no.Report of the
Comptroller and Auditor General of India
for the year ended March 2017
Payment of tax by certain companies
under special provisions of section 115JB
Union Government
Department of Revenue – Direct Taxes
Report No. 30 of 2017
(Performance Audit)
Laid on the table of Lok Sabha/Rajya Sabha on______________
PREFACE
This Report for the year ended March 2017 has been prepared for submission to the President under Article 151 of the Constitution of India.
The Report contains significant results of the performance audit of “Payment of tax by certain companies under special provisions of section 115JB” of the Department of Revenue – Direct Taxes of the Union Government in 2012-13 to 2015-16.
The instances mentioned in this Report are those, which came to notice in the course of test audit for the period 2012-13 to 2015-16 conducted during the period July 2016 to November 2016.
The audit has been conducted in conformity with the Auditing Standards issued by the Comptroller and Auditor General of India.
Audit wishes to acknowledge the cooperation received from the Department of Revenue – Central Board of Direct Taxes at each stage of the audit process.
EXECUTIVE SUMMARY
Several companies that were having large profit from business and distributing substantial portion of the income to their shareholders as dividend, were reducing their tax liability by availing various deductions and exemptions available in the Act. Such companies referred to as “Zero Tax Companies”, were attempted to be brought into tax net by introduction of section 115J by Finance Act 1987. This provision was withdrawn by Finance Act 1990. It was re-introduced as section 115JA by Finance Act, 1996. Section 115JA was further revised from 1 April 2001 by introducing a new section 115JB whereby companies had to pay tax on their book profit/deemed income at a rate prescribed by the Government from time to time. Section 115JAA provided for allowance of credit of tax paid by the companies under section 115JA/115JB in subsequent years.
We conducted performance audit of ‘Payment of tax by certain companies under special provision of section 115JB’ also referred to as Minimum Alternate Tax (MAT) with the objectives of examining whether:
(i) there are any systemic issues including any ambiguity or lacuna in the special provisions resulting in nullifying/reducing the tax liability;
(ii) Income Tax Department (ITD) was complying with the provisions relating to MAT and, if not, determining the under assessment/loss of revenue and other irregularities due to mistakes in assessment;
(iv) ITD has taken adequate steps to identify the companies not filing tax returns and bring them into tax net;
(v) the objective of introduction of special provision to bring zero taxpaying companies into tax net have been achieved.
The performance audit covered cases of scrutiny assessments, appeal and rectification completed during the financial years 2012-13 to 2015-16. We also checked summary assessment records in respect of the selected cases where scrutiny assessment was not completed till the date of audit.
Audit requisitioned 15,677 records in 877 assessment units in 150 selected CIT charges, out of which ITD produced 11,293 records only which were audited for this performance audit.
While conducting performance audit, we identified 195 assessment cases where systemic issues including ambiguities/lacunae in provisions of section 115JB of the Act were noticed. Some of them are indicated in subsequent paragraphs:
[Para 2.2]
ITD did not consider incomes in 22 assessment cases for tax under MAT though the same were considered for tax under normal provision. Omission resulted in tax effect of Rs. 74.10 crore.
[Para 2.4.1]
In 16 assessment cases, ITD did not consider the extraordinary/exceptional items* for computation of book profit. Omission resulted in under assessment of income aggregating Rs. 126.57 crore involving tax effect of Rs. 23.13 crore.
[Para 2.4.2]
In three assessment cases though ITD adjusted the profit/loss against the General Reserve as per the directions prescribed in the approved scheme of amalgamation, their treatment for the purpose of MAT varied according to the convenience of the assessee. Omission resulted in short computation of book profit of Rs. 99.39 crore involving tax effect of Rs. 15.36 crore.
[Para 2.4.3]
ITD allowed in eight assessment cases deduction in respect of Debenture Redemption Reserve/Loan Redemption Reserve charged to the ‘Appropriation Account’ as claimed by assessee in computation of book profit under MAT involving tax effect of Rs. 331.14 crore.
[Para 2.5]
ITD on one hand reduced excess depreciation pertaining to earlier years due to change in method of depreciation credited to the profit and loss account in computation of book profit in eight assessment cases. On the other hand in six assessment cases, ITD did not add shortfall in depreciation due to change in method of accounting. This involved tax effect of Rs. 5.16 crore.
[Para 2.6]
Amount of loss brought forward or unabsorbed depreciation, whichever is less, as per books of account is reduced from the net profit in computation of book profit. During this performance audit, Audit came across certain irregularities in computation of brought forward loss and unabsorbed depreciation as below:
(i) Apportioning the profit as per profit and loss account in the ratio of brought forward loss and unabsorbed depreciation
(ii) Previous year’s brought forward loss/unabsorbed depreciation considered for reduction instead of their cumulative position as on date
(iii) Same amount of business loss/unabsorbed depreciation as per books was claimed in successive years including current year
[Para 2.7]
ITD allowed bad debts actually written off as deduction in computation of income under normal provisions in six assessment cases. However, while computing book profit under section 115JB, bad debts actually written off was not reduced.
[Para 2.8.1]
ITD made disallowances on account of bogus purchases/undisclosed income/unaccounted income under normal provisions in 18 assessment cases, and not under special provisions of MAT, there being no provision for addition of such items under special provisions.
[Para 2.8.2]
ITD made transfer pricing adjustments with respect to items which had direct bearing on the profit as per profit and loss account in 36 assessment cases during computation of income under normal provisions but were not considered for computation of book profit under MAT. This involved tax effect of Rs. 93.05 crore.
[Para 2.8.3]
ITD disallowed statutory dues in the form of taxes in 39 assessment cases during computation of income under normal provisions but were not considered under MAT. Allowance of statutory dues in computation of MAT involved tax effect of Rs. 75.89 crore.
[Para 2.8.4]
ITD did not add back corporate social responsibility (CSR) expenses under MAT in 12 assessment cases though the same were debited to the profit and loss account involving tax effect of Rs. 15.49 crore.
[Para 2.8.5]
ITD allowed MAT credit of amalgamating company in spite of discontinuance of the business of amalgamating unit after amalgamation in one assessment case.
[Para 2.8.6]
Audit came across several issues/instances of non-compliance to the provisions of Act/Rules in 589 assessment cases. Some of them are indicated in subsequent paragraphs:
[Para 3.1]
ITD disallowed income tax paid under normal provision in 28 assessment cases but did not consider the same for computing book profit. This involved tax effect of Rs. 13.28 crore.
[Para 3.2.1]
ITD did not add back expenses relatable to income not forming part of total income to book profit in 84 assessment cases which involved tax effect of Rs. 102.03 crore.
[Para 3.2.2]
ITD did not add back the amount set aside as provision for diminution in value of asset in 47 assessment cases while computing book profit. This involved tax effect of Rs. 1827.86 crore.
[Para 3.2.3]
ITD did not consider provision for unascertained liability in computation of book profit in 22 assessment cases. Omission resulted in tax effect of Rs. 50.02 crore.
[Para 3.2.4]
ITD reduced book profit by the deductions which are not prescribed in the Act in 28 assessment cases which involved tax effect of Rs. 48.60 crore.
[Para 3.3]
ITD allowed incorrect set off/carry forward/non set off of MAT credit of Rs. 1,559.21 crore without verifying the updated status of the claims of assessee made in the ITR with reference to the assessment records in 277 assessment cases.
[Para 3.4]
ITD did not correctly reduce brought forward loss or unabsorbed depreciation as per the books of account in computing book profit in 37 assessment cases which involved tax effect of Rs. 22.97 crore.
[Para 3.5]
Different type of mistakes in computation of book profit in 43 assessment cases resulted in short levy of tax of Rs. 88.91 crore.
[Para 3.9]
The difference between the number of working companies registered with Registrar of companies (ROC) and those reported by DGIT (Logistics, Research & Statistics) ranged from 2.94 lakh (33.3 per cent) to 3.94 lakh (36.4 per cent) during FYs 2012-13 to 2015-16 which indicated the extent of non filing/stop filing of the return of income by the companies. About one third of the companies registered with the ROC were not in the database of the ITD.
[Para 4.2]
Out of 12,750 non filers identified through Non filers Monitoring System (NMS), ITD issued notices in 9013 (70.69 per cent) cases only. Of them, only 29.73 per cent of the corporate non filers identified by the ITD had filed their income tax return in response to the notices issued by the ITD whereas no returns has been filed in remaining 6,208 cases.
[Para 4.2.1]
In 34 assessment cases ITD levied tax under normal provisions of the Act though tax was leviable under special provisions. Omission resulted in short levy of tax of Rs. 127.86 crore.
[Para 5.3]
Summary of Recommendations
Systemic issues including ambiguities/lacunae in the special provisions
(a) CBDT may like to insert enabling provisions under Explanation (1) to sub section (2) of section 115JB clarifying the treatment of following items in computation of book profit:
(i) Interest accrued on Inter Corporate Deposit (ICD) and fixed deposit made out of advances received from Government etc. which were considered for taxation under normal provisions
(ii) Grant in aid etc., directly taken to balance sheet and not routed through profit and loss account
(iii) Profit/loss on sale of long term investment of the amalgamating company
(iv) Debenture Redemption Reserve/Loan Redemption Reserve considering its complexity involving element of reserve as well as ascertained liability
(v) Excess/short depreciation due to change in method of depreciation
(Para 2.4.1 to 2.4.3, 2.5 and 2.6)
(b) CBDT may like to clarify the manner of setting off brought forward business loss/unabsorbed depreciation in computation of book profit.
(Para 2.7.1 to 2.7.3)
(c) CBDT may like to prescribe an adjustment for reduction of the bad debts actually written off in the books of accounts in computation of book profit, as the same is considered for reduction under normal provisions.
(Para 2.8.1)
(d) CBDT may like to prescribe an adjustment for additions of the following items in computation of book profit, which were considered for addition under normal provision:
(i) Bogus purchases/undisclosed income/unaccounted income
(ii) Transfer pricing adjustments on items having direct bearing on the profit and loss account
(iii) Statutory dues not paid within due date of filing of return of income
(iv) Expenditure on Corporate Social Responsibility (CSR)
(Para 2.8.2. to 2.8.5)
(e) CBDT may like to introduce a provision in the Act for disallowance of MAT credit of the amalgamating company on discontinuance of their business by the amalgamated company after amalgamation.
(Para 2.8.6)
The CBDT during exit conference agreed to examine all the issues above and stated that feasibility of issuing a circular/clarification if required will be explored.
Extent of non-compliance of MAT provisions
CBDT may like to append a schedule or an annexure showing year wise bifurcated details of business loss and unabsorbed depreciation as per the Companies Act as well to Form 29B/Tax Audit Report/ITR 6 so that their updated status is considered at the time of assessment.
(Para 3.5)
The CBDT during exit conference stated that it may be difficult to have a separate annexure / schedule but agreed to have a view in the Assessment Information System (AST) where the details of brought forward business loss and unabsorbed depreciation as per the Companies Act will also be visible.
Bringing Zero Tax Companies into the tax base
(a) The ITD may devise a framework for accountability where AOs may be made accountable for the effective use of Non-filers Monitoring System for identification of both corporate and non corporate non filers separately so that they effectively pursue the non filers to bring them into tax net.
(Para 4.2.1)
The CBDT during exit conference agreed to have a suitable framework in this regard.
(b) ITD may pursue the cases where ITRs were not filed so as to bring them into tax net.
(Para 4.2.1)
The CBDT during exit conference agreed to look into the matter.
Chapter 1 : Introduction
1.1 Several companies that were having large profit from business and distributing substantial portion of the income to their shareholders as dividend, were reducing their tax liability by availing various deductions and exemptions etc. available in the Act. Such companies referred to as “Zero Tax Companies” were attempted to be brought into tax net by introduction of section 115J by Finance Act 1987, which was withdrawn by Finance Act 1990. It was re-introduced by introducing section 115JA by Finance Act, 1996 with effect from 1 April 1997, which was further revised from 1 April 2001 by introducing a new section 115JB whereby the companies had to pay tax on their book profit/deemed income at a rate prescribed by the Government from time to time. The provision of credit of tax paid by the companies under section 115JA/115JB was also made for set off in subsequent years as per provisions of section 115JAA.
The special provisions commonly referred to as Minimum Alternate Tax (MAT) have been amended from time to time for increasing the tax base considering economic growth in different sectors viz. banking, insurance and finance etc. The latest amendment was done by Finance Act 2016 which is effective from 1 April 2017 by which the units located in an international financial services centre and deriving income solely in convertible foreign exchange were also brought within the ambit of MAT.
