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Case Number

I.T.A No. 901.AHD/2011 (Assessment Year: 2007-08)

Attorney(S)

Appellant by: Shri Nimesh Yadav, Sr. D.R.
Respondent by: Shri Tushar P. Hemani, A.R.

Judges

G.C. Gupta, Vice President
Anil Chaturvedi, A.M.

Acts

provisions of Section 2(43).

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Smart Summary

Structured Summary of the Opinion (ITAT) — Revenue v. Assessee (A.Y. 2007-08)

Factual and Procedural Background

The assessee is a company engaged in the manufacture of windmills. For Assessment Year 2007-08 the assessee electronically filed its return on 18.10.2007 declaring total income of Rs. 219,29,91,128. The case was selected for scrutiny and the assessment under section 143(3) was completed on 30.07.2008 with total income determined at Rs. 258,25,90,110.

During scrutiny the Assessing Officer (A.O.) observed two items affecting computation of book profit under section 115JB (MAT):

Provision for Fringe Benefit Tax (FBT) of Rs. 2,42,00,000 had been reduced from book profit (A.O. viewed this as irregular under Section 2(43)); and
Disallowance of Rs. 2,66,38,938 made under section 14A was not added to book profit as required, in the A.O.'s view, by Clause (f) below Explanation 1 to section 115JB.

The A.O. issued notice under section 148 on 26.03.2010 and framed reassessment under section 143(3) read with section 147. Book profits for MAT were re-determined at Rs. 11,73,06,12,871 (earlier Rs. 11,70,37,53,788). The assessee appealed to the Commissioner (Appeals) [CIT(A)] and CIT(A) by order dated 30.12.2010 granted substantial relief to the assessee. The Revenue appealed to the Tribunal (this appeal).

Legal Issues Presented

Whether the reopening of assessment under section 147 and the notice under section 148 was valid (i.e., whether income had escaped assessment such as to justify reassessment)?
Whether the liability difference in FBT (specifically Rs. 2,20,145 being provision less actual payment) must be added back to book profit for the purpose of computing tax under section 115JB?
Whether the disallowance under section 14A of Rs. 2,66,38,938 must be added to book profit for MAT computation (i.e., applicability of Clause (f) below Explanation 1 to section 115JB)?

Arguments of the Parties

Revenue's (Ld. Departmental Representative) Arguments

The A.O. was justified in reopening assessment because omission to include the FBT provision in book profit and omission to add back the section 14A disallowance resulted in escapement of income and therefore notice under section 148 was proper.
The excess of provision over actual FBT paid (Rs. 2,20,145) was an unascertained liability and thus required addition to book profit under clause (c) of Explanation 1 to section 115JB.
Implicitly, the A.O.’s additions (including the section 14A add-back to book profits) were supported as correct for computation of MAT.

