2022 (1) TMI 1022 - AT - Income Tax

Disallowance u/s 14A while computing book profit u/s 115JB - MAT computation - HELD THAT - The Hon ble jurisdictional High Court in the case of CITv. Gokaldas Images Pvt. Ltd. 2020 (11) TMI 345 - KARNATAKA HIGH COURT had held that while computing the book profits, the disallowance u/s 14A of the I.T.Act cannot be added. It was held by the Hon ble High Court that any disallowance computed u/s 14A of the I.T.Act pertain to the computation of income under the normal provisions of the Act and it cannot be read into the provisions of section 115JB - Thus we hold that the CIT(A) is justified in deleting the addition while computing the book profit u/s 115JB of the I.T.Act. It is ordered accordingly. Provision for NPA in the profit and loss account added u/s 115JB to arrive at the book profit - CIT(A) directed the A.O. to verify and delete the addition made to the book profits u/s 115JB of the I.T.Act to the extent the same is reduced from the gross advances in the balance sheet on the assets side - HELD THAT - The assessee bank had debited an amount towards provision for Non Performing Advances and reduced the same from the gross advances (assets side) while preparing the balance sheet. Therefore, it has been treated as write off and not as provision for diminution in value of asset. The assessee bank had furnished the working in support of its claim that the provision for bad doubtful debts to the extent of provisions debited in the profit and loss account was reduced from the gross advances in the balance sheet on assets side. The CIT(A) has only directed the A.O. to verify and delete the addition made to the book profit to the extent the same is reduced from the gross advances in the balance sheet on the assets side. Therefore, we see no infirmity in the order of the CIT(A) and we uphold the same. It is ordered accordingly. Recomputation of book profit u/s 115JB - HELD THAT - A.O. u/s 143(3) r.w.s. 250 of the I.T.Act, the A.O. has recomputed the book profit u/s 115JB of the I.T.Act by making various additions, which were not part of either the original assessment order nor the first appellate order dated 26.03.2018. Therefore, the assessee had challenged the action of the Assessing Officer before the CIT(A), stating that the A.O. had exceeded his jurisdiction while giving effect to the order of the CIT(A). The assessee has also raised grounds on merits with regard to addition of net depreciation on investments amounting - We noticed that these grounds taken by the assessee before the CIT(A) has not been adjudicated in the impugned order dated 11.03.2019. Therefore, we restore these issues to the files of the CIT(A). The CIT(A) is directed to adjudicate the issues raised in grounds 2 and 3 before the Tribunal ground 2, 2.1 and 3.5 before the CIT(A) . The CIT(A) is directed to afford reasonable opportunity of hearing to the assessee.

Summary

Issues Involved:
1. Disallowance under section 14A while computing book profit under section 115JB.
2. Addition of NPA provision to book profit.
3. Jurisdiction of the Assessing Officer in making new additions not part of the original assessment or appellate order.
4. Addition of net depreciation on investments to book profit.

Issue-wise Detailed Analysis:

1. Disallowance under section 14A while computing book profit under section 115JB:
The CIT(A) deleted the addition of ?108,80,99,122 for the purpose of computation of book profit under section 115JB, stating that the AO did not record dissatisfaction with the assessee's claim that no expenditure was incurred in connection with earning exempt income. The CIT(A) referenced the Karnataka High Court decision in CIT v. Microlabs Ltd., which held that no disallowance can be made if interest-free funds exceed tax-free securities. The Tribunal upheld the CIT(A)'s decision, citing the jurisdictional High Court's rulings in CIT v. Gokaldas Images Pvt. Ltd., Sobha Developers Ltd. v. DCIT, and other cases, which held that disallowance under section 14A pertains to normal income computation and cannot be added to book profits under section 115JB.

2. Addition of NPA provision to book profit:
The assessee debited ?928,11,93,007 towards provision for NPA in the profit and loss account, which the AO added to the book profit under section 115JB. The CIT(A) directed the AO to verify and delete the addition to the extent it was reduced from the gross advances in the balance sheet, treating it as a write-off rather than a provision for diminution in asset value. The Tribunal upheld the CIT(A)'s decision, referencing judicial pronouncements such as Vijaya Bank v. CIT, CIT v. Telco Construction Equipment Co. Ltd., and others, which supported the assessee's treatment of the NPA provision.

3. Jurisdiction of the Assessing Officer in making new additions not part of the original assessment or appellate order:
The assessee contended that the AO exceeded his jurisdiction by making new additions while giving effect to the appellate order, which were not part of the original assessment or the appellate order. The Tribunal noted that the CIT(A) did not adjudicate this technical ground and restored the issue to the CIT(A) for adjudication, directing the CIT(A) to afford a reasonable opportunity of hearing to the assessee.

4. Addition of net depreciation on investments to book profit:
The assessee challenged the addition of ?52,57,75,606 towards net depreciation on investments to the book profit under section 115JB. The Tribunal observed that this ground was not adjudicated by the CIT(A) and restored the issue to the CIT(A) for adjudication, ensuring the assessee is given a reasonable opportunity of hearing.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal for statistical purposes, directing the CIT(A) to adjudicate the issues related to the AO's jurisdiction and the addition of net depreciation on investments to book profit. The Tribunal upheld the CIT(A)'s decisions on disallowance under section 14A and the addition of NPA provision to book profit.