1.2 Why we chose the topic
The corporate assessees, irrespective of their income level are required compulsorily to file their income tax returns annually. However, total number of corporate assessees filing returns with the ITD1 was much less as compared to the number of working companies registered with Registrar of Companies. The ITD’s efforts to bring such assessees into the tax net needed to be examined in audit.
Certain ambiguities in the interpretation of legislative provisions/ adjustments to net profit or loss as per profit and loss account for the computation of book profit have been observed in audit for which ITD’s directions to resolve the ambiguities and implementation of directions required to be verified.
Earlier we had conducted a performance audit on this topic and results/findings thereof were featured in Chapter I of C&AG’s Report No. 13 of 2004. There was a need to ascertain whether deficiencies pointed out earlier, have been addressed appropriately by the CBDT.
1.3 Audit Objectives
The performance audit was conducted with the objectives of examining whether:
(i) there are any systemic issues including any ambiguity or lacuna in the special provisions resulting in nullifying/reducing the tax liability;
(ii) ITD was complying with the provisions relating to MAT and, if not, determining the underassessment/loss of revenue and other irregularities due to mistakes in assessment;
(iii) ITD has taken adequate steps to identify the companies not filing tax returns and bring them into tax net;
(iv) the objective of introduction of special provision to bring zero taxpaying companies into tax net have been achieved.
1.4 Legal Framework
The scheme of taxation under MAT is covered under section 115JB of the Income Tax Act, 1961 whereas the provisions relating to carry forward and set off of MAT credit are enumerated in section 115JAA of the Act. A brief of relevant provisions is given in Appendix 1.
1.5 Audit Scope and Sample Size
The performance audit covered cases of scrutiny assessments, appeal and rectification completed during the financial years 2012-13 to 2015-16. We also checked summary assessment records in respect of the selected cases where scrutiny assessment was not completed till the date of audit. We selected top 12 CIT charges in terms of assessed income for each of the category A States2 and top 5 CIT charges for each of the category B States3 from the Assessing Officer (AO) wise aggregated data provided by the Director General of Income Tax (DGIT) (Systems), New Delhi for the performance audit. In the selected CIT charges, 100 per cent DCIT/ACIT charges and 20 per cent of the ITO charges were selected for audit. Finally we selected 877 assessment units for audit in the 150 selected CIT charges (Appendix 2).
1.6 Audit Methodology
An entry conference with CBDT was held on 9 August 2016 wherein we explained the audit objectives, scope of audit and the main focus areas of the performance audit.
We sought the details relating to corporate assessees from DGIT (Systems). ITD initially supplied summary data aggregated at CIT level (July 2016). Later on the same data was provided aggregated at assessing officer level (September 2016) which helped us in sample selection of the assessment units but did not serve the purpose of identifying the individual cases pertaining to MAT within the selected assessment units. We, therefore, compiled the data from Demand and Collections Registers available in assessment units selected for the performance audit. We examined the assessment records of corporate assessees in these selected assessment units.
We also approached the regional Registrar of Companies (ROCs)/ Ministry of Corporate Affairs, New Delhi (November 2016) to obtain the details of companies registered with them and details of active companies along with the details of profit declared for comparison of the data from the two sources. Results of the audit examination were conveyed to the concerned AOs for their comments.
We issued draft performance audit report to the CBDT on 10 April 2017 for their comments. An Exit Conference was held on 1 June 2017 where the recommendations made by the Audit and the CBDT’s response thereon were discussed. The conclusions/decisions based on the discussion in the Exit Conference have been appropriately incorporated in the Report.
1.7 Non production of records
We approached the ITD to provide the details of companies filing return of income, companies being assessed under MAT during the selected financial years under various charges, non-filers identified and action taken thereupon and the details of companies paying nil taxes under normal as well as MAT provisions.
ITD supplied the summary data4 and not the granular data, as a result of which, we had to compulsorily select the cases manually for audit from the Demand and Collection Registers in each assessing charge for each of the selected financial years. This was time consuming and acted as a constraint in conducting the audit.
Audit requisitioned 15,677 records, out of which ITD produced 11,293 records only. Non-production of records worked out to 27.96 percent. In Gujarat, Karnataka and Goa, Delhi, Maharashtra and Himachal Pradesh, non-production of records ranged from 27.93 per cent to 62 per cent. Further, ITD did not produce any records in four assessment charges each in Mumbai5 and in Delhi6 despite repeated follow-up. Appendix 3 depicts the details of non-production of records.
In January 2017, DGIT (System) provided data relating to 60,227 companies which despite having profit as per profit and loss account for the period FY 2012-13 to 2015-167 were paying nil taxes under normal provisions as well as under MAT. Providing this data so late served very limited purpose as the field work for the performance audit had already been completed by then.
Chapter 2 : Systemic issues including ambiguities/lacunae in the special provisions
2.1 The chapter deals with the systemic issues including ambiguities or lacunae in the special provisions of the Income Tax Act, relevant Income Tax Rules.
2.2 Nature of ambiguities/lacunae
While conducting performance audit, we identified 195 assessment cases where systemic issues including ambiguities/lacunae in provisions of section 115JB of the Act were noticed. A summary of these cases is given in the table below:
| Table 2.1: Nature of ambiguities/lacunae | |||
| Para No. | Nature of ambiguity/lacuna | No. of assessment cases |
Tax effect (Rs. in crore) |
| 2.4 | Incomes not considered for computation of book profit due to lack of specific provisions regarding their treatment in accounts | 41 | 112.59 |
| 2.5 | Treatment of items having element of both “Reserve” and “Provision for ascertained liability” | 8 | 331.14 |
| 2.6 | Effect of change in method of depreciation treated differently for the purpose of book profit | 14 | 5.16 |
| 2.7 | Treatment of brought forward business loss/unabsorbed depreciation as per books in computation of book profit under special provisions | 10 | 28.14 |
| 2.8.1 | Absence of provision to reduce bad debts actually written off in computation of book profit | 9 | 0 |
| 2.8.2 | Additions made on account of bogus purchases/undisclosed income / unaccounted income for taxation under normal provision not considered for computation of book profit | 19 | 41.34 |
| 2.8.3 | Non consideration of transfer pricing adjustments on items having direct bearing on the profit and loss account under MAT | 36 | 93.05 |
| 2.8.4 | Statutory dues not paid within due date of filing of return of income not considered for disallowance under MAT | 39 | 75.89 |
| 2.8.5 | Expenditure on Corporate Social Responsibility (CSR) not considered for disallowance under MAT | 12 | 15.49 |
| 2.8.6 | Need for disallowance of MAT credit of the amalgamating company on discontinuance of their business by the amalgamated company after amalgamation. |
1 | 0 |
| 2.9 | Uniform stand not adopted by ITD in set off of MAT credit in summary cases | 6 | 0 |
| Total | 195 | 702.8 | |
The audit observations on above issues are given in subsequent paragraphs.
2.3 Ambiguities in provisions of the Act
The Supreme Court has restricted the powers of assessing officer holding8 that the assessing officer had no power to recast the book profit beyond the adjustments prescribed under the special provisions of section 115JA of the Act. Consequently assessees started treating certain items in such a way that they are not routed through profit and loss account and as such they escape their adjustment in computation of book profit under special provisions. In the earlier Performance Audit Report, it was recommended in audit9 to incorporate a suitable provision in the Act enabling the assessing officer to rectify mistakes in computation of net profit for the purpose of special provision of section 115JB. However, no such enabling provision has been brought in the Act so far. As a result thereof, the disputes and litigations pertaining to special provisions of section 115JB are still going on due to manipulation of various accounting treatments by the assessees.
2.4 Incomes not considered for computation of book profit due to lack of specific provisions regarding their treatment in accounts
Interest on advances/Inter Corporate Deposit(ICD)/Fixed Deposit (FD) and excess interest written back, grants-in-aid received, post amalgamation profit of the amalgamating company, profit on the long terms investments, duty drawback refund pertaining to capital assets neither offered as income nor reduced from the cost of asset in the books, waiver of royalty, sales tax, electricity charges etc. already claimed in the accounts of earlier years, surplus income due to change in method of cash system of accounting to mercantile system of accounting are the incomes, which were not considered for tax under MAT due to lack of specific provisions regarding their treatment in accounts.
2.4.1 Incomes offered for tax under normal provision but not under MAT
We noticed in 22 assessment cases in nine states10 that the ITD did not consider incomes aggregating Rs. 337.86 crore for tax under MAT though the same were considered for tax under normal provision. Omission resulted in tax effect of Rs. 74.10 crore (Appendix 4).
|
Box 2.1 Illustrative cases on income offered for tax under normal provision but not under MAT (a) Charge: Pr. CIT-Central, Bangalore The AO made additions of Rs. 43.72 crore and Rs. 45.02 crore on account of accrued interest on ICD11 during two AYs respectively under normal provision, which was not considered during computation of book profit under MAT. Omission resulted in short computation of book profit of Rs. 88.74 crore involving tax effect of Rs. 18.16 crore. Reply from ITD was awaited. (b) Charge: Pr. CIT-2 Hyderabad The AO made additions of Rs. 46.31 crore and Rs. 38.66 crore on account of accrued interest on fixed deposit made out of advances received from Government of Andhra Pradesh towards lift irrigation scheme works and investment made out of contingency reserve during two years respectively under normal provision, which were not considered during computation of book profit under MAT. Omission resulted in short computation of book profit of Rs. 84.97 crore involving tax effect of Rs. 21.39 crore. ITD did not accept (November 2016) the observation stating that section 115JB did not provide for such adjustment. The reply was not tenable in view of a judicial decision12 holding that where the books of accounts have not been prepared in accordance with Part II and Part III of Schedule VI of Companies Act read with mandatory accounting standards then the AO was competent to re-cast the profit and loss account and re-compute the book profit for the purpose of section 115JB of the Act. (c) Charge: CIT-2, Mumbai AO accepted the computation of income as returned by the assessee. The assessee offered Rs. 12.80 crore and Rs. 12.73 crore for two years respectively being interest on advance given to International Amusement Ltd, which was neither accounted for in the books of account nor considered for computation of book profit under MAT by the AO. Omission resulted in short computation of book profit of Rs. 25.53 crore involving tax effect of Rs. 4.53 crore. Reply from ITD was awaited. |
Incomes such as interest accrued on ICD and fixed deposit made out of advances received from Government etc. as discussed in above cases were considered for taxation under normal provisions but not considered for computation of book profit by the AO.
2.4.2 Extraordinary/exceptional items not offered for tax under MAT
The Companies Act, 1956 provides for routing of all extra-ordinary/exceptional items13 through profit and loss account, which are treated in books of accounts in following manner:
(i) Most of the companies route it through profit and loss account and consider the same during computation of book profit under MAT. However, some companies adopt the ‘net profit as per profit and loss account before the extraordinary items’ for the computation of book profit under MAT and hence exclude such items from the levy of tax under MAT.
(ii) Some companies take the items of extraordinary/exceptional items directly to balance sheet without routing the same through profit and loss account escaping the levy of MAT.
We noticed in 16 assessment cases in eight states14 that AO did not consider the extraordinary / exceptional items for computation of book profit. Omission resulted in underassessment of income aggregating Rs. 126.57 crore involving tax effect of Rs. 23.13 crore (Appendix 5). However, in four other assessment cases15 in Maharashtra, the extraordinary/exceptional items were included in the computation of book profit.
| Box 2.2 : Illustrative cases on extraordinary/exceptional item not offered for MAT
(a) Charge: Pr. CIT-3, Baroda AO allowed the assessee to take Rs. 18.12 crore received as grant in aid during the year directly to the balance sheet under the head ‘Reserves and Surplus’. The receipt constitutes an extraordinary item; the same should have been routed through the profit and loss account, which was not done. Omission resulted in underassessment of book profit of Rs. 17.65 crore involving tax effect of Rs. 3.53 crore. Reply from ITD was awaited. (b) Charge: CIT-I, Coimbatore AO allowed the assessee to take Rs. 12 crore received as grant in aid during the year under the Scheme Integrated Textile Parks, directly to the balance sheet under the head ‘Reserves and Surplus’. The receipt constitutes an extraordinary item; the same should have been routed through the profit and loss account, which was not done. Omission resulted in short computation of book profit of Rs. 12 crore involving tax effect of Rs. 3.22 crore. Reply from ITD was awaited. |
In the absence of specific provisions regarding treatment of the income such as grant in aid etc. in books of accounts, these were directly taken to balance sheet and not routed through profit and loss account, thus escaping their adjustment in computation of book profit.
