Any disallowance computed under section 14A pertaining to computation of income under normal provisions of the Act cannot be read into provisions of section 115JB

Short Overview Any disallowance computed under section 14A pertaining to computation of income under normal provisions of the Act, cannot be read into provisions of section 115JB pertaining to computation of book profits by levy of MAT and there is no express provision in clause (f) of Explanation 1 to section 115JB to that extent. Thus, the disallowance of expenditure under section 14A read with rule 8D could not be added to net profit for purpose of computing book profits of assessee under section 115JB.

Assessee-company was an undertaking of Government of Karnataka engaged in financing industrial units in State of Karnataka. Issue under consideration was whether Tribunal was justified holding that disallowance of expenditure under section 14A read with rule 8D would be added to net profit for purpose of computing book profits of the assessee under section 115JB. 

It is held that  In view of decision of High Court in the case of CIT v. Gokaldas Images (P) Ltd. (2020) 122 taxmann.com 160 (Kar) : (2021) 276 Taxman 420 (Kar) : (2020) 429 ITR 526 (Kar.) : 2020 TaxPub(DT) 4715 (Karn-HC), any disallowance computed under section 14A pertaining to computation of income under normal provisions of the Act, cannot be read into provisions of section 115JB pertaining to computation of book profits by levy of MAT and there is no express provision in clause (f) of Explanation 1 to section 115JB to that extent. Thus, the disallowance of expenditure under section 14A read with rule 8D could not be added to net profit for purpose of computing book profits of assessee under section 115JB.

Decision: In assessee’s favour

 

IN THE KARNATAKA HIGH COURT

ALOK ARADHE & M.I. ARUN, JJ.

Karnataka State Industrial & Infrastructure Development Corpn. Ltd. v. Dy. CIT

IT Appeal No. 183 of 2017

8 June, 2021

Appellant by: A Shankar, Sr. Advocate and S. Annamalai, Advocate

Respondent by: K.V. Aravind, Advocate

JUDGMENT

Alok Aradhe, J.

This appeal under section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been preferred by the assessee. The subject matter of the appeal pertains to the assessment year 2008-09. The appeal was admitted by a Bench of this Court on 5-12-2017 to consider the following substantial questions of law :–

“(i) Whether the Tribunal is justified in law in not holding that the assessment order itself is bad in law and void ab initio when the notice under section 143(2) of the Act which is mandatory for assumption of jurisdiction by the assessing officer was never issued and served on the assessee in respect of the revised return on the facts and circumstances of the case?

(ii) Whether the Tribunal is justified in law in holding that the appellant is not entitled to the reduction of the amount of Rs. 16,11,65,105 credited to the profit and loss account on account of reversal of provision for bad and doubtful debts under section 115JB of the Act, on the facts and circumstances of the case?

(iii) Without prejudice, whether the Tribunal in law failed to take note of the fact of retrospective amendment by Finance (No. 2) Act, 2009 with effect from 1-4-2001, by which the computation of book profit as per MAT provisions requires the provision for bad and doubtful debts to be added back and consequently book profits under MAT provisions are to computed for such earlier assessment years in accordance with amended scheme of the Act and further such amended computation ought to form the basis of computation of MAT for the subsequent years and accordingly the authorities below ought to have allowed the reduction of Rs. 16,11,65,105 under proviso to clause (i) of Explanation 1 to section 115JB(2), on the facts and circumstances of the case?

(iv) Without prejudice, whether the Tribunal in law failed to appreciate that the appellant had added back the provision for bad and doubtful debts for certain years and hence ought to have granted the deduction in respect of reversal of provision for bad and doubtful debts at least to that extent, on the facts and circumstances of the case?

(v) Whether the Tribunal is justified in law in holding that the indirect expenditure disallowed under section 14A read with rule 8D(iii) of Rs. 47,01,514 in computing the total income under normal provisions of the Act, is to be added to the net profit in computation of book profit for MAT purposes under section 115JB and thereby importing the provision of section 14A read with rule 8D into the MAT provisions on the facts and circumstances of the case?”

