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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 13TH DAY OF APRIL, 2022
PRESENT
THE HON’BLE MRS.JUSTICE S.SUJATHA
AND
THE HON’BLE MRS. JUSTICE J.M.KHAZI
I.T.A.No.167/2021
BETWEEN : 1. PR. COMMISSIONER OF
INCOME TAX-2, BMTC COMPLEX
KORAMANGALA, BENGALURU.
INCOME TAX OFFICER
WARD-4[1][1], BMTC COMPLEX
KORAMANGALA, BENGALURU. ...APPELLANTS
(BY SRI E.I.SANMATHI, ADV.)
AND : M/S.J.J.GLASTRONICS PVT. LTD., 26-B, ELECTRONICS CITY HOSUR ROAD, BANGALORE-560100 PAN: AAACJ4330P.
…RESPONDENT
(BY SRI SHREEHARI KUTSA, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 22.01.2020 AND 10.04.2019 PASSED IN M.P.No.142/BANG/2019 AND ITA No.1518/BANG/2018 [ANNEXURE – A AND B] FOR THE ASSESSMENT YEAR 2013-14, PRAYING TO: [1] DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT; [2] SET ASIDE THE APPELLATE ORDER’S DATE: 22.01.2020 AND
- 2 - 10.04.2019 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH, BANGALORE, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE’S CASE, IN APPEAL PROCEEDINGS M.P.No.142/BANG/2019 AND ITA No.1518/BANG/2018 [ANNEXURE – A AND B] FOR A.Y.2013-14 AND GRANT SUCH OTHER RELIEF AS DEEMED FIT, INTEREST OF JUSTICE.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
This appeal is filed by the revenue under Section 260A of the Income Tax Act, 1961 (‘Act’ for short) assailing the orders dated 22.01.2020 and 10.04.2019 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore (‘Tribunal’ for short) in M.P.No.142/Bang/2019 and ITA No.1518/Bang/2018 at Annexures – ‘A’ and ‘B’ respectively, relating to the assessment year 2013-14 raising the following substantial questions of law:-
“1. Whether the Tribunal was right in law dismissing the miscellaneous petition preferred by Revenue by holding that there are no merits to consider the said petition
- 3 - when conditions set out in Section 254[2] are fully satisfied in present case?
Whether on the facts and circumstances of the case and in law, the Tribunal is right in law holding that Section 14A disallowance cannot be made while computing book profit under Section 115JB of the Act ignoring Explanation 1[f] to Section 115JB[2] clearly provides for addition of the expenditure relating to the exempt income while computing book profit under Section 115JB of the Act?
Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in dismissing the miscellaneous petition filed by the revenue by relying on the decision of the Delhi Special Bench of the Tribunal in case of ACIT V/s. Vireet Investments Pvt. Ltd., as the said decision was accepted by the Department only on low tax effect and not on merits?
Whether on the facts and in the circumstances of the case and in law, the
- 4 - Tribunal is justified in rejecting the appeal of the Revenue without appreciating the fact that the Explanation 1[f] to Section 115JB[2] of the Act clearly provides for addition of the expenditure relating to the exempt income while computing the book profit under Section 115JB of the Act?”
The respondent – assessee is engaged in the business of manufacturing of electron gun parts, glass to metal seals and machined components. Respondent – assessee has filed its return of income for the assessment year 2013-14 by declaring the total income as ‘Nil’ and book profits at Rs.36,84,680/-. Assessment Order was passed under Section 143(3) of the Act by making disallowance of an amount of Rs.6,73,101/- under Section 14A of the Act. Being aggrieved, the assessee preferred appeal before the CIT(A) unsuccessfully. On further appeal before the Tribunal, the appeal filed by the assessee came to be allowed. The revenue preferred Miscellaneous Petition No.
- 5 - 142/Bang/2019 and the same came to be dismissed. Hence, the revenue is in appeal before this Court.