2.4.3 Treatment of profit/loss on sale of long term investment of amalgamating company
Profit/loss on sale of assets (investments in amalgamating company) on amalgamation is adjusted under the head, “General Reserve” in Balance sheet as per the scheme of amalgamation approved by the respective High Court. AS 1416 also confirms this stand whereas as per AS 1317 such profit/loss should have been routed through profit and loss account in normal course.
Suitable disclosure regarding the violation of accounting treatment as per AS 13 is given in the notes to annual account. Assessing Officers find it difficult to arrive at a decision regarding the treatment of such income/loss in computation of book profit under MAT in absence of any specific provision in the Act.
We noticed in three assessment cases in three states18 that though the profit/loss was adjusted against the General Reserve as per the directions prescribed in the approved scheme of amalgamation, their treatment for the purpose of MAT varied according to the convenience of the assessee. While computing book profit, the assessees did not consider the income/ profit, whereas they considered the loss from such transactions though the same was not debited to the profit and loss account. Omission resulted in short computation of book profit of Rs. 99.39 crore involving tax effect of Rs. 15.36 crore (Appendix 6).
| Box 2.3: Illustrative cases on treatment of profit/loss on sale of long term investment of amalgamating company
Charge: Pr. CIT-3, Mumbai AO accepted the computation of income as returned by the assessee. The assessee credited the profit on sale of long term investment of the amalgamating company to capital reserve, which was not considered for tax under MAT by the AO. Omission resulted in short computation of book profit of Rs. 31.73 crore involving tax effect of Rs. 5.21 crore. ITD did not accept the observation (January 2017) stating that (i) such transaction due to amalgamation was not a transfer as per section 47(vi) of the Act, and as such there arose no capital gains on such transactions, (ii). AO had no power to make any adjustment beyond prescribed adjustments in view of apex court decision in the case of M/s Apollo Tyres Ltd and (iii) AS 13 was not attracted in this case and transfer due to amalgamation was well covered by AS14. The reply was not tenable in view of a judicial decision19 that a scheme sanctioned under sections 391 and 394 of Companies Act, 1956 did not have any over-riding effect or dispense with provisions of any other law including Companies Act. The effect of any accounting made on the basis of scheme of compromise/arrangement under Companies Act, 1956 will have to be independently judged in accordance with provisions of the Income Tax Act in assessment and subsequent proceedings. The primary duty of AO while computing book profit was to see whether the accounts have been maintained in accordance with the requirements of Companies Act, which he failed to perform despite the auditors’ opinion. Non applicability of the decision of apex court in the case of M/s Apollo Tyres was also discussed within the judicial decision above. Further, on the contrary, in another case of M/s Gati Ltd. (AY 2013-14, PAN-AABCG3709Q) assessed at PCIT-2, Hyderabad charge, ITD allowed claim of the assessee towards the loss of Rs. 64 crore on sale of shares relating to M/s Gati Ship Ltd. (amalgamating company) which was not debited to the profit and loss account, in computation of book profit under MAT relying on the decision of M/s. J. K. Lakshmi Cement Ltd Vs ACIT. |
ITD took contradictory stand in the cases illustrated above. In the first case, the profit on sale of long term investment of the amalgamating company credited to capital reserve which was not routed through the profit and loss account, was not considered for MAT, whereas in the second case the loss on sale of shares of amalgamating company was also adjusted against “capital reserve, which although not debited to the profit and loss account, was claimed and also allowed the same in computation of book profit under MAT. Contradictory/ inconsistent but convenient implementation/ treatment of the provisions by the ITD resulted in undue advantage to the assessees and loss of revenue to the Government. Reply from ITD was awaited.
2.5 Treatment of items having element of both “Reserve” and “Provision for ascertained liability”
As per section 115JB(2)(b) of the Act, “any amount carried to reserve by whatever name called” has to be disallowed during computation of book profit whereas section 115JB(2)(c) provides for disallowance of the amounts or amounts set aside to provisions made for meeting unascertained liabilities.
Debenture Redemption Reserve (DRR) is one of such reserves20 which is charged to profit and loss account. The Apex court and Bombay High Court held21 that DRR is a ‘provision for ascertained liability’ and hence allowable under section 115JB(2)(c) of the Act. Delhi High court had different view22 holding that DRR if charged to appropriation account shall be treated as reserve instead of treating it as provision for ascertained liability and the same will be disallowed under section 115JB(2)(b).
Provision for Debenture Redemption/Loan Redemption Reserve etc. debited to profit and loss account though ascertained liability has the element of capital as well as revenue portion of the loan (interest). The reserve is created for the redemption of both capital as well as interest. It will have no impact in computation of income under normal provisions as provision for ascertained as well as for unascertained liability is disallowed. Allowance of such reserve in the computation of book profit under MAT will tantamount to allowance of capital expenditure.
We noticed in eight assessment cases in two states23 that AO allowed deduction of Rs. 2,163.47 crore charged as Debenture Redemption Reserve/Loan Redemption Reserve to the ‘Appropriation Account’ as claimed by assessee in computation of book profit under MAT involving tax effect of Rs. 331.14 crore (Appendix 7). We further noticed in another three assessment cases24 in Maharashtra that the assessee had charged the same to appropriation account but had offered the same for tax under MAT.
| Box 2.4: Illustrative cases on treatment of items having element of both “Reserve” and “Provision for ascertained liability”
(a) Charge: Pr. CIT(Central)-3, Mumbai AO allowed deduction aggregating Rs. 1,917.12 crore towards DRR from AYs 2008-09 to 2010-11 and AY 2012-13 in the computation of book profit as claimed although the same was charged to appropriation account. The net profit for computation of book profit under MAT was taken as per profit and loss account before appropriation. This resulted in short computation of book profit of Rs. 1,917.12 crore involving tax effect of Rs. 285.63 crore. Reply from ITD was awaited. (b) Charge: Pr. CIT-2, Kolkata While computing book profit under MAT, AO did not add back Rs. 101.25 crore debited to profit and loss account as transfer to debenture redemption reserve. Debenture redemption reserve was created25 out of the profit of the company. Thus, it being an appropriation of profits was required to be treated as reserve and not provision for ascertained liability. Omission resulted in short computation of book profit of Rs. 101.25 crore involving tax effect of Rs. 17.21 crore. Reply from ITD was awaited. |
The Debenture Redemption Reserve/Loan Redemption Reserve, a “reserve” created for meeting an “ascertained liability” made its treatment more complex for the purpose of book profit computation as section 115JB(2)(c) provided for addition of any reserve created irrespective of its nomenclature, whereas as per section 115JB(2)(b) any provision for an ‘unascertained liability’ shall be added in computation of book profit. Lack of clarity on the issue may lead to litigations.
In the exit conference, Audit pointed out that on the issue of DRR/LRR, there are two conflicting High Court decisions for which the CBDT agreed to examine and take suitable action.
2.6 Effect of change in method of depreciation treated differently for the purpose of book profit
In the event of a change in the method of depreciation26, a company shall calculate depreciation from the year of inception of asset under new method adopted and the shortfall/excess shall be debited/ credited to the profit and loss account and given effect in computation of book profit accordingly27.
We noticed that in eight assessment cases28 in Karnataka and Maharashtra out of 14 assessment cases in five states29, excess depreciation of Rs. 38.50 crore pertaining to earlier years due to change in method of depreciation was credited to the profit and loss account and reduced in computation of book profit. In remaining six assessment cases30, shortfall in depreciation of Rs. 124.31 crore due to change in method was charged to profit and loss account but not added in computation of book profit which was allowed by the ITD. Reduction of excess allowance of depreciation from computation of book profit, credited to profit and loss account due to change in method of depreciation involved tax effect of Rs. 5.16 crore (Appendix 8).
| Box 2.5: Illustrative cases on effect of change in method of depreciation treated differently for the purpose of book profit
(a) Charge: Pr. CIT-14, Mumbai AO allowed the assessee to credit Rs. 8.86 crore towards excess depreciation pertaining to earlier years due to change in method of depreciation to the profit and loss account under the head, “extra ordinary and prior period items” below the net profit but did not consider it for inclusion in the book profit under special provisions. Omission resulted in short computation of book profit of ` 8.82 crore involving tax effect of 1.76 crore. Reply from ITD was awaited. (b) Charge: Pr. CIT-1, Mumbai AO allowed the assessee to credit Rs. 7.20 crore to profit and loss account towards excess depreciation pertaining to earlier years due to change in the method of depreciation which was reduced in computation of book profit under MAT. Omission resulted in short computation of book profit of Rs. 7.20 crore involving tax effect of Rs. 1.11 crore. Reply from ITD was awaited. (c) Charge: Pr. CIT-1, Kochi AO allowed the assessee to debit Rs. 61.40 crore to profit and loss account towards shortfall in depreciation pertaining to earlier years due to change in the method of depreciation but did not add back the same in computation of book profit under MAT. Reply from ITD was awaited. |
Thus, different treatment has been given to excess depreciation and shortfall in depreciation caused due to change in method of depreciation to the benefit of the assessee in computation of book profit under MAT resulting either in short or excess allowance of depreciation.
2.7 Treatment of brought forward business loss/unabsorbed depreciation as per books in computation of book profit under special provisions
Amount of loss brought forward or unabsorbed depreciation, whichever is less, as per books of account is reduced from the net profit in computation of book profit31. During this performance audit, we came across certain irregularities in computation of brought forward loss and unabsorbed depreciation as discussed in the following sub paragraphs:
2.7.1 Apportioning the profit as per profit and loss account in the ratio of brought forward loss and unabsorbed depreciation
We noticed in three assessment cases in Maharashtra that for arriving at figure of brought forward loss or unabsorbed depreciation for the purpose of book profit, the AO allowed the assessee to bifurcate its profit as per profit and loss account in the ratio of its brought forward loss and unabsorbed depreciation and then adjusted the apportioned amount of profit against the brought forward losses respectively instead of adjusting the profit against the brought forward loss or unabsorbed depreciation whichever was less, for computation of book profit under the special provisions. Omission resulted in short computation of book profit of Rs. 101.33 crore involving tax effect of Rs. 8.15 crore (Appendix 9).
| Box 2.6: Illustrative case of apportioning the profit as per profit and loss account in the ratio of brought forward loss and unabsorbed depreciation
(a) Charge: Pr. CIT-8, Mumbai While giving effect to an appellate order32 (February 2013), AO levied tax under MAT on the book profit of Rs. 185.88 crore and Rs. 348.54 crore for the two AYs respectively which was worked out by the assessee after reducing Rs. 59.66 crore and Rs. 39.20 crore towards business loss/unabsorbed depreciation pertaining to AYs 1996-97 to 2000-01. The assessee had bifurcated its profit as per profit and loss account in the ratio of its brought forward loss and unabsorbed depreciation and then adjusted the apportioned amount of profit against the brought forward losses/depreciation respectively instead of adjusting the profit against the brought forward loss or unabsorbed depreciation whichever was less, in computation of book profit under the special provisions. The incorrect approach allowed by the AO resulted in excess set off unabsorbed business loss/depreciation of Rs. 59.66 crore and Rs. 39.23 crore33involving tax effect of Rs. 4.59 crore and Rs. 3.08 crore respectively. Reply from ITD was awaited. |
2.7.2 Previous year’s brought forward loss/unabsorbed depreciation considered for reduction instead of their cumulative position as on date
We noticed in five assessment cases in two states34 that while computing book profit, the AO allowed the assessee to reduce the lesser of brought forward loss or unabsorbed depreciation pertaining to the immediately preceding year instead of considering lesser of the updated figures of brought forward loss or unabsorbed depreciation as on date. Omission resulted in irregular set off of unabsorbed loss/depreciation of Rs. 22.25 crore involving tax effect of Rs. 4.43 crore (Appendix 10).