Assessee's (Ld. Authorised Representative) Arguments

Reopening was invalid because the A.O. had applied his mind during the original scrutiny assessment on the points in issue; the reassessment was merely a change of opinion which is impermissible. Reliance was placed on CIT v. Kelvinator of India Ltd. and the Gujarat High Court decision in Cliantha Research Ltd. v. D.C.I.T.
FBT (whether paid, payable or provided) is not required to be added back while computing book profits under section 115JB; reliance placed on CBDT Circular No. 8/A/2005 (FAQ No.103) and on Bharat Earth Movers v. CIT (245 ITR 428 (SC)) to contend the provision was an ascertained liability and could not be treated as contingent/unascertained for add-back purposes.
The disallowance computed under section 14A (including rule 8D computation) cannot be added to book profit for MAT because section 14A operates only within Chapter IV and the adjustments permissible under Explanation 1 to section 115JB are only those prescribed by the statute; reliance was placed on Apollo Tyres Ltd. (255 ITR 273 (SC)), Goetze (India) Ltd. (2009) 32 SOT 101 (Del), and later decisions such as Cadila Pharmaceutical Ltd. and Atul Ltd. as supportive authority.
Where the A.O. accepted the FBT position in original assessment, the A.O. could not effectively correct his alleged omission by reassessment where it amounted to a change of opinion.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT v. Kelvinator of India Ltd., 320 ITR 561 (SC)	Relied upon by the assessee in support of the proposition that reopening was impermissible when it amounted to a change of opinion (as cited in submissions).	The decision was cited by the assessee; the Tribunal noted the reliance though its ultimate discussion relied principally on the Gujarat High Court decision in Cliantha Research for the factual context here. The Tribunal did not distinguish Kelvinator; it found no material from Revenue to counter the conclusions of CIT(A).
Cliantha Research Ltd. v. D.C.I.T., (2013) 35 Taxman.com 61 (Guj.)	Holds that if an assessee's claim was processed at length and accepted after detailed explanation, mere absence of some element in the A.O.'s mind when accepting cannot be ground for issuing section 148 notice.	The Tribunal quoted this holding and treated it as directly supportive of CIT(A)'s conclusion that the reassessment was a change of opinion and therefore invalid. The Tribunal found no material to displace CIT(A)'s finding and dismissed Revenue's ground on reopening accordingly.
Bharat Earth Movers v. Commissioner of Income Tax, Karnataka, 245 ITR 428 (SC)	Cited by the assessee to support that certain provisions made in the books (here framed for a liability) can be treated as ascertained liability and not contingent, for the purposes of tax treatment (as presented in the submissions).	CIT(A) relied on this Supreme Court decision to hold that the FBT liability was crystallized/quantified in the books and could not be treated as contingent; the Tribunal accepted CIT(A)'s use of this decision and found no reason to interfere.
Apollo Tyres Ltd. v. Commissioner of Income Tax, Kochi, (2002) 255 ITR 273 (SC)	Cited by CIT(A) and the assessee in support of the proposition that disallowance under section 14A cannot be added to book profit for MAT computation (i.e., section 14A does not have applicability beyond Chapter IV).	CIT(A) relied on this authority in holding that a section 14A disallowance is not one of the prescribed adjustments to book profits under section 115JB; the Tribunal accepted the reliance and upheld CIT(A)'s conclusion on this point.
Goetze (India) Ltd. v. CIT, (2009) 32 SOT 101 (Del)	Relied upon for the proposition that section 14A disallowance should not be added to book profit for MAT.	CIT(A) relied on this tribunal decision in reaching the conclusion that the section 14A disallowance could not be added to book profit. The Tribunal accepted CIT(A)'s reliance and upheld the order.
Cadila Pharmaceutical Ltd. v. ACIT ITA Nos. 1146 & 1518/A/2011; Atul Ltd. v. ACIT ITA No. 8/A/2013	Authorities cited by the assessee in support of the position on section 14A/book profit adjustments (as part of submissions before the Tribunal).	These decisions were cited by the assessee's representative; the Tribunal's decision, while noting other authorities, specifically records that CIT(A) relied principally on Apollo Tyres and Goetze and the Tribunal found no reason to interfere with that conclusion.
CBDT Circular No. 8/A/2005 dated 29.08.2005 (FAQ No.103)	Administrative circular stating that Fringe Benefit Tax (whether paid or payable or provision thereof) need not be added back while computing book profit under section 115JB.	CIT(A) relied on the circular to hold that FBT (paid/payable/provision) is not required to be added back; the Tribunal accepted CIT(A)'s reliance on the circular and did not disturb the deletion of the addition relating to FBT.

Court's Reasoning and Analysis

The Tribunal heard rival submissions and examined the record as summarized below. Its analysis is structured around the three grounds raised by Revenue.

Ground 1 — Validity of Reopening (section 147/148)

The Tribunal noted that CIT(A) found that the A.O. had applied his mind to the computation of book profit during the original scrutiny assessment and that the reopening therefore amounted to a change of opinion. The Tribunal observed that Revenue did not place any material before it to controvert CIT(A)'s factual finding. The Tribunal cited and expressly relied on the Gujarat High Court decision in Cliantha Research (quoted in the order) which states that where an assessee's claim has been processed at length and accepted after detailed explanation, absence of some element in the A.O.'s mind is not a ground for issuing a section 148 notice.

On this basis the Tribunal concluded that the reopening was improper and dismissed Revenue's ground challenging CIT(A)'s conclusion on validity of reassessment.