Learned counsel for the revenue submitted that the Tribunal has failed to appreciate the provisions of Explanation 1(f) to Section 115JB(2) in a right perspective. Referring to the said provision it was submitted that the amount or amounts of expenditure relatable to any income to which Section 10 other than the provisions contained in clause (38) thereof or Section 11 or Section 12 apply has to be considered for the purpose of Section 115JB(2) while considering the book profits. The order of the Tribunal is perverse in not following the judgment rendered by the said Tribunal in the case of DCIT vs. Shobha Developers reported in 58 Taxmann.com 107 dated 09.01.2015, whereby it has been held that the disallowance under Section 14A has to be adopted while arriving at book profit. Learned counsel further submitted that the Miscellaneous
- 6 - Petition filed under Section 254(2) of the Act has been dismissed by the Tribunal without application of mind and hence seeks to answer the substantial question of law in favour of the revenue and against the assessee.
Learned counsel for the assessee justifying the impugned orders submitted that the authorities ought not to have invoked Section 154 of the Act for making addition of tax, the same being not a mistake apparent on record. Nextly, it was submitted that the issue on hand has been squarely covered on merits by the decision of the Delhi ITAT Bench in the case of ACIT vs. Vireet Investment Private Ltd., reported in (2017) 58 ITR (Trib) 313.
We have carefully considered the submissions of the learned counsel appearing for the parties and perused the material on record.
- 7 -
The main ground of the revenue for invoking Section 154 of the Act is that the book profit in terms of Explanation 1(f) to Section 115JB (2) is not being done. More particularly, in considering clause (f) of Explanation 1, in computing the book profits under the provisions of Section 115JB of the Act while assessment done under Section 143(3) having regard to the provisions of Section 14A of the Act.
Section 154 of the Act reads thus:- “Rectification of mistake. 154. [(1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to, in section 116 may,-
(a) amend any order passed by it under the provisions of this Act;
(b) amend any intimation or deemed intimation under sub- section (1) of section 143;
(c) amend any intimation under sub-section (1) of section 200A;
(d) amend any intimation under sub-section (1) of section 206CB;
- 8 - (1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub- section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.
(2) Subject to the other provisions of this section, the authority concerned-- (a) may make an amendment under sub- section (1) of its own motion, and (b) shall make such amendment for rectifying any- such mistake which has been brought to its notice by the assessee or by the deductor or by the collector, and where the authority concerned is the Commissioner (Appeals), by the Assessing Officer also.
(3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee or the deductor or the collector, shall not be made under this section unless the authority concerned has given notice to the assessee or the deductor or the collector of its intention so to do and has
- 9 - allowed the assessee or the deductor or the collector a reasonable opportunity of being heard.
(4) Where an amendment is made under this section, an order shall be passed in writing by the income- tax authority concerned.
[(5) Where any such amendment has the effect of enhancing the assessment or otherwise reducing the liability of the assessee or the deductor or the collector, the Assessing Officer shall make any refund which may be due to such assessee or the deductor or the collector.
(6) Where any such amendment has the effect of enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee or the deductor or the collector, the Assessing Officer shall serve on the assessee or the deductor or the collector, as the case may be a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this Act shall apply accordingly.
(7) Save as otherwise provided in section 155 or sub- section (4) of section 186, no amendment
- 10 - under this section shall be made after the expiry of four years from the end of the financial year in which the order sought to be amended was passed.
[(8) Without prejudice to the provisions of sub- section (7), where an application for amendment under this section is made by the assessee or by the deductor or by the collector on or after the 1st day of June, 2001 to an income-tax authority referred to in sub-section (1), the authority shall pass an order, within a period of six months from the end of the month in which the application is received by it,- (a) making the amendment; or (b) refusing to allow the claim.”