| Box 2.7: Illustrative cases on previous year’s brought forward loss/unabsorbed depreciation considered for reduction instead of their cumulative position as on date
(a) Charge: Pr. CIT-10, Mumbai AO accepted the reduction of rs. 2.18 crore pertaining to AY 2009-10 as unabsorbed depreciation (being less), made by the assessee in computation of book profit for AY 2010-11, ignoring the accumulated profit of Rs. 17.36 crore of earlier years. As a matter of fact, no loss or depreciation was available for AY 2010-11. Irregular reduction of unabsorbed depreciation resulted in short computation of book profit of Rs. 2.18 crore involving tax effect of Rs. 37.06 lakh. Reply from ITD was awaited. (b) Charge: Pr. CIT-2, Chennai While computing book profit, AO reduced unabsorbed depreciation of Rs. 18.29 crore pertaining to the amalgamating company as claimed. Further, assessee adjusted the loss of amalgamating company of Rs. 50.53 crore against its profit of Rs. 69.87 crore available in the General Reserves and Surplus and as such no loss was available. Irregular allowance of unabsorbed depreciation of the amalgamating company by the AO resulted in short computation of book profit of Rs. 18.29 crore involving tax effect of Rs. 3.66 crore. ITD did not accept the audit observation (May 2015) stating that the accumulated General Reserve has no bearing on the actual losses as per books of account to be carried forward and set off. The reply was not tenable as the assessee itself had set off loss of the amalgamating company against its accumulated surplus. Further, the unabsorbed depreciation or loss, whichever was less, should have been reduced on accumulated basis up to the previous financial year. |
2.7.3 Same amount of brought forward business loss/unabsorbed depreciation as per books was claimed in successive years including current year
We noticed in two assessment cases in Maharashtra that while arriving at the amount of brought forward loss/unabsorbed depreciation, whichever is less as per books, the same amount of deduction was claimed and allowed during computation of book profit for three consecutive assessment years by adjusting the profit from higher of the brought forward loss/unabsorbed depreciation instead of the lower of the two (Appendix 11).
| Box 2.8 : Illustrative cases on incorrect allowance of brought forward business loss/unabsorbed depreciation as per books of account
(a) Charge: Pr. CIT-2, Mumbai While computing book profit at nil, AO reduced same amount of Rs. 50.99 crore towards unabsorbed depreciation in both the AYs restricting the same to the extent of profit of Rs. 45.93 crore and Rs. 40.86 crore, which the assessee was claiming for the last three years by adjusting the profit with the higher of the accumulated business loss keeping the amount of unabsorbed depreciation intact. Unabsorbed depreciation available for set off in AYs 2012-13 and 2013-14 was Rs. 9 crore and ‘nil’ respectively. Excess set off of unabsorbed depreciation resulted in short computation of book profit aggregating Rs. 77.79 crore involving tax effect of Rs. 15.56 crore for the two years. ITD did not accept the observation (October 2015) for AY 2012-13 stating that the business loss and unabsorbed depreciation as per book has to be bifurcated for each assessment year and the claim has to be allowed accordingly even if the lower of the two is already allowed in the previous year. The reply was not tenable on the ground that only the lower of the carried forward business loss and unabsorbed depreciation has to be reduced in computation of book profit. Hence if the same amount of unabsorbed depreciation treating it as lower of the two is claimed fully in any year, it cannot be claimed as lower of the two in subsequent year. Ruling by Authority of Advance Rulings in the case of M/s Rashtriya Ispat Nigam Ltd. Vs CIT (AAR No. 652 of 2004) is relevant here. If the ITD’s view is upheld then there will be a situation where the assessee will never have a “nil” amount of lower of business loss/unabsorbed depreciation as per books. |
There was lack of clarity in the provision of the Act to deal with the manner of treatment of brought forward loss/unabsorbed depreciation in computation of book profit as discussed in para 2.7.1 to 2.7.3 above.
2.8 Lacunae in the provisions of the Act
We came across cases where AOs have made additions for certain items under normal provisions which had bearing on the net profit. However, these items could not be considered for the computation of book profit for want of enabling prescribed adjustments under special provisions. Such additions are discussed in succeeding paragraphs.
2.8.1 Absence of provision to reduce bad debts actually written off in computation of book profit
The bad debts actually written off but not separately charged to profit and loss account can be allowed under normal provision as per section 36(1)(vii), which in the case of Scheduled/Non-Scheduled Banks, Public/State Financial Institutions and State Industrial Investment Corporation will not apply35 unless the assessee has debited such debt or part of the debt to the provisions for bad and doubtful debt account for the purpose of deduction under section 36(1)(viia) at the prescribed per cent36. However, there is no such corresponding provision under section 115JB to allow such bad debts written off and if not separately charged to profit and loss account, as a result of which its treatment by different AOs was not uniform in computation of book profit.
We test checked nine assessment cases in four states37 where bad debts actually written off were allowed as deduction in normal computation of income as per provisions of section 36(1)(vii). However, while computing book profit under section 115JB, bad debts actually written off was reduced from book profit in three assessment cases but was not considered at all in six assessment cases (Appendix12).
| Box 2.9 : Illustrative case on absence of provision to allow bad debts actually written off in computation of book profit
(a) Charge: Pr. CIT-2, Mumbai AO, inter alia, allowed Rs. 5,23.53 crore and Rs. 3,836.25 crore towards bad debts actually written off under normal provisions as claimed which were not considered at all in computation of book profit as there was no provision therefor under special provision. Reply from ITD was awaited. (b) Charge: CIT-7, New Delhi AO, inter alia, allowed Rs. 1393.20 crore and Rs. 1231.56 crore towards bad debts actually written off under normal provisions as claimed which were not considered at all in computation of book profit as there was no provision therefor under special provision. Reply from ITD was awaited. (c) Charge: Pr. CIT-2, Mumbai AO, inter alia, allowed bad debts of Rs. 36.29 crore and Rs. 85.26 crore actually written off under normal provisions as claimed, which was also reduced in computation of book profit though there was no such provision therefor under special provision. Reply from ITD was awaited. |
There being no adjustment prescribed under special provisions to reduce the bad debts actually written off from the book profit, its treatment in computation of book profit is not uniform by different AOs.
2.8.2 Additions made on account of bogus purchases/undisclosed income/unaccounted income for taxation under normal provision not considered for computation of book profit
We test checked 19 assessment cases in six states38 and found that in 18 assessment cases, disallowances were made on account of bogus purchases/undisclosed income/unaccounted income under normal provisions only and not under special provisions of MAT, there being no provision for addition of such items under special provisions. However, in one case, ITD itself disallowed the same for computation of book profit. The tax effect worked out to Rs. 41.34 crore (Appendix 13).
| Box 2.10: Illustrative case on additions made on account of bogus purchases/undisclosed income/unaccounted income for taxation under normal provision not considered for computation of book profit
(a) Charge: Pr. CIT-LTU, Mumbai AO made additions aggregating Rs. 77.89 crore towards bogus commission expenses debited to profit and loss account but the same were not considered for computation of book profit under MAT provisions in the absence of any specific provision thereof under prescribed adjustment, which might have increased the book profit to the extent of additions made involving tax effect of Rs. 13.66 crore. Reply from ITD was awaited. (b) Charge: Pr. CIT-3 Hyderabad AO made additions of Rs. 51.28 crore and Rs. 46.96 crore during the two AYs respectively towards bogus payments made to sub contractors and vendors debited to profit and loss account but the same were not considered for computation of book profit under special provisions in the absence of any specific provision therefor under prescribed adjustment, which might have increased the book profit to the extent of additions made involving tax effect of Rs. 20.05 crore. ITD did not accept the audit observation (October 2016) in view of Apex court decision in the case of M/s Apollo Tyres Ltd stating that there is no such adjustment prescribed under section 115JB. The reply is not tenable as non applicability of the decision of apex court in the case of M/s. Apollo Tyres has already been considered in another decision39 delivered, based on which in another case of M/s. Gati Ltd40 ITD allowed claim of the assessee towards the loss on sale of shares, not debited to the profit and loss account although not covered under prescribed adjustments under MAT, in computation of book profit. Similarly, in the instant case, the expenses related to the alleged payments to sub-contractors, already booked in the profit and loss account, and added back in computation of income under normal provisions although not covered under prescribed adjustments under MAT, should have been added in computation of book profit. |
There being no adjustment prescribed under special provisions with respect to treatment of bogus purchases/ undisclosed income/ unaccounted income in computation of book profits, its treatment was not uniform by the AOs leading to short computation of book profit.
2.8.3 Non consideration of transfer pricing adjustments on items having direct bearing on the profit and loss account under MAT
As per section 92CA of the Act, transfer pricing adjustments are made to the income under normal provision on items of receipts and expenditure credited/debited to profit and loss account which has been entered by the assessee with its associated enterprise. This exercise is done to bring the transaction amount to the arms length price41 so that the excess expense/under reporting of receipts related to the transactions with associated enterprise can be curbed and the revenue loss/profit shifting under the garb of various accounting practices is protected.
We noticed in 36 assessment cases in six states42 that transfer pricing adjustments were made during computation of income under normal provisions with respect to items which had direct bearing on the profit as per profit and loss account, but were not considered for computation of book profit under MAT. There being no provision in the Act to consider the same for computation of book profit under MAT, led the assessee effectively escaping the liability of tax of Rs. 93.05 crore on such disallowances (Appendix 14).
2.8.4 Statutory dues not paid within due date of filing of return of income not considered for addition under MAT
Any tax, duty, cess or fee (among other things) are disallowed43 during computation of income under normal provisions if such amount is not paid within the due date of filing of return of income. This provision has been brought into effect to promote timely payment of statutory dues. If the assessee was liable to pay tax under MAT during any year, it could intentionally delay the payment as there was no corresponding provision/adjustment prescribed for disallowance of the same in the computation of book profit.
We noticed in 39 assessment cases in 11 states44 that the statutory dues in the form of taxes were disallowed during computation of income under normal provisions but were not considered under MAT. Had such disallowances been considered under MAT also, there would have been a revenue impact of ` 75.89 crore (Appendix 15).
2.8.5 Expenditure on Corporate Social Responsibility (CSR) not considered for disallowance under MAT
Every company, based on certain parameters, shall set apart at least two per cent of the average profits of immediately preceding three financial years for the purpose of CSR in the books of accounts45. Such provision has been brought to share the burden of the Government in providing social services46 and hence such expense shall not be allowed as benefit under Income Tax Act. The provision for disallowance of expenditure on CSR under normal provision has been introduced47 from 1 April 2015. However, no corresponding provision for disallowance of such expenses for computation of book profit is prescribed under special provisions.
We noticed in 12 assessment cases in eight states48 that CSR expenses were debited to the profit and loss account but not considered for disallowance under MAT. Had such disallowances been considered for MAT also, there would have been a revenue impact of Rs. 15.49 crore (Appendix 16).
| Box 2.11: Illustrative case on expenditure on CSR not considered for disallowance under MAT
(a) Charge: Pr. CIT, Bilaspur AO disallowed CSR expense of Rs. 5.40 crore, Rs. 6.50 crore and Rs. 5.83 crore pertaining to three AYs respectively under normal provisions but did not consider the same for disallowance for computation of book profit under MAT. Had such disallowances been considered for MAT also, there would have been a revenue impact of Rs. 3.38 crore. ITD did not accept the audit observation stating that the AO has no jurisdiction to go behind the net profit shown in profit and loss account except to the extent provided in Explanation to section 115JB. Further this provision is applicable from FY 2014-15 (October 2016). The reply was not tenable as Finance Act 2014 has expressly brought an amendment to disallow such expenses during the computation of income under normal provision. Further vide Circular 1 of 2015 dated 21.01.2015, CBDT clarified that CSR expenses were in the nature of application of income with the objective to share burden of the Government in providing social services. If such expenses are allowed as tax deduction, this would result in subsidizing such expenses by the Government by way of tax expenditure. Hence, on the same logic such expenses should also be considered for disallowance during computation of book profit under MAT. |
2.8.6 Need for disallowance of MAT credit of the amalgamating company on discontinuance of their business by the amalgamated company after amalgamation.
Certain conditions have to be fulfilled for availing the benefit of carry forward and set off of brought forward losses of amalgamating companies which inter-alia provide49 that the amalgamated company should continue business of the amalgamating companies for a minimum period of five years from the date of amalgamation. This provision was introduced to discourage the unnecessary amalgamation of companies having huge losses with profit making companies for the sole purpose of reducing tax liability. However, there was no such provision u/s 115JAA to prohibit the claim of set off of MAT credit of amalgamating company in case of discontinuation of business of the amalgamating company by the amalgamated company after amalgamation.
In one assessment case in Maharashtra, we noticed that MAT credit of amalgamating company was claimed in spite of discontinuing the business of amalgamating unit after amalgamation (Appendix 17).
| Box 2.12: Illustrative case on need for disallowance of MAT credit of the amalgamating company on discontinuance of their business by the amalgamated company after amalgamation.
