2017 (1) TMI 253 - HC - Income Tax

Computation of Minimum Alternate Tax (MAT) - Tribunal concluded that the additions made by the Respondent towards excess depreciation written back and provision for land development withdrawn while computing the book profits in terms of Section 115JA - Held that - In the present case we are concerned with excess depreciation claimed as well as provision for land development both reduced by the assessee from book profits in its computation for MAT in terms of clause (i) of the Explanation to section 115JA. However the downward adjustment in terms of this provision is conditional upon satisfaction of the requirement under the proviso thereto i.e. whether the book profit of the earlier year when the reserve/provision was created was increased by the amounts credited to the profit and loss account in the financial year relevant to the assessment year in question. There is no finding in the orders of the lower authorities in this regard. In fact reference to clause (i) of the Explanation to section 115JA finds place for the first time at the level of the Tribunal. Submissions have been advanced before us on behalf of the assessee on the satisfaction of the condition set out in the Proviso to sub-clause (i) of the Explanation to s.15JA. This is however an exercise in fact finding that has to be gone into by the assessing officer. We thus have no choice but to remit the matter to the file of the assessing officer to redo the computation of book profits in terms of Section 115 JA as it stood at the relevant time including the applicability of sub-clause (i) of the Explanation to section 115JA and render a finding on the applicability of the proviso thereto.

Issues Involved:
1. Legality of additions towards excess depreciation written back and provision for land development withdrawn while computing book profits under Section 115JA of the Income Tax Act.
2. Legality of adjustments made by the assessing officer to the profit and loss account prepared in accordance with the Companies Act while computing book profits under Section 115JA.
3. Specific to T.C.A.No.1419 of 2007: Legality of additions towards provision for taxation while computing book profits under Section 115JA.

Detailed Analysis:

Issue 1: Additions towards excess depreciation written back and provision for land development withdrawn
The appeals pertain to assessment years 1998-99 and 1999-00, focusing on the computation of Minimum Alternate Tax (MAT) under Section 115JA of the Income Tax Act. The assessing authority added amounts credited to the profit and loss account at the appropriation stage, specifically excess depreciation withdrawn and provision for land development withdrawn. The Commissioner of Income Tax (Appeals) initially allowed the appeals, stating that the adjustments were not contemplated under sub-clauses (a) to (f) of the Explanation to Section 115JA. However, the Income Tax Appellate Tribunal reversed this decision, citing sub-clause (i) of the Explanation to Section 115JA, which allows for adjustments if amounts withdrawn from reserves or provisions are credited to the profit and loss account. The Tribunal's decision was based on the proviso that such adjustments are only permissible if the book profits of the year in which the reserves were created had been increased by those reserves. The Tribunal's reliance on a previous decision in Southern Petro Chemicals Limited was noted. However, the Tribunal did not make a finding on whether the conditions set out in the proviso were satisfied, leading to the remand of the matter to the assessing officer for a fresh computation of book profits, including the applicability of sub-clause (i) of the Explanation and the proviso thereto.

Issue 2: Adjustments to the profit and loss account prepared under the Companies Act
The second question in both appeals concerns whether the assessing officer's adjustments to the profit and loss account constituted impermissible tinkering. The court clarified that the assessing officer merely applied the Explanation to Section 115JA to the book profits, albeit incompletely. The court emphasized that the exercise must be carried to its logical conclusion, and the error was limited to ensuring the condition precedent to availing the reduction as per the proviso to sub-clause (i) was satisfied. The court also addressed the argument that the credits sought to be added back were part of the profit and loss appropriation account, not the profit and loss account, but refrained from further probing as the matter was remanded for a fresh assessment.

Issue 3: Provision for taxation (Specific to T.C.A.No.1419 of 2007)
The additional issue in T.C.A.No.1419 of 2007 related to an adjustment made for a provision for taxation in the computation of MAT. The court noted that sub-clause (a) of the Explanation to Section 115JA specifies an increase by the amount of income tax paid or payable and the provision therefor. Given the clear mandate of the law, the court answered this substantial question of law in favor of the department.

Conclusion:
The court directed the assessing officer to re-do the assessments for AY 1998-99 and 1999-2000 concerning excess depreciation reversed and provision for land development withdrawn, in light of Section 115JA and relevant case law, within three months. The additional issue regarding the provision for taxation in T.C.A.No.1419 of 2007 was resolved in favor of the department. Both tax case appeals were disposed of in these terms, with no costs awarded.

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