×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
This is an appeal by the assessee against the order dated 1/3/2019 of CIT-IV, Bengaluru relating to asst. year 2010-11.
2. In this appeal by the Assesee, two issues have to be adjudicated. The first issue is with regard to the validity of initiation of proceedings for reassessment u/s 147 of the Income Tax Act, 1961 (Act). The second issue is whether the Revenue authorities were justified in recomputing the book profits of the assessee us/ 115JB of the Act.
3. The facts and circumstances giving raise to this appeal are that the Assessee is a company engaged in the business of manufacturing of precision automotive parts and aerospace components. For asst. year 2010-11, the Assessee filed a return of income declaring a total income of Rs.4,13,939/- and book profit of Rs.3,82,83,820/- under the provisions of sec. 115JB of the Act. As per the provisions of Sec.115JB of the Act, in case of a company, the income tax payable on the total income as computed under the income tax act in respect of any previous year is less than 18.5% of its BOOK PROFIT, then such book profit shall be deemed to be the total income of the assessee and the tax payable on such total income shall be the amount of income tax at the rate of 18.5%. In other words every company has to compute its income tax liability as per two sets of provisions (i) Income tax computed as per normal provisions of income tax act. (ii) Income tax computed as per provision of section 115JB of income tax act. Book Profit isdefined in the explanation 1 to section 115JB as book profit means the net profit as shown in the profit & loss account for the relevant previous year prepared in accordance with the provisions of the Companies Act, 1956 and as increased and decreased by some prescribed items.
4. In the course of the Assessment proceedings, the AO noticed that the Assessee had written off sum of Rs.10,29,59,360/- as “investment written off” and the same were reduced from the computation of total income as per the normal provision of the Act.
5. The AO called upon the assessee to explain the nature of the claim made by the assessee. In reply the assessee submitted that the Assessee made investment in 100% subsidiary company named MPP holdings Ltd. MPP holdings Ltd., was in the business of making investments and had made investments in various companies in Europe. One such company in which MPP Holdings Ltd., had made investment was a company by name MPP-Slovakia. MPP Holdings Ltd., had given Bank Guarantee to HSBC, Slovakia . Due to various reasons HSBC Slovakia invoked the bank guarantee given to it by MPP Holdings Ltd., amounting to 6,00,000/- Euros. Conseqently, the value of investments held by the Assessee in MPP Holdings Ltd., eroded considerably and the Assessee wrote of the diminution in value of investments in the profit and loss account and claimed the same as allowable expenditure, incidental to its business. According to the Assessee as per Memorandum of Association of the company, one of the objectives of the assessee was giving bank guarantee to its subsidiarycompanies.
6. The AO did not allow the claim of the assessee for the reason that the expenditure in question was in the nature of capital investment and any diminution in the value of such investment has to be reduced from capital and cannot be claimed as a deductible Revenue expenditure.
7. Similarly the assessee had claimed as deduction a sum of Rs.47 lakhs in the profit and loss account on account of provision for obsolete machinery. The AO held that the expenditure was not an actual expenditure and was only a nature of provision and hence cannot be allowed as a deduction. Ultimately the AO computed the total income of the assessee as follows:-