Charge: Pr. CIT-10, Mumbai AO allowed carry forward of MAT credit of Rs. 1.58 crore of the amalgamating company, M/s Parle Pet Pvt. Ltd., though the main business of the amalgamating company was discontinued within the first year post amalgamation, which did not appear to be in order. Like section 72A(2), there was no provision under section 115JAA to prohibit the claim of set off of MAT credit of amalgamating company by the assessee company as it did not continue the business of the amalgamating company for a minimum period of five years after amalgamation. The CBDT during exit conference admitted that it was a mistake on part of the assessing officer. |
There was no provision under section 115JAA to prohibit the claim of set off of MAT credit of amalgamating company by the assessee company in case of discontinuance of the business of the amalgamating company before five years after amalgamation.
2.9 Uniform stand not adopted by ITD in set off of MAT credit in summary cases
From the AY 2012-13, ITR 6 has been modified to compute MAT credit set off inclusive of surcharge and education cess.
We noticed in six assessment cases in Andhra Pradesh and Telangana, pertaining to AYs 2010-11 and 2012-13 to 2015-16 processed in summary manner that ITD allowed set off of MAT credit without surcharge and education cess thereon in five assessment cases whereas in one case it was allowed inclusive of surcharge and education cess (Appendix 18).
2.10 Conclusion
There were no specific provisions for treatment of the income in computation of book profit in respect of following items:
(i) Interest accrued on ICD and fixed deposit made out of advances received from Government etc. which were considered for taxation under normal provisions
(ii) Grant in aid etc., directly taken to balance sheet and not routed through profit and loss account
(iii) Profit/loss on sale of long term investment of the amalgamating company
(iv) Debenture Redemption Reserve/Loan Redemption Reserve considering its complexity involving element of reserve as well as ascertained liability
(v) Excess/short depreciation due to change in method of depreciation
There was lack of clarity in the provision of the Act to deal with the manner of treatment of brought forward loss/unabsorbed depreciation in computation of book profit.
There being no adjustment prescribed under special provisions to reduce the bad debts actually written off from the book profit, its treatment in computation of book profit is not uniform by different AOs.
There being no adjustment prescribed under section 115JB in respect of the following items for additions in computation of book profit, though they were considered for addition under normal provision:
(i) bogus purchases/undisclosed income/unaccounted income
(ii) transfer pricing adjustments on items having direct bearing on the profit and loss account
(iii) Statutory dues not paid within due date of filing of return of income
(iv) Expenditure on Corporate Social Responsibility (CSR)
There is no provision under section 115JAA to prohibit the claim of set off of MAT credit of amalgamating company by the assessee company in case of discontinuance of the business of the amalgamating company before five years after amalgamation.
2.11 Recommendations
(a) CBDT may like to insert enabling provisions under Explanation (1) to sub section (2) of section 115JB clarifying the treatment of following items in computation of book profit:
(i) Interest accrued on ICD and fixed deposit made out of advances received from Government etc. which were considered for taxation under normal provisions
(ii) Grant in aid etc., directly taken to balance sheet and not routed through profit and loss account
(iii) Profit/loss on sale of long term investment of the amalgamating company
(iv) Debenture Redemption Reserve/Loan Redemption Reserve considering its complexity involving element of reserve as well as ascertained liability
(v) Excess/short depreciation due to change in method of depreciation
(Para 2.4.1 to 2.4.3, 2.5 and 2.6)
(b) CBDT may like to clarify the manner of setting off brought forward business loss/unabsorbed depreciation in computation of book profit.
(Para 2.7.1 to 2.7.3)
(c) CBDT may like to prescribe an adjustment for reduction of the bad debts actually written off in the books of accounts in computation of book profit, as the same is considered for reduction under normal provisions.
(Para 2.8.1)
(d) CBDT may like to prescribe an adjustment for additions of the following items in computation of book profit, which were considered for addition under normal provision:
(i) Bogus purchases/undisclosed income/unaccounted income
(ii) Transfer pricing adjustments on items having direct bearing on the profit and loss account
(iii) Statutory dues not paid within due date of filing of return of income
(iv) Expenditure on Corporate Social Responsibility (CSR)
(Para 2.8.2. to 2.8.5)
(e) CBDT may like to introduce a provision in the Act for disallowance of MAT credit of the amalgamating company on discontinuance of their business by the amalgamated company after amalgamation.
(Para 2.8.6)
The CBDT during exit conference agreed to examine all the issues above and stated that feasibility of issuing a circular/clarification if required will be explored.
Chapter 3 : Extent of non-compliance of MAT provisions
3.1 This chapter addresses the issues relating to the compliance of the special provisions; whether there was compliance to the provisions relating to payment of taxes under special provisions and whether the tax credit allowed to the assessees was as per special provisions of the Act.
During audit, we came across several issues/instances where non-compliance to the provisions of Act/Rules were noticed. Broad category wise details of mistakes noticed during the performance audit shown in the Table below are discussed in ensuing paragraphs:
| Table 3.1: Extent of non-compliance of MAT provisions | |||
| Para No. |
Nature of Mistakes | Assessment cases |
Tax effect (Rs. in crore) |
| 3.2 | Items not added to net profit in computation of book profit | 181 | 1993.19 |
| 3.3 | Incorrect deduction from net profit in computation of book profit | 28 | 48.60 |
| 3.4 | Irregular allowance of MAT credit | 277 | 1559.21 |
| 3.5 | Incorrect allowance of brought forward business loss/ unabsorbed depreciation as per books of account | 37 | 22.97 |
| 3.6 | Incorrect reduction of the amount withdrawn from the reserve | 13 | 15.08 |
| 3.7 | Non-observance of procedure laid down for allowing exemption to sick industrial companies from computation of book profit |
9 | 0 |
| 3.8 | Non selection of case for scrutiny | 1 | 75.51 |
| 3.9 | Other instances of non compliance of special provisions of MAT | 43 | 88.91 |
| Total | 589 | 3803.47 | |
3.2 Items not added to net profit in computation of book profit
We noticed 181 assessment cases where the book profit was not increased by prescribed adjustments involving short levy of tax of Rs. 1993.19 crore.
3.2.1 Income tax paid or payable and provision thereof not considered for book profit
For computing book profit, the net profit as shown in the profit and loss account for the relevant previous year shall be increased50 by the amount of income tax paid or payable and the provision thereof where amount of the ‘income tax’ shall include any tax on distributed profits/ distributed income51, any interest charged under this Act, surcharge, education cess and secondary
and higher education cess on income tax, if any, levied by the Act from time to time. Further, it has been judicially held52 that the ‘income tax’ paid in foreign countries has to be added for computation of book profit.
We noticed 28 assessment cases in 12 states53 where income tax paid to the extent of Rs. 64.98 crore were considered for disallowance under normal provision but not considered for computing book profit involving tax effect of Rs. 13.28 crore (Appendix 19).
| Box 3.1: Illustrative cases on income tax paid or payable and provision thereof not considered for book profit
(a) Charge: Pr. CIT 1 Mumbai Assessee had added back Rs. 4.84 crore, Rs. 5.76 crore, Rs. 4.97 crore and Rs. 5.40 crore debited towards tax paid on non monetary perquisites of employees in computation of income under normal provisions for the above AYs respectively which were accepted by the ITD. However, AO did not consider the same for computation of book profit under MAT. Omission resulted in short computation of book profit of Rs. 20.97 crore involving tax effect of Rs. 4.05 crore including excess set off of MAT credit of Rs. 99.43 lakh for AY 2012-13. Reply of the ITD was awaited. (b) Charge: Pr. CIT-LTU, Mumbai Assessee had added back Rs. 4.34 crore and Rs. 8.75 crore debited towards tax paid54 on non monetary perquisites of employees in computation of income under normal provisions for the two AYs respectively which were accepted by the ITD. However, AO did not consider the same for computation of book profit under MAT. Omission resulted in short computation of book profit of Rs. 13.09 crore involving tax effect of Rs. 2.62 crore. ITD did not accept the observation stating that the book profit are different from taxable income under normal provisions and merely because some additions are made under the normal provision does not follow that the same additions are also to be made under MAT provisions. Further, the tax referred to in section 40(a)(v) was not an income tax for the assessee company and hence could not be added back under MAT computation in absence of any specific provision (February 2017). Reply was not tenable as the ITD had not disputed the fact that the tax paid on behalf of employees was ‘income tax’. The only dispute is that such income tax is not related to the assessee company but on behalf of employees. Explanation 1(a) below section 115JB(2) of the Act does not specify whether income tax paid by the assessee on its own income only is to be added back while computing book profit. |
3.2.2 Expenditure relatable to any exempt income not considered for book profit
For computing book profit, the net profit as shown in the profit and loss account for the relevant previous year shall be increased55 by the amount or amounts of expenditure relatable to any income under section 10 to 12. Further from AY 2008-09 onward, the computation of expenses relatable to income not forming part of total income56 shall be computed as per Rule 8D of Income Tax Rules.
We noticed 84 assessment cases in 15 states57 where expenses relatable to income not forming part of total income was not added back to book profit which involved tax effect of Rs. 102.03 crore (Appendix 20).
| Box 3.2: Illustrative cases on expenditure relatable to any exempt income not considered for book profit
(a) Charge: Pr. CIT-2, Mumbai AO restricted the disallowance under section 14A at Rs. 65.48 lakh being one percent of the exempt income relying on decision58 of AY 2001-02 delivered in assessees’ own case whereas expenses relatable to income not forming part of total income for the year worked out to Rs. 166.02 crore as per Rule 8D and should have disallowed accordingly. Omission resulted in short computation of book profit of Rs. 165.37 crore involving tax effect of Rs. 34.66 crore. Reply of the ITD was awaited. (b) Charge: CIT Gandhinagar AO, while computing income under normal provisions, disallowed expenses of Rs. 5.25 crore relating to exempt income under section 14A. However, the same was not considered for computation of book profit under section 115JB by the AO. Omission resulted in short computation of book profit of Rs. 5.25 crore involving tax effect of Rs. 1.42 crore. Reply of the ITD was awaited. |
3.2.3 Amount set aside as provision for diminution in the value of any asset not considered for computation of book profit
One of the specified adjustments59 to be made to book profits is towards the ‘Provision for Diminution in the value of any Asset’ debited to the profit and loss account which needs to be added for computation of the book profit. This amendment to section 115JB by the Finance Act 2009 was made effective retrospectively from 1 April, 2001.
We noticed 47 assessment cases in 12 states60 where amount set aside as provision for diminution in value of asset was not added while computing book profit involving tax effect of Rs. 1827.86 crore (Appendix 21).
| Box 3.3: Illustrative cases on amount set aside as provision for diminution in value of asset not considered for computation of book profit
(a) Charge: Pr. CIT-2, Mumbai While computing book profit, AO did not add the provisions of Rs. 4461.54 crore for diminution in value of asset (NPA) as well as various other provisions. Besides, profit of Rs. 813.47 crore pertaining to foreign branches was also reduced, which was not an allowable adjustment under special provisions. Omission resulted in short computation of book profit of Rs. 5275.01 crore involving tax effect of Rs. 1105.67 crore. Reply from the ITD was awaited. (b) Charge: CIT-7, New Delhi While computing book profit, AO, interalia, did not add the provisions of Rs. 1866.58 crore for diminution in value of assets for the above three AYs. Omission resulted in short computation of Rs. 1866.58 crore involving tax effect of Rs. 293.90 crore. Reply from the ITD was awaited. (c) Charge: Pr. CIT-1, Bhubaneswar While computing book profit, AO did not add provision of Rs. 210 crore for bad and doubtful debts debited to profit and loss account. Omission resulted in short computation of book profit of Rs. 210 crore involving tax effect of Rs. 56.07 crore. Reply from the ITD was awaited. (d) Charge: Pr. CIT-5, Hyderabad While computing book profit, AO did not add Rs. 73.10 crore as provision for inventory obsolescence debited under the head material cost61 as this being a provision for diminution in the value of asset. Omission resulted in short computation of book profit of Rs. 73.10 crore involving tax effect of Rs. 20.31 crore. Reply from ITD was awaited. (e) Charge: Pr. CIT-1, Patna While computing book profit, AO did not add the provision for bad and doubtful debts of Rs. 6.43 crore, Rs. 19.34 lakh and Rs. 76.28 lakh for the above AYs respectively. Besides, disallowance of Rs. 44.21 lakh under section 14A was also not considered for computation of book profit for AY 2012-13. Omission resulted in short computation aggregating Rs. 7.82 crore involving tax effect of Rs. 1.73 crore. Reply from ITD was awaited. |
3.2.4 Amount set aside as provision for unascertained liability not added back
Any amount set aside to provisions made for meeting liabilities, other than ascertained liabilities has to be added62 during computation of book profit if the same is debited to profit and loss account.
