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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN, VICE PRESEIDENT & SHRI PADMAVATHY S
O R D E R Per Padmavathy S., Accountant Member These cross appeals by the assessee and the revenue arise out of the order of the CIT(Appeals)-11, Bengaluru dated 10.5.2022 for the assessment year 2017-18.
The assessee is engaged in the business of development and lease of office space and related interiors. The assessee has constructed office buildings in software park in Bangalore. On 07/08/2017, the National Company Law Tribunal approved the scheme of arrangement for amalgamation of Pune Embassy Projects Private Ltd. (PEPPL), with the assessee u/s.232 of the Companies Act 2013. The assessee filed the original return of income for the AY 2017-18 on 31.10.2017 and later filed a revised return on 30.03.2018 declaring total income of NIL under normal provisions of the Income Tax Act (the Act) and a book profits of Rs.26,04,02,080 u/s. 115JB of the Act.
The case was selected for scrutiny and notice u/s. 143(2) of the Act was served on the assessee. In the assessment proceedings the AO made a disallowance u/s. 14A for an amount of Rs.14,49,60,000 and also made an addition of Rs.58,29,802 towards for the difference in the income as per Form 26AS and financials of the assessee. The assessee noticed from the assessment order that the AO did not give credit to the extent of Rs.4,02,70,802 towards tax deducted at source (TDS) which is claimed by the assessee in the return of income and therefore the assessee filed rectification petition before the AO on 25.01.2020.
Subsequently the AO passed an order u/s. 154 dated 26.7.2021 in which he made an adjustment to the book profits u/s.115JB for the amount disallowed u/s. 14A considering the same as a mistake apparent from the record. In the said rectification order the AO did not consider the issue raised by the assessee with regard to short credit of TDS. The assessee filed appeal before the CIT(Appeals) against the order of the AO u/s. 154 raising grounds pertaining to disallowance made to book profits and also short credit of TDS. The CIT(Appeals) gave relief to the assessee for the adjustment made by the AO to the book profits u/s. 115JB. With regard to short credit of TDS, the CIT(Appeals) held that this issue is not arising out of the order passed u/s. 154 which is in appeal before him and therefore dismissed this ground.
The revenue is in appeal ( CIT(Appeals) on the adjustment made to book profits u/s. 115JB, and for the short credit of TDS which has not been considered by the CIT(Appeals), the assessee is in appeal (ITA No.548/B/2022) before the Tribunal.
The assessee has raised the following grounds:-
“The grounds stated hereunder are independent of and without prejudice to one another. The Appellant submits as under: 1. The Joint Commissioner of Income-tax (OSD)-Central Circle 1(3), Bengaluru (‘Ld. AO') has erred in law and on facts in not granting the credit for tax deducted at source in the order passed under section 154 of the Act, amounting to INR 4,55,41,793. The Learned Commissioner of Income-Tax (Appeals) - 11, Bangalore ['Ld. CIT(A)], erred in not adjudicating this ground of appeal
2. The Ld. CIT(A) has erred in law and on facts by holding that this issue of TDS was neither raised by the appellant nor by the Assessing Officer in the rectification proceedings.
3. The Ld. AO has erred in law and on facts in not appreciating that pursuant to the merger of erstwhile Pune Embassy Projects Private Limited with EOPPL (since merged with MPPL), effective from April 01, 2015, EOPPL (since merged with MPPL) will be eligible to claim the credit for taxes deducted at source ('TDS') in the hands of erstwhile PEPPL during the subject AY. The Ld. CIT(A) has erred in law and on facts in not adjudicating this ground of appeal.
4. The Ld. AO has erred in law and on facts in not appreciating that EOPPL (since merged with MPPL) has offered corresponding income to tax and also claimed the TDS credit in the Income-tax return filed for the subject AY and accordingly, shall be entitled to claim the credit for taxes deducted at source. The Ld. CIT(A) has erred in law and on facts in not adjudicating this ground of appeal.
5. The Appellant prays that the short credit of tax deducted at source amounting to INR 4,55,41,793 be granted.
6. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in law and on facts in levying interest amounting to INR 2,57,17,990 under section 234B of the Act. The Ld. CIT(A) has erred in law and on facts in not adjudicating this ground of appeal.