Ground 2 — Addition of FBT Liability (Rs. 2,20,145)

Facts: The assessee made a provision for FBT of Rs. 2,42,00,000 but actually paid Rs. 2,39,79,855 — a shortfall of Rs. 2,20,145. The A.O. treated the shortfall as an unascertained liability and added it to book profit under clause (c) of Explanation 1 to section 115JB. CIT(A) deleted that addition.

Analysis by CIT(A) (as recorded): CIT(A) accepted the assessee's submission invoking CBDT Circular No. 8/A/2005 (FAQ No.103) that FBT (paid/payable/provision) is not required to be added back while computing book profit under section 115JB. While the A.O. had initially accepted the assessee's contention, he later treated the unpaid shortfall as an unascertained liability and sought add-back under clause (c). CIT(A) held the circular directly covered the issue in favour of the assessee and, alternatively, relied on Bharat Earth Movers to conclude that the provision was crystallized/quantified in the books and could not be treated as contingent or unascertained.

Tribunal's takeaway: Revenue produced no material to contradict CIT(A)'s findings; the Tribunal accepted CIT(A)'s reasoning (both the administrative circular and the application of Bharat Earth Movers) and declined to interfere with deletion of the addition.

Ground 3 — Addition of Section 14A Disallowance to Book Profit

Facts: The A.O. made a disallowance under section 14A of Rs. 2,66,38,938 (computed using Rule 8D) and added this amount to book profit under Clause (f) below Explanation 1 to section 115JB. CIT(A) set aside that add-back.

Analysis by CIT(A) (as recorded): After examining section 14A, section 115JB and the judicial precedents relied upon by the assessee (specifically Apollo Tyres (SC) and Goetze (Del Tribunal)), CIT(A) concluded that section 14A has no applicability beyond Chapter IV and that the adjustments to book profits under Explanation 1 are finite and confined to what the statute prescribes; therefore the section 14A disallowance is not a prescribed adjustment and could not be added to book profits.

Tribunal's takeaway: The Tribunal noted CIT(A)'s reliance on Apollo Tyres and Goetze and found no contrary binding decision or material from Revenue to displace that view. The Tribunal accordingly accepted CIT(A)'s conclusion and dismissed Revenue's appeal on this ground.

Holding and Implications

Final Disposition: The appeal filed by the Revenue is DISMISSED.

Direct Consequences for the Parties

CIT(A)'s order dated 30.12.2010 is upheld in full by the Tribunal.
The reassessment framed by the A.O. under sections 147/148 is held invalid on the facts of this case (reopening amounted to change of opinion where the original assessment records showed application of mind).
The addition of Rs. 2,20,145 relating to the FBT provision was deleted and need not be added to book profit for MAT computation; this deletion stands.
The addition of Rs. 2,66,38,938 (disallowance under section 14A) was held not to be addable to book profit under Explanation 1 to section 115JB and that deletion stands.

Broader Implications

The Tribunal's order affirms CIT(A)'s application of existing authorities and the CBDT circular in the specific factual matrix before it. The opinion does not purport to create or announce a new legal precedent beyond affirming the conclusions already reached by the lower authority in this matter; the direct effect is the upholding of CIT(A)'s deletions and rejection of Revenue's reassessment.

This summary is confined strictly to the information contained in the provided opinion and does not infer facts or reasoning beyond the text of that opinion.

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The A.C.I.T., (Osd) Circle-8, Ahmedabad v. Suzlon Energy Limited Suzlon House, 5, Shrimali Society, Ahmedabad .

Anil Chaturvedi, A.M.:— This appeal filed by the Revenue is against the order of CIT(A)-XIV, Ahmedabad dated 30.12.2010 for A.Y. 2007-08.