We noticed in 22 assessment cases in 11 states63 that an aggregate of Rs. 301.02 crore was debited as provision for unascertained liability but was not considered for computation of book profit. Omission resulted in tax effect of Rs. 50.02 crore (Appendix 22).
| Box 3.4: Illustrative cases on amount set aside as provision for unascertained liability not added back
(a) Charge: CIT 1, Guwahati AO disallowed Rs. 11.49 crore on account of provision of revision of pay considering it unascertained liability under normal provisions. However, the same was not added to net profit in the computation of book profit under special provisions of the Act. Omission resulted in short computation of book profit of Rs. 11.49 crore involving tax effect of Rs. 1.95 crore. Reply from ITD was awaited. (b) Charge: Pr. CIT-IV, Hyderabad AO disallowed Rs. 6.05 crore debited to profit and loss account towards ‘provision for warranty’ treating ‘provision for unascertained liability’ under normal provisions. However, the same was not added to net profit in the computation of book profit under special provisions of the Act. Omission resulted in short computation of book profit of Rs. 6.05 crore involving tax effect of Rs. 1.87 crore including interest u/s 234B. Reply from ITD was awaited. |
3.3 Incorrect deduction from net profit in computation of book profit
As per Explanation 1 below section 115JB(2) of the Act, specific deductions are prescribed under sub-clause (i) to (viii) for computation of book profit under MAT.
We noticed 28 assessment cases where book profits were reduced by deductions which are not prescribed in the Act which involved tax effect of Rs. 48.60 crore as given below:
3.3.1 Exempt income or income no longer exempt due to subsequent amendment reduced incorrectly
The net profit as shown in the profit and loss account for the relevant previous year shall be reduced64 by the amount of income to which any of the provisions of Section 1065 to 12 apply, if such amount is credited to the profit and loss account.
We noticed in 18 assessment cases in 11 states66 that exempt income were not correctly reduced from book profit which resulted in short computation of book profit of ` 376.44 crore involving tax effect of Rs. 35.87 crore (Appendix 23).
| Box 3.5: Illustrative cases on exempt income/income no longer exempt due to subsequent amendment reduced incorrectly
(a) Charge: Pr. CIT 14, Mumbai While computing book profit, AO did not add back “Share of loss in Partnership Firm” of Rs. 8.42 crore which was debited to profit and loss account. The loss from firm being exempt under Section 10(2A) is not an allowable deduction under special provisions of the Act. Omission resulted in short computation of book profit of Rs. 8.42 crore involving tax effect of Rs. 1.68 crore. Reply from ITD was awaited. (b) Charge: Pr. CIT, Goa AO allowed deduction of Rs. 5.91 crore under Section 10 on account of “profit on sale of Goa Carbon shares” for computing book profit under special provisions of the Act as claimed. However, the profit on sale of shares is not an allowable deduction under special provisions of the Act. Omission resulted in short computation of book profit of Rs. 5.91 crore involving tax effect of Rs. 1.06 crore. Reply from ITD was awaited. |
3.3.2 Incorrect claim of deduction of amounts credited to profit and loss account
As per Finance Act 2015, w.e.f. AY 2016-17, a clause was introduced under section 115JB to reduce the net profit by the amount of share of profit from AOP (Association of Persons) or BOI (Body of Individuals) if credited to profit and loss account on which no income tax is payable under section 86 of the Act.
Though above provision was not applicable prior to AY 2016-17, we noticed in 10 assessment cases in five states67 where income received from AOP was incorrectly reduced from book profit which resulted in short computation of book profit of Rs. 80.12 crore involving tax effect of Rs. 12.73 crore (Appendix 24).
| Box 3.6: Illustrative cases on allowance of profit from AOP during computation of book profit
(a) Charge: Pr. CIT(Central)-1, Chennai AO levied tax of Rs. 10.91 crore on the assessed income of Rs. 39.99 crore, arrived at after reduction of profit from AOP of Rs. 33.46 crore under normal provision. The return of income revealed that the assessee computed book profit of Rs. 41.05 crore after claiming deduction of Rs. 36.07 crore including profit of Rs. 33.46 crore from AOP. As the deduction in respect of profit from AOP was not allowable as per the Act, tax leviable under special provisions was more than the tax levied under normal provisions. Omission resulted in short computation of book profit of Rs. 33.46 crore involving tax effect of Rs. 5.47 crore. Reply from ITD was awaited. (b) Charge: Pr. CIT-3, Hyderabad AO, while computing book profit, allowed deduction of Rs. 10.53 crore, Rs. 3.43 crore and Rs. 2.03 crore for the above AYs respectively towards ‘share of incomes from joint ventures exempt under proviso (a) to section 86’, which was not an allowable deduction for computation of book profit as per the Act. Omission resulted in short computation of book profit of Rs. 15.99 crore involving tax effect of Rs. 2.88 crore. ITD did not accept the observation (June 2015) stating that the deduction under section 86 was admissible in view of the provisions of section 115JB(5), as clarified by CBDT68 that except for substitution of tax payable under the provision and the manner of computation of book profits, all other provisions of the Act including the provisions relating to charge, definitions, recoveries, etc, would apply in respect of the provisions of section 115JB. ITD further stated that amendment to section 115JB vide Finance Act, 2015 by inserting clause (fa) to Explanation 1 to section 115JB(2), effective from 1 April 2016, permitting deduction of AOP profits from computation of book profits, was intended to rationalize the provision which prior to amendment did not permit the deduction in respect of AOP profits from the computation of book profit, and hence the amendment was to be treated as ‘retrospective’ in nature, as was held in the case of CIT Vs. Alum Extrusions Ltd. 319 ITR 306. The reply was not acceptable as the book profit has to be computed strictly in accordance with the Explanation 1 to the Section 115JB. The amendment brought out by Finance Act 2015 was enacted expressly to be effective from 1 April 2016. |
3.4 Irregular allowance of MAT credit
Difference of tax paid under MAT and that would have been payable under normal provisions (if the tax is actually paid under MAT) is carried forward for set off from taxes in subsequent years (maximum 10 years69) if the taxes in the subsequent years are paid under normal provisions70. Actual set off during the subsequent years shall be restricted to the difference between the tax paid under normal provisions and that would have been payable under MAT during that year71. Further, from AY 2012-13, schedule MATC to ITR-6, applicable to companies, which provided year wise details of availability and set off of MAT credit as per the records of the assessee was introduced.
We noticed in 277 assessment cases in 21 states72 that incorrect set off/carry forward/non set off of MAT credit of Rs. 1,559.21 crore was allowed without verifying the updated status of the claims of assessee made in the ITR with reference to the assessment records.
3.4.1 Incorrect carry forward of MAT credit
As per section 115 JAA(2A) of the Act, the tax credit to be allowed under subsection (1A) shall be the difference of the tax paid for any assessment year under sub-section (1) of section 115JB and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of the Act.
We noticed in 88 assessment cases in 15 states73 where tax credit in respect of tax paid on book profit was irregularly allowed to be carried forward for set off in subsequent years involving tax effect of Rs. 868.21 crore (Appendix 25).
| Box 3.7: Illustrative case of incorrect carried forward of MAT credit
(a) Charge: Pr. CIT-2, Mumbai AO, while finalising the assessment, allowed bad debts written off of Rs. 3834.29 crore under section 36(1)(vii), which was not adjusted against the opening credit balance of provision of Rs. 2039.28 crore available u/s 36(1)(viia) as per AY 2013-14. Omission resulted in underassessment of income of Rs. 1819.68 crore under normal provisions involving tax effect of Rs. 618.51 crore thereby there was excess carry forward of MAT credit of Rs. 214.04 crore. Reply from the ITD was awaited. (b) Charge: Pr. CIT-LTU, Mumbai AO, while finalising the assessment, allowed Rs. 43.78 crore and Rs. 35.32 crore pertaining to reversal of notional loss of AYs 2008-09 and 2009-10 respectively, which was already allowed to the assessee while giving effect to order of CIT(Appeal) in the respective assessment years. Double allowance of relief resulted in underassessment of income of Rs. 43.78 crore and Rs. 35.32 crore for AYs 2009-10 and 2010-11 respectively involving excess carry forward of MAT credit aggregating Rs. 26.89 crore. Reply from ITD was awaited. (c) Charge: Pr. CIT-6, New Delhi AO, while finalising the assessment, allowed brought forward losses of Rs. 33.44 crore instead of correct amount of Rs. 10.34 crore. Omission resulted in underassessment of income of Rs. 23.10 crore involving excess carry forward of MAT credit of Rs. 5 crore. Reply from ITD was awaited. (d) Charge: Pr. CIT Central-2, Kolkata AO while finalising the assessment, determined income of Rs. 1.38 crore after allowing deduction of Rs. 21.16 crore under section 80IA. The deduction was allowed on the income including income of Rs. 12.85 crore from other sources. As the income from other source was not allowable deduction u/s 80IA, the entire amount of Rs. 12.85 crore should have been disallowed. Omission resulted in underassessment of income of Rs. 11.47 crore involving tax effect of Rs. 3.85 crore including excess MAT credit of Rs. 2.13 crore. Reply from ITD was awaited |
3.4.2 Irregular set off of MAT credit
As per section 115 JAA(5) of the Act, set off in respect of brought forward tax credit shall be allowed for any assessment year to the extent of the difference between the tax on his total income under normal provisions and the tax which would have been payable under the provisions of sub-section (1) of section 115JA or section 115JB, as the case may be, for that assessment year.
We noticed 182 assessment cases in 19 states74 where irregular set off of MAT credit was allowed involving tax effect of Rs. 650.07 crore (Appendix 26).
| Box 3.8: Illustrative cases on irregular/non set off of MAT credit
(a) Charge: Pr. CIT-1, Kolkata AO, while computing tax liability, allowed set off of tax credit of Rs. 4.45 crore instead of correct amount of Rs. 2.97 crore. Omission resulted in tax effect of Rs. 1.66 crore including interest under section 234B. (b) Charge: Pr. CIT, Noida AO, while computing tax liability, allowed set off of MAT credit of Rs. 2.54 crore with carry forward of the remaining MAT credit of Rs. 3.45 crore pertaining to AY 2012-13. As the tax was levied under normal provisions for the assessment year 2012-13, no credit under section 115JAA was available for AY 2012-13. Instead, credit of Rs. 40.69 lakh pertaining to AY 2011-12 was available for set off only to the assessee. The mistake resulted in incorrect allowance of MAT credit of Rs. 5.58 crore. Reply from ITD was awaited. |
Besides, in seven assessment cases in Gujarat, set off of MAT credit of Rs. 40.93 crore was not allowed to the assessee though the assessees were eligible therefor (Appendix 26.1).
Irregular claims regarding carry forward and set off of MAT credit were allowed without due verification from the relevant records.
3.5 Incorrect allowance of brought forward business loss/unabsorbed depreciation as per books of account
As per section 115JB(2) of the Act, the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account, is to be allowed as deduction during computation of book profit.
We noticed in 37 assessment cases in 15 states75 that brought forward loss or unabsorbed depreciation as per the books of account were not correctly reduced in computing book profit, which resulted in short computation of book profit involving tax effect of Rs. 22.97 crore (Appendix 27).
| Box 3.9 : Illustrative cases on incorrect allowance of brought forward business loss/unabsorbed depreciation as per books of account
Charge: CIT Udaipur While computing book profit at nil, AO reduced Rs. 1.14 crore to the extent of profit for AY 2012-13 towards unabsorbed depreciation, whereas the assessee had brought forward loss of Rs. 14.59 lakh and unabsorbed depreciation of Rs. 18.25 crore for AY 2012-13. Thus, the assessee was entitled to a deduction of Rs. 14.59 lakh only as per special provisions of the Act. Similarly, the assessee incorrectly claimed deduction of Rs. 4.10 crore to the extent of profit in AYs 2013-14 as against ‘nil’ brought forward loss/unabsorbed depreciation. Excess allowance resulted in short computation of book profit aggregating Rs. 5.10 crore involving tax effect of Rs. 1.17 crore. Reply from ITD was awaited. |
AOs did not have correct and updated status of unabsorbed depreciation/brought forward business loss as per the Companies Act at the time of assessment as it was not verifiable either from the ITR or Form 29B76 or Form of 3CB/3CD in the above 37 assessment cases leading to incorrect computation of book profit.