7. The Appellant prays that directions be given to grant all such relief arising from the ensuing grounds as also all reliefs consequential thereto. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal.”
6. Before us, the ld. AR submitted that the assessee in the return of income claimed TDS credit for Rs.4,36,02,619 out of which Rs.33,31,817 is the TDS of the assessee and Rs.4,02,70,802 is the TDS credit in the name of PEPPL. The ld AR also submitted that the AO while passing the order u/s. 143(3) has considered only the TDS credit which is in the name of the assessee and did not consider the TDS credit in the name of PEPPL for which the assessee filed rectification petition u/s. 154 in this regard before the AO. The ld. AR further submitted that the assessee raised this issue before the CIT(Appeals) who dismissed the same on the ground that it does not emanate out of the order of the AO without going into the merits of the issues. The ld AR submitted that the assessee is entitled to claim credit for TDS credit in the name of PEPPL post merger and in this regard drew our attention to the decision of the Delhi Bench of the Tribunal in the case of Metropolis Healthcare Ltd. v. DCIT [2021] 129 taxmann.com 171 (Del. Trib.) where it is held that –
“16. We have carefully considered the rival contention. We find that the assessee has raised an additional ground for which the facts are available on the record. We therefore admit the same. On the merits of the claim of the assessee, we find that assessee is eligible for the tax credit of the income, which is been included in the return of income of the merged entities. Therefore, we direct the assessee to approach the assessing officer with the requisite claim, the AO is directed to verify the same and grant the credit in accordance with the law. Accordingly, the additional ground raised by the assessee is allowed with above direction.”
7. The ld. DR supported the order of the CIT(Appeals) and submitted that the CIT(Appeals) has rightly dismissed the ground as not arising out of the order of the AO.
We have considered the rival submissions and perused the material on record. We notice that in the order passed u/s. 154 dated 26.7.202, the AO has not considered the issue raised by the assessee in the rectification petition filed on 21.1.2020. We are therefore of the considered view that the CIT(Appeals) has rightly dismissed the ground raised by the assessee for non-consideration of TDS credit on the ground that it is not arising out of the order of the AO. However we remit the issue back to the AO with a direction to pass a rectification order u/s.154 against the petition filed by the assessee on 21.01.2020 with regard to non-consideration of TDS credit in the name of PEPPL. The AO is also directed consider the decision of the Delhi Bench of the Tribunal in the case of Metropolis Healthcare Ltd. (supra) while passing the rectification order and give an opportunity of being heard to the assessee. This ground is allowed for statistical purposes.
The revenue has raised the following grounds in its appeal:-
“1. The order of the Hon'ble Commissioner of Income Tax (Appeals)-11, is opposed to law and facts of the case.
2. The Hon'ble Commissioner of Income Tax (Appeals)-11 erred in allowing assessee appeal on the grounds that action of AO in passing the rectification order u/s 154 of the Act is not correct.
3. The Hon'ble Commissioner of Income Tax (Appeals)-11 ought to have appreciated that disallowance not being made in the 115JB computation makes it a computational mistake which is well within the meaning of 'Mistake apparent from record' under section 154 of IT Act.
4. The Hon'ble Commissioner of Income Tax (Appeals)-11 erred in relying on the jurisdictional High Court ruling in the case of CIT v Gokaldas Images Pvt. Ltd (2020) 122 taxmann.com 160(Kar) since the issue of whether disallowance of expenses u/s 14A can be added to the book profit u/s 115JB has not yet reached finality.
5. The Hon'ble Commissioner of Income Tax (Appeals)-11 ought to have appreciated that a Review petition has been filed against the Karnataka High court judgement in the case of Sobha Developers (ITA No.203/2015) and also an SLP has been admitted and is pending before Hon'ble Supreme Court on the issue of whether disallowance of expenses u/s 14A can be added to the book profit u/s 115JB in the case of M/s Canara Bank (AAACC6106G) for AY 2006-07 against order of Hon'ble Karnataka High Court vide c/w 28/2017.”