2. The relevant facts as culled out from the material on record are as under.

3. Assessee is a company stated to be engaged in the business of manufacturing of windmills. Assessee electronically filed its return of income for A.Y. 07-08 on 18.10.2007 declaring total income of Rs. 219,29,91,128/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 30.07.2008 and the total income was determined at Rs. 258,25,90,110/. Subsequently on scrutiny of the records, A.O. noticed that Assessee while calculating taxable income u/s. 115JB, had reduced book profit by Rs. 2,42,00,000/- on account of provision for FBT which as per A.O. was irregular in view of the provisions of Section 2(43). He also noticed that the disallowance of Rs. 2,66,38,938/- made u/s. 14A during assessment was required to be added to the book profit u/s. 115JB as per Clause f below explanation 1 to Section 115JB which was not done. He was therefore of the view that Assessee's income has escaped assessment on account of aforesaid adjustments and accordingly a notice u/s. 148 of the Act was issued on 26.3.2010 and thereafter assessment was framed u/s. 143(3) r.w.s. 147 of the Act and the total book profits for the purpose of MAT was determined at Rs. 11,73,06,12,871/- as against the book profits of Rs. 11,70,37,53,788/- determined in original order of assessment. Aggrieved by the order of A.O. Assessee carried the matter before CIT(A) who vide order dated 30.12.2010 granted substantial relief to the Assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal before us and has raised the following grounds:—

1. The Ld. CIT(A)-XIV, Ahmedabad has erred in law and on facts in allowing the assessee's ground of appeal regarding the validity of re-opening of the assessment proceedings u/s. 147 and notice u/s. 148 of the Act.

2. The Ld. CIT(A)-XIV, Ahmedabad has erred in law and on facts in directing not to added back the liability of FBT of Rs. 2,20,145/- while computing the book profit u/s. 115JB of the Act.

3. The Ld. CIT(A)-XIV, Ahmedabad has erred in law and on facts in directing that the amount of disallowance u/s. 14A of Rs. 2,66,38,938/- can't be added to book profit while working out tax liability under the provisions of MAT as the said section has no applicability beyond Chapter IV. while computing the book profit u/s. 115JB of the Act.

1 ground is with respect to validity of reopening of assessment proceedings u/s 147 of the Act.

4. In the present case, the notice u/s 148 for reopening the assessment was issued for the reasons that provisions for FBT and disallowance made u/s 14A were not added to the book profits for the purpose of calculation of MAT.

5. Before us, ld. D.R. submitted that for calculating taxable income u/s. 115JB of the Act, the Assessee has wrongly reduced book profit by not including provision for FBT and had also not considered the disallowance made u/s. 14A of the Act which had resulted into escapement of income and therefore the A.O. was fully justified in resorting to the reopening of the assessment. He thus supported the order of A.O. ld. A.R. on the other hand reiterated the submissions made before A.O. and CIT(A) and further submitted that during the course of original assessment proceedings, there was application of mind by A.O. on both the points on which the reopening was resorted and that no tangible material was found for initiating the reopening of assessment. He further submitted that the reopening was merely on account of change of opinion which was not permissible in law. He further submitted that A.O. in the original assessment had made disallowance u/s. 14A after elaborating discussion of the issue and if the A.O. was of the view that such disallowance was required to be added to the book profits while computing book profit also, he could have done so at the stage of original assessment itself. He further submitted that if A.O. forgets to make disallowance u/s. 14A while computing book profit, A.O. cannot take recourse to reassessment for rectifying the such mistake at his end. He also placed reliance on the decision of CIT v. Kelvinator of India Ltd., 320 ITR 561 (SC) and the decision of Hon'ble Gujarat High Court in the case of Cliantha Research Ltd. v. D.C.I.T., (2013) 35 Taxman.com 61 (Guj). He thus supported the order of CIT(A).

6. We have heard the rival submissions and perused the material on record. We find that CIT(A) while holding that there was no income which has escaped assessment so as to issue notice u/s. 148 of the Act has given a finding that during the course of scrutiny, the aspect of computation of book profit have been analyzed and after due application of mind, the A.O. had determined the figure of book profit for the purpose of computation of minimum alternative tax. He has further held that the reopening in the present case to be a case of change of opinion and therefore invalid. Before us no material has been placed on record to controvert the findings of CIT(A) and ld. A.R. We further find that Hon'ble Gujarat High Court in the case of Cliantha Research (supra) has held has under:—

“Where during original assessment assessee's claim was processed at length and after calling for detailed explanation same was accepted, merely because a certain element or angle was not in mind of Assessing Officer while accepting such a claim, could not be a ground for issuing notice under section 148 for reassessment”

7. Before us, Revenue has brought any binding decision in its support nor could point out any distinguishing feature of the decision relied by ld. A.R. In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed. 2nd ground is with respect to directing not to add the liability of FBT of Rs. 2,20,145/-.