3.6 Incorrect reduction of the amount withdrawn from the reserve
Deduction for any amount withdrawn from any reserve and credited to profit and loss account is allowed if such amount has been considered during the computation of book profit in the year of creation of reserve77.
We noticed in 13 assessment cases in four states78 that while computing book profit, AO incorrectly reduced the amount withdrawn and credited to profit and loss account involving tax effect of Rs. 15.08 crore (Appendix 28).
| Box 3.10 : Illustrative case of claim of items withdrawn from reserve or provision and credited to profit and loss account not verified
(a) Charge: CIT-LTU, Bangalore While computing book profit, AO allowed deduction of Rs. 11.12 crore as amount withdrawn from reserve or provisions on account of bad and doubtful debts, bad debt written off and devaluation of inventory as against Rs. 4.53 crore credited to the profit and loss account towards provision written back. Omission resulted in short computation of book profit of Rs. 6.59 crore involving tax effect of Rs. 1.54 crore. Reply from ITD was awaited. (b) Charge: Pr. CIT-1, Madurai AO computed book profit at loss of Rs. 91.35 lakh under special provisions after allowing deduction of Rs. 4.72 crore on account of waiver of interest under One time settlement (OTS) as claimed. The claim under OTS was disallowed under normal provisions which, however, was not considered under MAT provision. Omission resulted in short computation of book profit of Rs. 3.81 crore involving tax effect of Rs. 1.03 crore. Reply from ITD was awaited. (c) Charge: Pr. CIT-3, Mumbai AO, while computing book profit, allowed deduction of Rs. 4.28 crore towards an amount which was withdrawn from a reserve but not credited to the profit and loss account in the year in which such reserve was created. Omission resulted in short computation of book profit of Rs. 4.28 crore involving tax effect of Rs. 85.67 lakh. Reply from ITD was awaited. |
There was no proper mechanism to check whether the amount withdrawn from a reserve was actually added during the computation of book profit in the year in which such reserve was created.
3.7 Non-observance of procedure laid down for allowing exemption to sick industrial companies from computation of book profit
Sick Industrial Companies have been allowed exemption from computation of book profit79 till its net worth becomes equal to or exceeds the accumulated book losses. For this purpose, DGIT (Administration) has been assigned the responsibility80 to represent the CBDT before BIFR81 and AAIFR82 in every case in which Income Tax reliefs is sought under the Draft Rehabilitation Scheme or in the Sanctioned Scheme circulated by BIFR/AAIFR under the Sick Industrial Companies (SICA) Act, 1985 for getting the approval of CBDT and communicating the same to BIFR and the concerned assessing officer. The assessing officer shall give the Income Tax reliefs to sick companies only after obtaining such approval.
We noticed in nine assessment cases in Maharashtra that the AO did not apply the special provisions for computation of book profit stating that the assessees had fulfilled the criteria laid down under section 115JB for having been declared a sick company as per the hearing of the BIFR. There was nothing on record to ensure whether the procedure prescribed for getting the approval of CBDT through DGIT (Administration) for excluding the assessees from application of MAT provisions was followed though the certificate of BIFR for declaring the company sick under section 17(1) of the SICA Act, 1985 was available (Appendix 29).
3.8 Non selection of case for scrutiny
As per Instruction issued from No. F. No. 225/93/2009/ITA.II on 8 September 2010 by the CBDT on procedure and criteria for compulsory manual selection of scrutiny cases during 2011-12, one of the criteria was that “cases involving addition in an earlier assessment year in excess of Rs. 10 lakh on a substantial and recurring question of law or fact which is confirmed in appeal or is pending before an appellate authority.”
We noticed in the case of M/s. Interglobe Aviation Ltd in Delhi that the assessee company fulfilled the criteria for being selected for scrutiny assessment but was not selected (Appendix 30).
| Box 3.11 : Illustrative case on non-selection of case for scrutiny
Charge: CIT-4, New Delhi The assessee filed return of ‘nil’ income under normal provisions and offered tax under MAT for AY 2011-12, which was processed in summary manner. The assessee received Rs. 227.39 crore from International Aero Engine (IAE) which was not offered for tax. Such receipt was assessed as income by AO in AYs 2010-11 and 2012-13 in the assessment completed after scrutiny. However, the return for AY 2011-12 was not selected for scrutiny though it was a fit case for scrutiny selection as per CBDT’s instructions. Escapement of income of Rs. 227.39 crore from tax under normal provision resulted in excess carry forward of MAT credit of Rs. 75.51 crore. Further, the MAT credit of Rs. 225.10 crore including Rs. 134.55 crore pertaining to AY 2011-12 was claimed as carry forward in AY 2012-13. Out of this, ITD allowed set off of Rs. 136.27 crore during scrutiny proceedings in subsequent years. Reply from ITD was awaited. |
3.9 Other instances of non-compliance of special provisions of MAT
Section 143(3) of the Act provides that AOs have to determine and assess the income correctly. CBDT has also issued instructions from time to time in this regard.
We noticed in 43 assessment cases in 13 states83 where the mistakes in computation of book profit resulted in short levy of tax of Rs. 88.91 crore (Appendix 31).
| Box 3.12 : Illustrative cases on other mistakes
(a) Charge: Pr. CIT-LTU, Mumbai AO, while computing book profit, did not add back Rs. 27.86 crore and Rs. 48.28 crore for above AYs respectively pertaining to pre-commencement revenue expenses incurred for SEZ Unit. Omission resulted in short computation of book profit aggregating Rs. 76.14 crore involving tax effect of Rs. 14.36 crore. Reply from the ITD was awaited. (b) Charge: Pr. CIT-LTU, Mumbai Assessee, while computing book profit, reduced Rs. 29.75 crore on account of ‘Prior period adjustment’, which was accepted by AO though the same was not an item covered under prescribed adjustments. As a result, the tax was levied under normal provisions of the Act. The mistake resulted in short computation of book profit of Rs. 29.75 crore involving tax effect of Rs. 2.25 crore. Reply from ITD was awaited. (c) Charge: Pr. CIT-6, Chennai AO, while computing book profit, started computation with book profit of Rs. 3.92 crore instead of correct figure of Rs. 9.20 crore. Incorrect adoption of figure resulted in short computation of book profit of Rs. 5.28 crore involving tax effect of Rs. 1.22 crore. Reply from ITD was awaited. |
3.10 Conclusion
Mistakes in computation of book profit/allowance of MAT credit were noticed in 589 assessment cases, involving tax effect of Rs. 3803.47 crore.
AOs did not have correct and updated status of unabsorbed depreciation/brought forward business loss as per the Companies Act at the time of assessment. It was not verifiable either from the ITR or Form 29B84 or Form of 3CB/3CD in 37 assessment cases leading to incorrect computation of book profit.
3.11 Recommendations
CBDT may like to append a schedule or an annexure showing year wise bifurcated details of business loss and unabsorbed depreciation as per the Companies Act as well to Form 29B/ Tax Audit Report/ITR 6 so that their updated status is considered at the time of assessment. .
(Para 3.5)
The CBDT during exit conference stated that it may be difficult to have a separate annexure /schedule but agreed to have a view in the assessment information system (AST) where the details of brought forward business loss and unabsorbed depreciation as per the Companies Act will also be visible.
Chapter 4 : Bringing Zero Tax Companies into the tax base
4.1 This chapter addresses the question whether all the companies are filing returns of their income and whether the ITD has taken adequate steps to identify them to bring into tax net.
4.2 Status of filing return of the income by the corporate assessees
All the corporate assessees are compulsorily required to file their returns of income with ITD irrespective of income or losses.
With a view to ascertaining the status of filing of return by corporate assessees, we compared the data obtained from different sources viz. Ministry of Corporate Affairs, DGIT (Systems) and DGIT (Logistics, Research & Statistics) 85 as shown in the table below:
(Figures. in lakh)
| Table 4.1: Number of active companies registered with ROC and filing return with ITD | |||
| Financial Year |
Working companies as per ROC on 31st March |
Corporate assessees as per DGIT (Logistics, Research & Statistics) Wing, New Delhi |
difference between the working companies registered with ROC and the companies reported by DGIT (Logistics, Research & Statistics) |
| 2012-13 | 8.84 | 5.90 | 2.94 (33.3%) |
| 2013-14 | 9.52 | 6.36 | 3.16 (33.2%) |
| 2014-15 | 10.16 | 6.75 | 3.41 (33.6%) |
| 2015-16 | 10.82 | 6.88 | 3.94 (36.4%) |
The difference between the working companies registered with ROC and the number of companies reported by DGIT (Logistics, Research & Statistics) ranged from 2.94 lakh (33.3%) to 3.94 lakh (36.4%) which indicates the extent of non filing/stop filing of the return of income by the companies. About one third of the companies registered with the ROC were not in the database of the ITD.
Further, due to non furnishing of list of the companies by the ITD, audit could not compare the list of assessees from that available with the ROC and hence could not comment on specific non filers/stop filers assessees.
4.2.1 Action taken by ITD on corporate non filers
CBDT introduced86 a Non filers Monitoring System (NMS) as a pilot project to prioritize action on non-filers with potential tax liabilities through the use of the system. The system is followed by Standard Operating Procedure (SOP) as below:
(i) A letter is to be issued to the assessee within 15 days of the case being assigned in NMS. On delivery of the letter, the AO should capture the delivery date in the NMS module. If the letter is not delivered, the AO should issue letter to the alternate address. In case the AO is not able to serve the letter and identify the taxpayer, he should mark “Assessee not traceable” in NMS.
(ii) On receipt of the return from the non filer, the AO should capture the details in Assessment Information System (AST) within 15 days of filing of return. If the assessee informs that paper return has already been filed which was not captured in AST, the details of return should be entered in AST module. If no return is required to be filed in a case, the AO should mark accordingly in NMS;
(iii) f return is not filed by identified assessee within 30 days of the time given, the AO should consider initiation of proceedings u/s 142(1)/148 in AST. Such cases will be processed every week by Directorate of System and will be marked as closed in NMS if (a) details of return are available in AST (b) Notice u/s 142(1) or 148 has been issued (c) “No return is required” is marked by the assessing officer.
Audit attempted to verify the action taken by ITD in respect of non filers. We sought from DGIT (Systems) 87 data, in respect of non filers which was not furnished. Individual CCsIT/CsIT was also asked to furnish the data/details in respect of non filers. We received information relating to non-filers from 42 Pr. CIT charges in Andhra Pradesh and Telangana, Delhi, Jharkhand, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Tamil Nadu and Uttar Pradesh charges only as shown in the Table below:
Table 4.2 : Action taken by ITD on corporate non filers |
|||||
Sl. No |
Commissionerate |
Corporate
|
Cases where letters/ notices issued |
Cases where ITR was filed in response to letters/ notices issued |
Cases where
|
1. |
PCIT-II, Hyderabad |
865 |
845 |
263 |
582 |
2. |
PCIT-V, Hyderabad |
475 |
535 |
167 |
368 |
3. |
PCIT (Central), Hyderabad |
53 |
53 |
20 |
33 |
4. |
PCIT-I, Visakhapatnam |
22 |
18 |
5 |
13 |
5. |
PCIT-II, Visakhapatnam |
441 |
49 |
44 |
5 |
6. |
PCIT, Rajahmundry |
605 |
0 |
0 |
0 |
7. |
PCIT-Ranchi |
225 |
225 |
38 |
187 |
8. |
PCIT-Jamshedpur |
30 |
30 |
0 |
30 |
9. |
PCIT-Dhanbad |
56 |
56 |
0 |
56 |
10 |
PCIT-Hazaribag |
11 |
11 |
0 |
11 |
11 |
PCIT-Central-Patna |
7 |
7 |
0 |
7 |
12 |
PCIT-1, Bengaluru |
150 |
124 |
28 |
96 |
13 |
PCIT-2, Bengaluru |
211 |
173 |
41 |
132 |
14 |
PCIT-3, Bengaluru |
121 |
38 |
15 |
23 |
15 |
PCIT-4, Bengaluru |
178 |
106 |
31 |
75 |
16 |
PCIT-5, Bengaluru |
196 |
149 |
30 |
119 |
17 |
PCIT-6, Bengaluru |
369 |
366 |
71 |
295 |
18 |
PCIT-7, Bengaluru |
322 |
289 |
67 |
222 |
19 |
PCIT-1, Chennai |
905 |
905 |
160 |
745 |
20 |
PCIT-2, Chennai |
453 |
453 |
48 |
405 |
21 |
PCIT-3,Chennai |
274 |
274 |
37 |
237 |
22 |
PCIT-4, Chennai |
231 |
231 |
22 |
209 |
23 |
PCIT-5, Chennai |
493 |
493 |
130 |
363 |
24 |
PCIT-6, Chennai |
34 |
34 |
8 |
26 |
25 |
PCIT-1, Kochi |
866 |
866 |
405 |
461 |
26 |
PCIT, Kottayam |
16 |
16 |
3 |
13 |
27 |
PCIT, Kozhikode |
421 |
421 |
180 |
241 |
28 |
PCIT, Thiruvananthapuram |
376 |
376 |
148 |
228 |
29 |
PCIT, Thrissur |
197 |
197 |
142 |
55 |
30 |
CIT LTU, Mumbai |
0 |
0 |
0 |
0 |
31 |
JCIT 14(2), Mumbai |
268 |
268 |
124 |
144 |
32 |
Central Range-6, Mumbai |
9 |
9 |
2 |
7 |
33 |
Addl. CIT 14(1), Mumbai |
293 |
267 |
267 |
26 |
34 |
PCIT Gwalior |
28 |
27 |
0 |
28 |
35 |
PCIT-I Indore |
32 |
31 |
0 |
32 |
36 |
PCIT 7 Delhi |
251 |
251 |
96 |
155 |
37 |
Bareilly |
2452 |
10 |
2 |
8 |
38 |
Ghaziabad |
104 |
104 |
0 |
104 |
39 |
I-Lucknow |
317 |
313 |
41 |
272 |
40 |
II-Lucknow |
190 |
190 |
34 |
156 |
41 |
Meerut |
55 |
55 |
11 |
39 |
42 |
Noida |
148 |
148 |
NA |
NA |
Total |
12750 |
9013(70.69%) |
2680(29.73%) |
||
Note: Data pertaining to PCIT 7, Delhi may include both corporate and non corporate non filers |
|||||
It is seen from the Table above that out of 12,750 identified non filers, ITD issued notices in 9013 (70.69 per cent) cases only. Of them, only 29.73 per cent of the corporate non filers identified by the ITD had filed their income tax return in response to the notices issued by the ITD whereas no return has been filed in remaining 6,208 cases so far.
