2016 (8) TMI 231 - HC - Income Tax

MAT - Addition being excise subsidy received to the book profits, as a reserve according to Explanation (b) to Section 115JB - Held that - As decided in Apollo Tyres Ltd. Vs. CIT 2002 (5) TMI 5 - SUPREME Court Assessing Officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J. Since the reserve was not created by debiting the profit and loss account, the assessing officer had no power to go behind the accounts. Income-tax Appellate Tribunal is correct in deleting the addition - Decided against the revenue.

Summary

Issues:
1. Interpretation of Section 115JB of the Income Tax Act, 1961 regarding excise subsidy received as reserve.
2. Jurisdiction of assessing officer in adding amounts to book profits under section 115JB.
3. Application of the judgment in Apollo Tyres Ltd. Vs. CIT to the present case.

Analysis:

1. The primary issue in this case revolves around the interpretation of Section 115JB of the Income Tax Act, 1961 concerning the treatment of excise subsidy received as a reserve. The assessing officer added a sum of ?3,60,20,761/- to the book profit under section 115JB, which was challenged by the assessee. The key contention was whether the excise subsidy received should be considered as a reserve according to Explanation (b) to Section 115JB.

2. The jurisdiction of the assessing officer in adding amounts to book profits under section 115JB was also a crucial aspect of the case. The assessee argued that since the reserve was not created by debiting the profit and loss account, the assessing officer had overstepped his jurisdiction. The assessing officer's authority to make adjustments is limited to what is provided in the Explanation to section 115JB, as highlighted in the judgment of Apollo Tyres Ltd. Vs. CIT.

3. The judgment in Apollo Tyres Ltd. Vs. CIT played a significant role in the analysis of the present case. The court referred to the limited powers of the assessing officer under section 115JB, emphasizing that the officer cannot go behind the net profit shown in the profit and loss account except as provided in the Explanation to the section. The applicability of this judgment to the current scenario was debated, with the assessee arguing that the assessing officer and CIT(A) erred in not following the principles laid down in the Apollo Tyres case.

In conclusion, the High Court dismissed the appeal, upholding the decision of the Income Tax Appellate Tribunal to delete the addition of excise subsidy to the book profits under section 115JB. The court affirmed that the assessing officer's jurisdiction is limited and must adhere to the provisions of the Income Tax Act, as interpreted in relevant judgments such as Apollo Tyres Ltd. Vs. CIT.