2. Facts leading to filing of this appeal briefly stated are that assessee is a company and is an undertaking of the Government of Karnataka engaged in financing industrial units in the State of Karnataka. The assessee filed its return of income for the assessment year 2008-09 on 30-9-2008. Thereafter, the assessee filed revised return on 9-3-2010. The return was selected for scrutiny. However, it is the claim of the assessee that no notice under section 143(2) of the Act has been issued for the assessment year 2008-09. The assessment was completed under section 143(3) of the Act.

3. The assessee thereupon filed an appeal before the Commissioner (Appeals), who by an Order, dated 17-9-2013, deleted the additions made under normal provisions of the Act and in respect of additions made in computation under section 115JB of the Act, the assessing officer did not grant relief with respect of disallowance of provision for bad and doubtful debts written back, disallowance of estimated expenses under section 14A of the Act and indexation benefit of long term capital gains under section 10(38) of the Act, under section 115JB of the Act. The assessee as well as the revenue filed an appeal before the Tribunal. The Tribunal by an Order, dated 9-12-2016 inter alia upheld the disallowance of deletion of write back of provision for bad and doubtful debts for the determination of book profits under section 115JB, disallowance of estimated expenses under section 14A of the Act is to be added back for the determination of book profits under section 115JB and deleted the addition with respect to disallowance of indexation benefit in respect of long term capital gains under section 10(38) for the determination of book profits under section 115JB of the Act.

4. Learned Senior counsel for the assessee submitted that the following 3 issues arise for consideration in this appeal :–

(i) Reduction of provision for bad and doubtful debts written back credited to profit and loss account for computation of book profit under section 115JB

(ii) Disallowance of estimated expenses under section 14A of the Act for computation of book profit under section 115JB

(iii) no notice under section 143(2) of the Act issued on the revised return.

It is further submitted that first issue involved in this appeal has already been decided in favour of the assessee in the case of the assessee itself for other assessment years. In this connection, reliance has been placed on judgments passed Karnataka State Industrial and Infrastructure Development Corpn. Ltd. v. Dy. CIT (2021) 125 taxmann.com 221 (Kar) : (2021) 278 Taxman 126 (Kar) : (2021) 431 ITR 255 (Kar.) : 2021 TaxPub(DT) 0312 (Karn-HC). It is also submitted that the second issue has also been answered in favour of the assessee by a decision of this Court in CIT v. Gokaldas Images (P) Ltd. (2020) 122 taxmann.com 160 (Kar) : (2021) 276 Taxman 420 (Kar) : (2020) 429 ITR 526 (Kar.) : 2020 TaxPub(DT) 4715 (Karn-HC). It is also submitted that no notice under section 143(2) of the Act was issued on the revised return and therefore, the order of the Tribunal to the aforesaid extent be set aside and the matter be remitted to the Tribunal to consider the aspect of non-issuance of notice under section 143(2) of the Act.

5. On the other hand, learned counsel for the revenue has not disputed the fact that first two issues have been answered by this Court in favour of the assessee. However, with reference to the third aspect namely absence of notice under section 143(2) of the Act, it is submitted that the aforesaid issue has been rendered academic as the controversy has already been decided on merits in favour of the assessee.

6. We have considered the submissions made on both sides. Admittedly, the first three issues involved in this appeal are covered by decisions of this Court in the case of the assessee as well as in Gokaldas Images (P) Ltd. (supra). Therefore, substantial question of law. Nos. 2 to 5 are answered against the revenue and in favour of the assessee. However, since the issue with regard to validity of the proceedings on account of absence of notice under section 143(2) of the Act has not been examined by the Tribunal, therefore, we set aside the order of the Tribunal and remit the matter to the Tribunal to consider the effect of the assumption of jurisdiction by the assessing officer on account of non-issuance of notice under section 143(2) of the Act. Since the matter is being remitted to the Tribunal therefore, it is not necessary for us to deal with the first substantial question of law.

Accordingly, the appeal is disposed of.