The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) has held that the non-inclusion of surrendered income book profits under Section 115JB of the Income Tax Act 1961 is not rectifiable under Section 154 of the Act.
A rectification was made by the AO to the book profits of the assessee, SETCO Automotive Ltd. by adding thereto the amount of income surrendered by the assessee during survey of Rs.17 crores. The AO had noted that while the assessee had included the surrendered income for the purpose of computing its income for taxation as per the normal provision of the Act, but had not done so for the purpose of paying tax under the MAT regime on the book profits of the assessee as per the Section 115JB of the Act.
It was noted that the assessee, while so including surrendered income of Rs. 17 Crores in its income computed as per the normal provisions, had claimed the benefit of MAT credit against the taxes leviable on the income computed as per the normal provision on account of having paid taxes on the book profits in the preceding years.
The AO noted that if this income surrendered during survey was included in the book profits, the taxes payable as per MAT would have exceeded taxes payable as per the normal provision and the assessee, therefore, would have been liable to pay taxes as per MAT.
According to Section 115JB, if the Income-tax (including surcharge and cess) payable on the total income, computed in accordance with the provisions of the Income-tax Act in respect of any year, is less than 15% of its book profit + surcharge (SC) + health & education cess, the taxpayer is required to pay MAT.
The Income Tax Act’s Section 154 essentially addresses the repair of any error that may or may not have happened in a person’s income tax records. Correction of inaccuracies in the Assessing Officer’s orders is another topic addressed in this section.
Milin Mehta, on behalf of the assessee, submitted that the surrender made by the assessee during the survey was an ad-hoc surrender, without any corroborative incriminating material found during the survey, therefore it was not a clear-cut case of the said income being necessarily treated as part of the book profits of the assessee so as to effect the rectification in this regard under section 154 of the Act.
A.P. Singh appeared on behalf of the revenue.
The Division Bench of Annapurna Gupta (Accountant Member) and Siddhartha Nautiyal (Judicial Member) allowed the appeal and directed to delete the adjustment holding that non-inclusion of surrendered income in the Book Profits of the assessee as per section 115JB of the Act, was not a patent error amenable to rectification u/s 154 of the Act.
“We are in agreement with the ld. counsel for the assessee in this regard that it is surely not a clear case of the amount being invariably included in the book profits of the assessee on the basis of the facts before us. In the absence of any incriminating material found, substantiating the surrender made, the same cannot invariably be said to represent the profit of the assessee for disclosure to its shareholders,” the Bench further observed.
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