Section 115JB of the Act is a complete code in itself. The controversy relating to disallowance under Section 14A of the Act for determining book profit under Section 115JB was dealt with, in extenso by the Delhi ITAT Bench in the case of Vireet Investment Private Ltd., supra and the relevant portion of the said decision has been quoted by the Tribunal in the order impugned which reads thus:-
- 11 - "6. We have considered the submissions of both the parties and have perused the record of the case. There cannot be any quarrel with the submissions of ld. Sr. counsel for the assessee that section 115JB is a complete code in itself. Chapter XII-B provides alternate scheme for computing tax liability of certain companies, whose total income under normal provisions is below the threshold Book Profits as prescribed under Chapter XII-B. Under section 115JB this threshold limit is 18.5%. Thus, total income as computed under the normal provisions of the Act in respect of any previous year relevant to the assessment year commencing on or after the Ist day of April 2012, is less than 18.5% of its Book Profits, such Book Profits shall be deemed to be the total income of the assessee and tax shall be payable on such total income @18.5%. Thus, the scheme of the Act is that the computation is first made under the normal provisions of Income-tax Act and, thereafter, under an alternate scheme provided u/s 115JB for computing total income as per the prescribed method. If the
- 12 - tax liability on the basis of total income as per MAT provisions is more than the tax computed under the normal provisions of the Act, then the former becomes the final tax liability of the assessee. The mode of computation of Book Profits has been prescribed under MAT provisions. The issue posed for our consideration is whether computation provisions prescribed for computation of total income under normal provisions with reference to section 14A can or cannot be taken into consideration while computing Book Profits under MAT provisions.”
Having regard to this decision, the decision cited by the revenue in the case of Shobha Developers, supra has been considered. At this juncture, it would be beneficial to refer to the co-ordinate bench decision of this Court in the case of Karnataka State Industrial and Infrastructure Development Corporation Ltd., vs. Deputy Commissioner of
- 13 - Income Tax reported in 431 ITR 255 (Kar.), wherein the computation of book profit with reference to Sections 14A and 115JB has been considered and it is held that Explanation 1 in Section 115JB(2) has been inserted so as to provide that if any provision for diminution in the value of any asset has been debited to the profit and loss account, it shall be added to the net profit as shown in the profit and loss account for the purpose of computation of book profit. Any disallowance computed under Section 14A pertains to computation of income under the normal provisions of the Act and cannot be read into the provisions of Section 115JB of the Act pertaining to computation of book profits for levy of minimum alternate tax. Amounts disallowed under section 14A cannot be added to the book profits computed under Section 115JB.
Similarly, in the case of Commissioner of Income Tax vs. Gokaldas Images (P) Ltd., reported in
- 14 - (2020) 429 ITR 526 (Kar.), having regard to Clause (f) of Explanation 1 to Section 115JB(2) of the Act, it has been observed that additions made by the assessing officer determining book profit under Section 115JB of the Act cannot be sustained. Any disallowance computed under Section 14A of the Act pertains to computation of income under the normal provisions of the Act and cannot be read into the provisions of Section 115JB of the Act pertaining to levy of minimum alternate tax and there is no express provision in clause (f) of Explanation 1 to Section 115JB of the Act to that extent.
The Co-ordinate bench of this Court in ITA No.244/2021 (The Pr. Commissioner of Income Tax and another vs. M/s. Mphasis Software and Services (India) Pvt. Ltd., D.D.25.10.2021), where one of us Hon’ble SSJ was member, while considering the applicability of Section 154 of the Act has held that
- 15 - invoking of Section 154 would be untenable when there is no mistake apparent on the face of the record i.e., when the matter requires adjudication upon the issue which is a debatable issue.
In the light of these judgments, the finding given by the Tribunal on the points inasmuch as invoking of Section 154 and Explanation 1 (f) to Section 115JB being squarely covered, the same cannot be found fault with. We are of the considered view that the Miscellaneous Petition filed by the revenue under Section 254(2) of the Act was wholly misconstrued. The Tribunal has distinguished the case of Shobha Developers, supra, relied upon by the revenue with Vireet Investment Private Ltd., supra and has rightly come to the conclusion that the judgment of the Vireet Investment Private Ltd., supra, rendered by the Special Bench consisting of three Hon’ble Members prevail over the Regular Bench consisting of two Hon’ble
- 16 - Members. Moreover, this view considered in the Vireet Investment Private Ltd., supra, was the subject matter before this Court in the judgments referred to supra. Hence, no exception can be found with the orders impugned.
For the reasons aforesaid, we answer the substantial questions of law in favour of the assessee and against the revenue.
Resultantly, the appeal stands dismissed.
Sd/- JUDGE
Sd/- JUDGE
PMR