Schedule BP Adjustment Ignored: ITAT Sets Aside ₹33.83 Cr Disallowance u/s. 37 & MAT Addition u/s. 115JB [Read Order]

set aside a disallowance of ₹33.83 crore made under Section 37 of the Income TaxAct, 1961, along with the corresponding addition to book profits under Section 115JB, after noting that the Assessing Officer (AO) failed to consider the assessee’s Schedule BP adjustments reflecting a neutral tax impact.

The appeal was filed by a company engaged in providing Information Technology and Income Tax Enabled Services, Syntel Private Limited, against an order passed by the National Faceless Appeal Centre, Delhi [CIT(A)] relating to the Assessment Year 2018-2019. The case was selected for scrutiny, and assessment was completed under Section 143(3) read with Section 144B of the Income Tax Act, 1961.

During assessment proceedings, the AO disallowed an amount of ₹33,83,80,681, invoking Section 37 of the Income Tax Act, 1961, on the ground that no explanation or supporting details were furnished. The AO also added the same amount while computing book profits under Section 115JB of the Income Tax Act, 1961. The CIT(A) confirmed the impugned disallowance, observing that the assessee had failed to substantiate its claim. Aggrieved by this finding, the assessee approached the ITAT.

On behalf of the appellant, Ketan Ved and Abdul Kadir Jawadwala argued that the impugned amount comprised profit on sale of assets and employee bonus and awards paid before the due date of filing the return, which are permitted under Section 43B of the Income Tax Act, 1961. Subsequently, the said amount had been both added back and subsequently claimed as a deduction in the books, resulting in a net nil impact on taxable income.

Such corresponding deduction reflected in Schedule BP was ignored, leading to an artificial addition. Further, contended that the disallowances under normal provisions of the Income Tax Act, 1961 cannot be automatically added to book profits under Section 115JB unless they fall within the adjustments specified in Explanation 1 to that provision.

Arun Kanti Datta, representing the Revenue, submitted that without submission of records, and their verification, such claim could not be allowed and therefore, the orders of the lower authorities were justified.

Rahul Chaudhary, Judicial Member and Jagadish, Accountant Member, comprising the bench observed that Schedule BP and other return documents prima facie supported the assessee’s claim that the amount of ₹33.83 crore had been both disallowed and allowed in the computation of business income, resulting in no tax impact.

The Tribunal noted that the AO failed to take into account the corresponding deduction claimed by the assessee while making the disallowance under Section 37 of the Income Tax Act, 1961. Since the Revenue contended that the claim required verification, the Tribunal deemed it appropriate to remit the matter back to the AO for de novo adjudication.

The Bench clarified that the assessee must be granted a reasonable opportunity of being heard and that the AO must examine the breakup and explanations placed on record. Consequently, the disallowance under normal provisions and the corresponding addition to book profits under Section 115JB of the Income Tax Act, 1961 were set aside for fresh consideration.

The appeal was partly allowed for statistical purposes.

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