Commissioner of Income-Tax (LTU) vs Sansera Engg. P. Ltd.

Jayant Patel, J.—The present appeal has been preferred by the appellants-Revenue on the following substantial, questions of law :

"1. Whether the Tribunal was correct in holding that prohibition mentioned in section 40(a)(ic) of the Act does not apply to the computation of the book profit for the purpose of section 115JB and according to that the fringe benefit fax is an allowable deduction ?

Whether the Tribunal was correct in deleting the addition made by the Assessing Officer holding that the rectification is neither permissible under section 154 nor under section 115JB (Explanation 1) in respect of exclusion of prior period expenditure ?

Whether the Tribunal was correct in deleting the addition made by the Assessing Officer in respect of addition of securities transaction tax holding that none of the 9 items listed in Explanation 1 to section 115JB(2) was included and hence, it could not have used this to enhance the book profit ?"

The relevant discussion by the Tribunal in the impugned order is at paras 4 to 7 which reads as under :

"4. The learned Commissioner of Income-tax (Appeals) has excluded the fringe benefit tax (FBT) included by the Assessing Officer in [he book profit. According to the Commissioner of Income-tax (Appeals), the Board has issued a Circular No. 8 of 2005 dated August 29, 2005 wherein it was explained that for the purpose of computing the income under the head ''Profits and gains of profession'', the fringe benefit tax would not be claimed as deduction because it is an expenditure laid out extending wholly and exclusively for the purpose of business or profession of the employer. Section 40(a)(ic) specifically prohibit the claim of its deduction for the purpose of computing the income under the regular provisions. However, for the purpose of section 115JB, this prohibition would not apply. The question and reply read as under :

''Question 103. Whether fringe benefit tax would be allowable deduction while computing ''book profit'' under section 115JB ?

Fringe benefit tax is a liability qua employer. It is an expenditure laid out or expended wholly and exclusively for the purposes of the business or profession of the employer. However, sub-clause (ic) of clause (a) of section 40 of the income-tax Act expressly prohibits the deduction of the amount of fringe benefit tax paid, for the purpose of computing the income under the "profits and gains of business or profession". This prohibition does not apply to the computation of the "book profit" for the purpose of section 115JB. Accordingly, the fringe benefit tax is an allowable deduction in the computation of ''book profit'' for the purpose of section V15JB. Accordingly, the fringe benefit tax is an allowable deduction in the computation of ''book profit'' under section 115JB of the income tax Act.''

On due consideration of the above, we are of the view that the learned Commissioner of Income-tax (Appeals) has rightly excluded the fringe benefit tax from the computation of book profit.

The next item is prior period expenditure. According to the learned Commissioner of Income-tax (Appeals), Explanation 1 attached to section 115JB(2) does not provide for adjustment of this expenditure in the book profit. With the assistance of the learned representatives, we have considered this issue. The learned Commissioner of Income-tax (Appeals) has relied upon the order of the income-tax Appellate Tribunal, Mumbai, in the case of Shivshahi Punarvasan Prakalp Ltd. v. ITO [2012] 135 ITD 51 (Mum) which is based on the judgment of the hon''ble Supreme Court in the case of Apollo Tyres Ltd., 254 ITR 273 (SC). For the purpose of section 115JB, the book profit is the profit disclosed as per profit and loss account prepared in accordance with the provisions of Part-II and Part-III of Schedule VI of the Companies Act, 1956, laid before the company in its annual general meeting. The adjustment to that profit can only be made qua, the items provided in Explanation 1 to section 115JB i.e. a to f. On perusal of clause a to f, under Explanation 1, we find that no adjustment on account of prior period expenses is to be made. The hon''ble Supreme Court in the case of Apollo Tyres has observed that except the adjustment provided in Explanation 1 to section 115JB(2), the Assessing Officer cannot tinker with the book profit computed by the assessee and approved in the annual general meeting. The learned Commissioner of Income-tax (Appeals) has held that this type oi expenditure cannot be adjusted. We are of the view that such type of rectification is neither permissible under section 154 ; nor under section 115JB (Explanation 1), therefore, the Commissioner of Income-tax (Appeals) has rightly deleted this addition format in the book profit. Similar is the position with regard to third aspect, the learned Commissioner of Income-tax (Appeals) has observed as under :

''5. In respect oi security transaction tax (SIT), the appellant pointed out that it is not included in any of the 9 items listed in Explanation 1 to section 115JB(2) and, hence, could not be used to enhance the book profit. This is an argument based on a correct understanding of the prevailing legal provisions and it is admitted. The addition by the Assessing Officer to the book profit in this regard is directed to be deleted.''

On due consideration of the order of the Commissioner of Income-tax (Appeals), we find no error in it. The adjustment made by the Assessing Officer cannot be made in an order passed under section 154. Therefore, we do not find any merit in this appeal of the Revenue, it is dismissed."

The aforesaid shows that so far as fringe benefit tax (FBI) is concerned, the Tribunal has not interfered with the view taken by the Commissioner of Income-tax (Appeals), which was based on the Board circular dated August 29, 2005. When the Board has issued the circular and the fringe benefit tax is found to be allowable while computing book profit, we do not see that any substantial question of law would arise on such aspect as sought to be canvassed. Same is the situation for the other two items, one for prior period expenditure and another for security transaction tax, but on a different scrutiny that such amounts were already excluded for the purpose of computation of book profit at the time when the assessment order under section 143 was passed. Thereafter, in the purported exercise of power under section 154, such could not be upset.

However, Mr. Aravind, the learned counsel appearing for the appellants-Revenue contended that only one view was possible and no deliberation was required to disallow the amount under the head of prior period expenditure and security transaction tax.

After hearing him at length, we do not find that such would fall in the arena of mistake on the face of record within the scope and ambit of section 154 of the Act, which is limited to rectification of the mistake or error. When the initial order of rectification is found to be beyond the scope of section 154, as has been rightly held by the Tribunal, everything would fall to ground. The Tribunal has rightly held that such type of rectification is neither permissible under section 154 read with section 115JB. Hence, we do not find that any substantial question of law would arise for consideration.

Hence, the appeal is dismissed.