By Jagdish D. Shah
Jagdish T. Punjabi
Chartered Accountants
Rashtriya Chemicals & Fertilizers Ltd. vs. CIT (Mumbai)
Members : Joginder Singh (JM) and Manoj Kumar Aggarwal (AM)
ITA No.: 3625/Mum/2017
A.Y.: 2012-13.
Date of Order: 14th February, 2018.
Counsel for assessee / revenue: Ketan K. Ved / Narendra Singh Jangpangi
FACTS
The total income of the assessee, engaged as
manufacturer of fertilizers and chemical products was assessed to be Rs.198.12
crores under normal provisions and Rs.365.02 crores u/s. 115JB as against
returned income of Rs.193.66 Crores & Rs.365.02 Crores under normal
provisions and u/s. 115JB respectively.
Subsequently, the said assessment order was
subjected to exercise of revisional jurisdiction u/s. 263 by CIT on the
premises that corresponding adjustment of certain employee benefits expenses of
Rs.11.91 Crores being tax borne by the assessee on deemed perquisites on the
value of accommodation provided to employees and which were not admissible u/s.
40(a)(v), was omitted to be carried out while arriving at book profits u/s.
115JB. Therefore, the order being erroneous and prejudicial to the interest of
the revenue, required revision u/s. 263. After providing due opportunity of
being heard to the assessee, CIT directed the AO to re-compute Minimum
Alternative Tax [MAT] u/s. 115JB and raise demand against the assessee for the
same.
Aggrieved by the directions of Ld. CIT, the
assessee has by way of the appeal, challenged invocation of revisional
jurisdiction u/s. 263.
HELD
The Tribunal observed that the said item of
expenditure viz. taxes borne by the assessee on deemed perquisites on the value
of accommodation provided to the employees was not allowable to assessee while
arriving at income under normal provisions in terms of provisions of section
40(a)(v) and the assessee himself, has added the same while computing income
under the normal provisions.
The Tribunal noticed that computation of
‘Book Profits’ was neither provided by the assessee during hearing before the
AO nor discussed in any manner. In the quantum order, the AO picked up the
figures of ‘Book Profits’ as per ‘Return of Income’ without applying any mind thereupon
and adopted the same as such without any iota of discussion in the quantum
assessment order. The Tribunal was of the opinion that, prima facie, this is a
case of ‘no inquiry’ by AO and not the case of ‘inadequate inquiry’ or ‘Lack of
Inquiry’ or ‘adoption of one of the possible views’. The statutory provisions
as contained in section 263 including Explanation-2 create a deeming fiction
that the order of Assessing Officer shall be deemed to be erroneous in so far
as it is prejudicial to the interests of the revenue if, in the opinion of CIT
the order is passed without making inquiries or verification which should have
been made.
The Tribunal observed that the only question
which survives for consideration is whether the omission to carry out the stated
adjustment in the Book profits as envisaged by CIT has made the quantum order
erroneous and prejudicial to the interest of the revenue and whether the stated
adjustment was tenable in law or not?
The Tribunal noted that computation of Book
Profits u/s.115JB has to be in the manner as provided in Explanation-1 to
section 115JB. The Minimum Alternative Tax [MAT] provisions as contained in
section 115JB, as per well-settled law, are a complete code in itself and
create a deeming fiction which is to be construed strictly and therefore,
whatever computations / adjustments are to be made, they are to be made
strictly in accordance with the provisions provided in the code itself. The
clause (a) of Explanation-1 envisages add-back of the amount of Income Tax paid
or payable and the provision therefor while arriving at Book Profits. Further,
in terms of Explanation-2 to section 115JB, the amount of Income Tax
specifically includes the components mentioned therein. The Tribunal noticed the legislative intent
for introducing Explanation 2 from the Explanatory Memorandum to the Finance
Bill, 2008.
Taxes borne by the assessee on non-monetary
perquisites provided to employees forms part of Employee Benefit cost and akin
to Fringe Benefit Tax since they are certainly not below the line items since
the same are expressly disallowed u/s. 40(a)(v) and the same do not constitute
Income Tax for the assessee in terms of Explanation-2. The Tribunal observed
that this view is fortified by the judgment of Tribunal rendered in ITO vs.
Vintage Distillers Ltd. [130 TTJ 79] where the Tribunal has taken the view
that the term ‘tax’ was much wider term than the term ‘Income Tax’ since the
former, as per amended definition of ‘tax’ as provided in section 2(43)
included not only Income Tax but also Super Tax & Fringe Benefit Tax.
Therefore, without there being any corresponding amendment in the definition of
Income Tax as provided in Explanation-2 to section 115JB, Fringe Benefit Tax
was not required to be added back while arriving at Book Profits u/s. 115JB.
Similar view has been expressed in another judgement of Tribunal titled as Reliance
Industries Ltd Vs. ACIT [ITA No. 5769/M/2013 dated 16/09/2015] where the
Tribunal took a view that ‘Wealth Tax’ did not form part of Income Tax and therefore,
could not be added back to arrive at Book Profits since the adjustment thereof
was not envisaged by the statutory provisions.
The Tribunal held that the adjustment of
impugned item as suggested by CIT was not legally tenable in law which leads to
inevitable conclusion that the omission to carry out the said adjustment did
not result into any loss of revenue. Therefore, one of the prime condition viz.
prejudicial to interest of revenue to invoke the revisional jurisdiction under
the provisions of section 263 has remained unfulfilled and therefore, the
impugned order could not be sustained in law.
The Tribunal set aside the order
passed. The appeal filed by the assessee
was allowed.
