SARVOTTAM CAPS PVT. LTD.,KOLKATA vs. PCIT-2, KOLKATA

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I.T.A. No.: 202/KOL/2021 Assessment Year: 2015-16 Sarvottam Caps Pvt. Ltd. adopted one of the possible view and the assessment order passed by the Assessing Officer could not be branded as prejudicial to the revenue. 5. FOR THAT without prejudice to the above in any case Provision for bad and doubtful debts of Rs. 1,86,29,997/-being ascertained liability of the company should not be included in the computation of book profits u/s 115JB as directed by the Ld. PCIT-2 Kolkata vide his order u/s 263 dated 31.03.2021 in view of the Hon Hole Apex Court decision in the case of Commissioner of Income-Tax (LTU) vs ACC Ltd [2020] 113 taxmann.com 168 (SC). 6. FOR THAT direction of Ld. PCIT-2^Kolkata u/s 263 dated 31.03.2021 to include 14A Disallowance of Rs.77,08,984/- in computation of book profits u/s 115JB is void ab initio inasmuch as such disallowance u/s 14A is already included in computation of Book Profit u/s 115JB in original Assessment Order u/s 143(3) dated 29.11.2017. 7. FOR THAT in any case 14A Disallowance being a notional disallowance could not be added to book profits of the appellant u/s 115JB in view of the Hon’ble High Court decision in the case of Sobha Developers Ltd. vs Deputy Commissioner of Income Tax, LTU, Bangalore [2021] 125 taxmann.com 72 (Karnataka).” 5. The brief fact of the case is that the assessment was completed u/s 143(3) of the Act. The assessee debited the provision for bad and doubtful debts amounting to Rs. 1,86,29,997/- and the disallowance amounting to Rs. 77,08,984/- u/s 14A of the Act. During computation of the book profit u/s 115JB of the Act both the amounts are not added with the book profit. Accordingly, during calculation of the MAT credit u/s 115JA of the Act the ld. AO had allowed more credit to the assessee which was amounted to Rs. 83,84,295/-. The ld. Pr. CIT by invoking sec 263 called the assessment order erroneous for wrong calculation of Section 115JB of the Act and prejudicial to the interest of revenue. the ld. Pr. CIT by invoking Section 263 of the Act, issued the notice. None was present on behalf of the assessee. The order U/s 263 was passed by setting aside the assessment order. Being aggrieved the assessee filed appeal before us. 6. The ld. D/R first invited our attention in the revisional order, the relevant paragraphs are inserted as below: “2. The assessment record was called for and examined by the undersigned. The following observations are made in this case;

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I.T.A. No.: 202/KOL/2021 Assessment Year: 2015-16 Sarvottam Caps Pvt. Ltd. (i) As per Section 115JB of the IT Act, 1961 notwithstanding anything contained in any other provisions of the Act, where in the case of an assessee, being a company, the Income Tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st Day of April, 2012 is less than 18.5% of its book profit, (such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income tax @18.5%). (ii) Under Section 115JAA, the tax credit to be allowed under sub Section 1 shall be the difference of the tax paid for any assessment year under sub section 1 of Section 115JB and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this act. (iii) In the instant case, it was noticed that the income of the assessee was assessed at Rs. 9,74,97,956/- after addition by AO for provisions of bad and doubtful debt for Rs. 1,86,29,997/- and Rs. 17,08,984/- for disallowance u/s 14A. Tax on normal provision is computed for Rs. 3,09,74,317/- and in Section 115JB tax on book profit was computed for Rs. 2,25,90,022/- and MAT credit was allowed for Rs. 83,84,295/- (Rs. 3,09,74,317/- - Rs, 2,25,90,022/-). (iv) However, as per explanation below Section 115JB, book profit means the profit was shown in the P&L A/c for the previous year as increased by the amount or amounts set aside to provisions made for meeting liability other than ascertained liabilities. It is noticed that the assessee debited Rs. 1,86,29,997/- towards provision for bad and doubtful debts, being an unascertained liability. But at the time of computation of tax u/s 115JB the said amount was not added to the book profit by the AO resulting in excess allowance of MAT credit. (v) Further Book profit U/s 115JB should be increased by the amount of Rs.77,08,984/- in respect of disallowance U/s 14A. As such, it is evident that the assessment u/s. 143(3) is erroneous in so far as it is prejudicial to the interest of revenue and the provisions of section 263 of the Act are clearly attracted in this case. 3. Jurisdictional Principal Commissioner of Income Tax is satisfied that it is a case of erroneous assessment insofar as it is prejudicial to the interests of the revenue. Show cause notice u/s.263 of the Act was issued vide this office letters ITBA/COM/F/17/2020-21/1031734206(1) dated 24.03.2021. The assessee was requested to cause an explanation as to why the provisions of section-263 of the Act should not be invoked in this case and the assessment completed by the Assessing Officer should not be revised/modified or set-aside. However, no reply was received.