8. A.O. noticed that Assessee had made provision for FBT of Rs. 2,42,00,000/- but had actually paid FBT of Rs. 2,39,79,855/- and thus the actual liability on account of FBT discharged by the Assessee was less by Rs. 2,20,145/- which according to him was unascertained liability and therefore should have been added to book profits. He accordingly added the same to the book profit while computing the MAT as per Section 115JB of the Act. Aggrieved by the order of A.O. Assessee carried the matter before CIT(A) who deleted the addition by holding as under:—

9. Even on merits appellant has made out an arguable case. The ground No. 4 is regarding positive adjustments of Rs. 2,20,145/- under clause (a) to Explanation 1 to Section 115JB of the Act. The Appellant in respect of which vide letter dated 05/05/2010 submitted and explained to the Assessing officer that as per CBDT Circular No. 8 of 2005, dated 29/08/2005 vide FAQ No. 103 it provides that FBT is not required to be added while computing book profits u/s 115JB of the Act and therefore no positive adjustment is required to be added in respect thereof. The assessing officer accepted the contention of the Appellant, however, he found that as the Appellant Company has actually paid Rs. 2,39,79,855/- in respect of FBT provision of Rs. 2,42,00,000/- balance amount of Rs. 2,20,145/- is required to be added under clause (c) of Explanation 1 to S. 115JB being amount set aside to provision made for meeting liabilities other than ascertained liabilities. Accordingly the Id. AO made positive adjustments of Rs. 2,20,145/- while computing book profit of the Appellant Company under MAT provisions. The Appellant submits that Fringe Benefit Tax whether paid or payable or provision thereof is not required to be added back while computing book profit u/s 115JB of the Act. The appellant further submits that paid also includes payable. For this purpose reliance is placed on the definition of the term ‘paid’ under section 43(2) of the Act. The AO accepted-the contention of the-Appellant, however, he is of the view that unpaid-amount of Rs. 2,20,145/- in respect of FBT is unascertained liability and though it is not required to be added under clause (a), the same is required to be added under clause (c) of Explanation 1 to Section 115JB of the Act. The Appellant Company submits that it is well settled law that the AO cannot do indirectly which he cannot do directly. I hold that the issue is directly covered in favour of the appellant by the circular of the Board which inter alia held that Fringe Benefit Tax whether paid or payable or provision thereof is not required to be added back while computing book profit u/s 115JB of the Act Hence, this adjustment to the figure of book profit is held to be invalid and directed to be deleted. This ground of appeal is therefore, allowed.

Even otherwise, the Appellant alternatively submitted that in any case merely because payment of FBT is lesser than the amount of provisions, it cannot be said that balance unpaid amount is unascertained or contingent liability which is required to be added under clause (c) of Explanation 1 to s. 115JB of the Act. The Appellant submitted that it is an ascertained liability as evident from the books and method of quantification does not decide the issue of ascertainment or otherwise of the liability and therefore, the provision for FBT is required to be excluded for the purpose of determining the book profits. Reliance is placed on the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers v. Commissioner Of Income Tax, Karnataka . 245 ITR 428 (S.C.) wherein it was held that provision made by the assessee company for meeting the liability incurred by if under the leave encashment scheme proportionate with the entitlement earned by the employee of the company, inclusive-of the-officers and the.staff, subject to the ceiling on accumulation as applicable on the relevant date, was entitled to deduction out of the gross receipts in the accounting year during which the provision is made for the liability. Thus it was held that the liability was not a contingent liability. Hence, even otherwise, following the ratio of the said decision, in the facts of the present case also the liability of FBT having been crystallized and quantified in the books of the account the same can not be treated as contingent liability and therefore the; same cannot be added back to the amount of book profit. This ground is therefore decided in favour of the appellant.

