expense for book profit calculation under section 115JB.

Exclusion of Prior Period Expenditure:
The Tribunal supported the CIT (A)'s decision to exclude prior period expenditure from book profit computation, citing Explanation-1 to section 115JB(2) which does not allow adjustments for such expenses. Relying on legal precedents, the Tribunal clarified that only adjustments specified in Explanation-1 can be made to book profit, and prior period expenses do not fall under these adjustments. Consequently, the Tribunal deemed the exclusion of prior period expenditure as correct and not subject to rectification under section 154 or section 115JB.

Exclusion of Security Transaction Tax (STT):
Regarding STT, the Tribunal concurred with the CIT (A)'s ruling that STT should be excluded from book profit calculation as it was not listed in Explanation 1 to section 115JB(2) for adjustments. The Tribunal supported the CIT (A)'s decision to delete the addition made by the Assessing Officer for STT, emphasizing that the legal provisions did not allow for such an enhancement of book profit. The Tribunal found no error in the CIT (A)'s order and dismissed the appeal by the Revenue.

In conclusion, the High Court dismissed the appeal by the Revenue, affirming the Tribunal's decisions on the issues of FBT, prior period expenditure, and STT. The Court emphasized that the Tribunal's rulings were in line with legal provisions and precedents, and no substantial question of law arose for consideration. The Court highlighted that rectification under section 154 was not applicable in these circumstances, and the decisions regarding the exclusions from book profit computation were upheld.