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I.T.A. No.: 202/KOL/2021 Assessment Year: 2015-16 Sarvottam Caps Pvt. Ltd. 4. I have considered the facts of the case and details available on record. The assessee has failed to completely disclose its true and correct income by non-furnishing of details as required under provisions of I.T. Act, 1961. The A.O. has passed the assessment order without making enquiries or verification which should have been made in the instant case. Clause (a) of Explanation - 2 to Section 263(1) is attracted in this case. Accordingly, it is held that the assessment order is erroneous insofar as it is prejudicial to the interest of the revenue. 5. Hon’ble Delhi High Court in the case of GEE VEE Enterprise vs. Addl. CIT reported in 99 ITR 375, 386 (Del) has held that the CIT may consider the order of the Assessing Officer to be erroneous not only if it contain some apparent error of reasoning or of law or of fact on the face of it but also because the Assessing Officer has failed to make enquiries which are called for in the circumstances of the case and it is an order which simply accepted what the assessee has stated in his return of income on the said issue. It is not necessary for the CIT to make further enquiries before cancelling the assessment order. The Commissioner can regard the order erroneous on the ground that the Assessing Officer should have made further enquiries.” 7. We heard the submission of ld. D/R, considered the documents available in the record and considered the orders of both the Revenue authorities. The assessment was completed u/s 143(3) of the Act. The assessee debited the provision for bad and doubtful debts amounting to Rs. 1,86,29,997/- and the disallowance amounting to Rs. 77,08,984/- u/s 14A of the Act. During computation of the book profit u/s 115JB of the Act both the amounts are not added with the book profit. Accordingly, during calculation of the MAT credit u/s 115JA of the Act the ld. AO had allowed more credit to the assessee which was amounted to Rs. 83,84,295/-. The assessment order is itself erroneous for wrong calculation of Section 115JB of the Act. As a result, the MAT credit was allowed higher sided. On verification u/s 263 of the Act the ld. Pr. CIT invoked Section 263 of the Act and issued the notice. None was present. 8. Considering the order of the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) held that the phrase “Prejudicial to the interest of the Revenue” is of wide import and is not confined to only loss of taxes. If the AO has accepted the claim of the assessee and with a wrong calculation of Section 1115JB of the Act there is a genuine loss of revenue which was prejudicial to the interest of the Revenue. Further, Page 5 of 6

I.T.A. No.: 202/KOL/2021 Assessment Year: 2015-16 Sarvottam Caps Pvt. Ltd. during calculation of MAT credit the ld. AO had made wrong and vitiated the entire proceeding. In our considered view, we are not interfering in the revisional order of the assessee passed u/s 263 of the Act. So, the impugned order of ld. Pr. CIT is upheld. 9. In the result, ITA No. 202/KOL/2021 is dismissed. Order pronounced in the open Court on 11th March, 2024. Sd/- Sd/- [Rajesh Kumar] [Anikesh Banerjee] Accountant Member Judicial Member Dated: 11.03.2024 Bidhan (P.S.) Copy of the order forwarded to: 1. Sarvottam Caps Pvt. Ltd., 1A, EDCL House, Elgin Road, Kolkata-700 020. 2. PCIT-2, Kolkata. 3. CIT(A)- 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. //True copy // By order

Assistant Registrar ITAT, Kolkata Benches Kolkata

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