10. Aggrieved by the order of CIT(A), Revenue is now in appeal before us.

11. Before us, ld. D.R. supported the order of A.O. Ld. A.R. on the other hand reiterated the submissions made before lower authorities and further submitted that explanation 2 to Section 115JB specifies what shall be included in “Income Tax” for the purpose of Clause (a) of Explanation 1 to Section 115JB which does not prescribed “FBT”. Thus FBT debited to Profit and Loss account is not required to be added back while computing the book profit. He further submitted that CBDT Circular No. 8/A/2005 dated 29.08.2005 specifically provides that FBT need not be added back for computing book profit u/s. 115JB. With respect to the excess of provision over the actual paid amount of FBT paid which was treated as unascertained liability, he submitted that in the subsequent year the amount has been paid and further the issue is directly covered by the decision of Bharat Earth Movers v. Commissioner Of Income Tax, Karnataka ., 245 ITR 428 (SC). He thus supported the order of CIT(A).

12. We have heard the rival submissions and perused the material on record. We find that CIT(A) while deleting the addition has interalia held that the issue of considering FBT for the purpose of MAT is directly covered in favour of the Assessee by the Circular of the Board dated 29.08.2005 which interalia holds that FBT whether or payable or provision thereof is not required to be added back while computing book profit u/s. 115JB of the Act. He has further given a finding that the liability of FBT having been crystallized and quantified in the books of account, the same cannot be treated as contingent liability and therefore cannot be added back to the amount of book profit. Before us, Revenue has not brought any material on record to controvert the findings of CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed.

3 ground is with respect to directing the deletion of disallowance u/s 14A from being added to book profit.

13. A.O. noticed that disallowance of Rs. 2,66,38,938/- was made u/s 14A while framing assessment u/s 143(3) and the disallowance made by A.O. was also confirmed by CIT(A). A.O. was of the view that the disallowance made u/s. 14A was required to be added to the book profit in terms of Clause f below Explanation 1 to Section 115JB of the Act. He accordingly added the same to the book profit. Aggrieved by the order of A.O. Assessee carried the matter before CIT(A) who after considering the submissions of the Assessee decided the issue in favour of the Assessee by holding as under:—

“I have gone through the submission of appellant and also order of AO and found that the subject amount of disallowance.has been worked out based on the formulae given in Rule 8D. After giving due consideration to the provisions of section 14A, Section 115JB and the judicial pronouncement relied upon by the appellant including that of Apex Court in the case of Apollo Tyres (Supra) and Hon'ble Delhi Tribunal in the case of Goetze (India) Limited v. CIT (2009) 32 SOT 101 (Delhi). I find merit in the argument of the appellant that the amount of disallowance made u/s. 14A cannot be added to book profit while working out tax liability under provisions of MAT as the said section has no applicability beyond Chapter IV. It is well settled that only such adjustments can be made to the figure of book profits which are prescribed under the scheme of the Act, adjustment of disallowance u/s 14A is not one of the prescribed adjustments and therefore, the same is held to be invalid. In view of the same I allow this ground of appeal in favour of the appellant.”

14. Thus aggrieved by the order of CIT(A), Revenue is now in appeal before us.

15. Before us, ld. D.R. supported the order of CIT(A). On the other hand ld. A.R. reiterated the submissions made before lower authorities and supported the order of CIT(A). He also placed reliance on the decision in the case of Cadila Pharmaceutical Ltd. v. ACIT ITA Nos. 1146 & 1518/A/2011, Atul Ltd. v. ACIT ITA No. 8/A/2013.

16. We have heard the rival submissions and perused the material on record. We find that CIT(A) after relying on the decision in the case of Apollo Tyres Ltd. v. Commissioner Of Income Tax, Kochi ., (2002) 255 ITR 273 (SC) and the decision of Delhi Tribunal in the case of Goetze India Ltd. v. CIT, (2009) 32 SOT 101 (Del) has held that the amount of disallowance made u/s 14A cannot be added to book profit while working out the tax liability under provisions of MAT. Before us, Revenue has not brought any material on record to controvert the findings of CIT(A) nor has brought any contrary binding decision in its support. In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed.

17. In the result, the appeal of Revenue is dismissed.

The A.C.I.T., (Osd) ... v. Suzlon Energy Limite...