The CIT(Appeals) while giving relief to the assessee with regard to disallowance u/s. 14A of the Act adjusted against the book profits has held that –
“4.3 The submissions of the appellant have duly been considered. In rectification the most important aspect which needs to be looked into is whether the amendment proposed to be made would fall within the scope of Section 154 or not. Scope of rectification is limited to correcting error of fact or error of law on the basis of material available on records. In the appeal under consideration, this is not apparent from the assessment order of the AO as to whether he intended to enhance the book profits of the appellant or not. Although the issue was raised during assessment proceedings and appellant had also filed its submissions, the AO did not give any finding on the issue in the assessment order. So on the basis of material available on records it cannot be said that there was a mistake apparent from record. Further, if on an issue two different opinions are possible, the same cannot be subject of rectification. So the action of the AO in passing the rectification order under Section 154 of the Act is not correct, as such an amendment of the order was beyond the scope of Section 154 of the Act. Anyhow the issue is also covered by the decision of jurisdictional High Court in the case of CIT v Gokaldas Images Pvt Ltd. [2020] 122 taxmann.com 160 (Karnataka), as per which the book profits cannot be enhanced on the basis of disallowance under Section 14A of the Act. So the addition made by the AO to book profits is deleted.”
The ld. DR submitted that though the CIT(Appeals) has relied upon the decision of the jurisdictional High Court in the case of CIT v Gokaldas Images Pvt. Ltd (2020) 122 taxmann.com 160 (Kar), the issue is yet to reach finality until the decision of the Supreme Court. He therefore supported the order of the AO in considering the disallowance u/s. 14A while computing the book profits of the assessee.
The ld. AR submitted that the computation of book profits by making addition on account of disallowance u/s. 14A cannot be treated as a mistake apparent on record and hence cannot be rectified u/s. 154 and relied on the following decisions:-
- Apollo Tyres Ltd v. CIT (2002) 255 ITR 273 (SC) - Vireet Investments [2017] 82 taxmann.com 415 (Del Trib) - Golf Links Software Parks P. Ltd. v. DCIT,
We have considered the rival submissions and perused the material on record. We notice that the CIT(Appeals) while allowing the issue in favour of the assessee has considered the issue both from the point of view, whether disallowance u/s. 14A adjusted against the book profits is a mistake apparent on record and also on merits by relying the decision of the jurisdictional High Court in the case of Gokaldas Images Pvt. Ltd. (supra) where the High Court held as under:-
“10. The Commissioner of Income-tax (Appeals) has held that as per section 115JB of the Act, the assessee being a company is liable to tax on book profits in accordance with the aforesaid provision and there is no exemption granted to the non-dividend company in this regard. However, the tribunal by placing reliance on decision of the Supreme Court in Apollo Tyres v. CIT [2002] 122 Taxman 562/255 ITR 273 has held that Assessing Officer while determining book profits under section 115JB of the Act cannot tamper with the profits as per profit and loss account prepared in accordance with the Companies Act except in the manner provided in Explanation 1 to section 115JB of the Act. Thus, it has been held that the additions made by the Assessing Officer while determining the book profits under section 115JB of the Act cannot be sustained. Any disallowance computed under section 14A of the Act pertain to computation of income under normal provisions of the Act and cannot be read into the provisions of section 115JB of the Act pertaining to computation of book profits by levy of Minimum Alternate Tax (MAT) and there is no express provision in clause (f) of Explanation 1 to section 115JB of the Act to that extent. For the aforementioned reasons, the third substantial question of law is answered against the revenue and in favour of the assessee.”
In view of the above discussion, we are of the considered view that the AO cannot go beyond the profits as per profit and loss account prepared in accordance with the Companies Act except in the manner provided in Explanation 1 to section 115JB of the Act and therefore the action of the AO to make the adjustment for the disallowance u/s.14A to the book profits u/s. 115JB is not tenable. Further the scope of rectification u/s. 154 is limited to correcting errors of facts or errors of law on the basis of material available on record. In the given case enhancing the book profit for the amount disallowed u/s.14A is not a mistake apparent on record but is subject to interpretations and hence cannot be rectified by an order passed u/s.154. We therefore see no reason to interfere with the decision of the CIT(Appeals). The appeal of the revenue is dismissed.
In the result, the assessee’s appeal is allowed for statistical purposes, while the revenue’s appeal is dismissed.
Pronounced in the open court on this 6th day of September, 2022.