Audit further wanted to analyse the non filers list to see if any pattern or insight regarding the nature of the non filers emerge. However, this could not be done as the list/details of non filers were not furnished.
ITD was asked to produce the files of those corporate assesees who filed returns in response of the notices issued by the ITD for examination in audit but no such file was produced to audit.
There was a need to examine as to why the notices were not issued in all the cases identified as non filers by the ITD as a corrective measure and what action is being taken by ITD in respect of the cases where no return has been filed by the assessees despite issue of notice by the ITD.
4.3 Mismatch in the details of scrutiny disposal
We verified the data furnished by DGIT (System) with those at the assessing officer level in Demand and Collection Registers and noticed wide variation in the numbers of scrutiny disposal during FY 2015-16. The mismatches regarding disposal of scrutiny cases randomly noticed during audit have been shown in Appendix 32.
Actual disposal of scrutiny cases as per Demand and Collection Register in Andhra Pradesh and Telangana, Gujarat, Jharkhand, Kerala and Rajasthan was less than those indicated in the data provided by DGIT (Systems) whereas the reverse was true in Bihar, Karnataka, Maharashtra, North East Region, Tamil Nadu, Uttar Pradesh, Uttarakhand and West Bengal. The difference needs to be reconciled.
4.4 Conclusion
During FYs 2012-13 to 2015-16, about one third of the companies registered with the ROC were not in the database of the ITD. Only 19.57 per cent of the corporate non filers identified by the ITD had filed their returns in response to the notices issued by the ITD.
There was variation in the numbers of scrutiny disposal during FY 2015-16 between data furnished by DGIT (System) and that available at the assessing officer level in Demand and Collection Registers.
4.5 Recommendations
(a) The ITD may devise a framework for accountability where AOs may be made accountable for the effective use of Non-filers Monitoring System for identification of both corporate and non corporate non filers separately so that they effectively pursue the non filers to bring them into tax net.
(Para 4.2.1)
The CBDT during exit conference agreed to have a suitable framework in this regard.
(b) ITD may pursue the cases where ITRs were not filed so as to bring them into tax net.
(Para 4.2.1)
The CBDT during exit conference agreed to look into the matter.
Chapter 5 : Impact of MAT
5.1 We attempted to ascertain whether the ITD has in place a mechanism to assess impact of MAT as well as that of MAT credit in respect of bringing zero tax companies into tax net and whether the companies with nil tax under normal provisions are paying any tax under MAT or not.
5.2 Identification of zero tax companies
5.2.1 We sought information from CBDT (TPL) in October 2016 whether the ITD had any mechanism in place to assess the impact of MAT in respect of bringing the zero tax paying companies into tax net. Besides, we also called for a list of companies paying nil tax under normal provisions as well as under special provisions together with details of total tax collected under section 115JB and MAT credit availed by the respective corporate assessees pertaining to the period from 2012-13 to 2015-16. The reply to the above queries were not furnished.
We took up the matter with Additional Secretary (Revenue)/ Chairman, CBDT in November 2016. DGIT (Systems) made available the details of 60,227 companies paying nil tax under normal provisions as well as under special provisions in January 2017.
5.2.2 Examination of the companies paying nil tax under provisions relating to MAT
We test checked 441 returns out of list of 60,227 cases supplied by DGIT (Systems) of companies that had paid nil tax under special provision. Audit noted in 24 of the 441 cases, the corporate assessees had paid tax under MAT provisions. In the remaining 417 cases, the main reasons for the corporate assessees tax liabilities becoming nil under special provisions of MAT are given below:
| Table 5.1: Companies paying nil tax MAT provisions | |||||
| Sl. No. | Items which led to nil tax liability under MAT provisions | No. of cases | Percentage in terms of cases |
Amount of deduction (Rs. in crore) |
Percentage in terms of incentives |
| 1 | Reduction of profit of a sick industrial unit | 63 | 15.1 | 24780.77 | 63.4 |
| 2 | Set off of unabsorbed depreciation or brought forward losses | 140 | 33.6 | 6004.62 | 15.4 |
| 3 | Residual unadjusted items and Deferred tax credited to P&L A/c | 11 | 2.6 | 2709.85 | 6.9 |
| 4 | Income being exempt under section 10A, 10B, 10AA, 10(26B), 10(38) etc | 101 | 24.2 | 2526.41 | 6.4 |
| 5 | Deduction of exempt dividend income | 39 | 9.4 | 867.03 | 2.2 |
| 6 | Share of profit from partnership firm being exempt | 4 | 1.0 | 689.27 | 1.8 |
| 7 | Reduction of amount withdrawn from reserve/provision | 12 | 2.9 | 312.12 | 0.8 |
| 8 | Profits exempt, the assesse being engaged in life insurance business | 4 | 1.0 | 248.63 | 0.6 |
| 9 | Provision written back | 4 | 1.0 | 211.96 | 0.5 |
| 10 | Any other amount allowable as deduction | 7 | 1.7 | 198.52 | 0.5 |
| 11 | Reduction of profit on sale of agriculture land /agriculture income being exempt |
24 | 5.8 | 179.35 | 0.5 |
| 12 | Deduction of gratuity/Power and fuel expenses not debited to P&L Account | 2 | 0.5 | 159.61 | 0.4 |
| 13 | Income exempt by virtue of Sec 90(2) | 2 | 0.5 | 113.07 | 0.3 |
| 14 | Reduction of provisions for Diminution in value of investment |
3 | 0.7 | 55.26 | 0.1 |
| 15 | Investment written off adjusted against provision | 1 | 0.2 | 41.02 | 0.1 |
| Total | 417 | 39097.49 | |||
In terms of number of returns/cases, set off of unabsorbed depreciation and/or brought forward losses (33.6 per cent), income being exempt under section 10A, 10B, 10AA, 10(26B), 10(38) etc. (24.2 per cent), reduction of profit of a sick industrial unit (15.1 per cent), deduction of exempt dividend income (9.4 per cent) and reduction of profit on sale of agriculture land /agriculture income being exempt (5.8 per cent) are the top five incentives/exemptions/ deductions accounting for 88.1 per cent of number of sample cases which are nullifying the tax liability under MAT provisions.
In terms of amount of exemptions/deductions, reduction of profit of a sick industrial unit (63.4 per cent) followed by set off of unabsorbed depreciation and brought forward losses (15.4 per cent), residual unadjusted items and Deferred tax credited to P&L A/c (6.9 per cent), income being exempt under section 10A, 10B, 10AA, 10(26B), 10(38) (6.4 per cent) and deduction of exempt dividend income (2.2 per cent) are the top five incentives/exemptions/deductions accounting for 94.3 per cent of total amount of the sample cases, which are nullifying the tax liability under MAT provisions.
5.3 Companies liable to pay tax under MAT escaping levy of MAT
The Act provides that, where in the case of an assessee being company, the income-tax payable on the total income as computed under normal provisions of the Act is less than percentage of its book profit prescribed from time to time, then such book profit shall be deemed to be the total income of the assessee. Further Explanation 1 below sub section 2 of section 115JB prescribed certain adjustment to be carried out for computing book profit.
We noticed in 34 assessment cases in 14 states88 where although tax was leviable under special provisions, it was levied under normal provisions of the Act which resulted in short levy of tax of Rs. 127.86 crore (Appendix 33).
| Box 5.1 : Illustrative cases on non-levy of tax under MAT
(a) Charge: Pr. CIT, Thrissur AO, while passing rectification order (2014), determined ‘nil’ income under normal provision and no tax was levied. However, the assessee had a book profit of Rs. 29.29 crore and was liable to pay tax under special provisions. Omission resulted in non assessment of book profit of Rs. 29.29 crore involving tax effect of Rs. 5.84 crore. Reply from ITD was awaited. (b) Charge: Pr. CIT-2, Chandigarh AO, while computing tax liability of the assessee, did not compute book profit and levied tax under normal provisions. The assessee while computing book profit claimed deduction of Rs. 43.25 crore for depreciation as per Income Tax Act in addition to book depreciation and Rs. 1.55 crore for scientific research under section 10 of the Act and offered tax under normal provision being higher of the two. As the above deductions were not an allowable adjustments under special provisions of the Act, considering the above additions the assessee was liable to pay tax under special provisions. Omission resulted in non computation of book profit of Rs. 62.67 crore involving tax effect of Rs. 12.17 crore (difference of tax to be levied under special provisions and tax levied under normal provisions). ITD did not accept the observation stating that depreciation was an allowable deduction during computation of book profit. Further, on the issue of deduction for scientific research, ITD accepted the observation but stated that even after considering the same for disallowance, the assessee would still be liable to tax under normal provisions (November 2016). The reply was not tenable as the depreciation as per Income Tax Act was not an allowable deduction. |
Although the above mentioned companies were liable to pay tax under MAT, special provisions of section 115JB were not applied in these cases.
5.4 The objective of MAT scheme nullified due to provisions of MAT credit
MAT credit under section 115JAA was introduced with effect from 1 April 1997. Subsequent to introduction of new section 115JB from AY 2001-02, the provisions for MAT credit were not applicable up to AY 2005-06 and only set off of the credit available upto AY 2000-01 was allowed which could be availed up to AY 2005-06. From AY 2006-07, the provisions of MAT credit were re-introduced allowing carry forward of MAT credit upto seven years, which was further extended upto 10 years vide Finance Act 2009. Recently, the Finance Bill 2017 has extended the period of set off to 15 years. No justification was given for reintroduction of MAT credit.
In Kerala and Maharashtra, test check of 12 assessment records pertaining to six Pr. CIT charges revealed that the MAT credit aggregating Rs. 380.53 crore brought forward from earlier years was completely availed in subsequent year(s) as shown below.
(Rs. in crore)
| Table 5.2 : Cases of MAT credit availed nullifying the scheme of MAT | ||||||
| Sr. No. | Name of the assessee/ PAN | Pr.CIT/ CIT Charge | AYs for which the MAT credit was carried forward | MAT credit carried forward | MAT credit set off | AYs in which adjusted |
| 1 | Peekay Steel castings/ AABCP3517H | Kozhikode | 2011-12 | 0.77 | 0.77 | 2012-13 |
| 2 | Malabar Institute of Medical Science/ AACCM3480H | Kozhikode | 2008-09 | 0.72 | 0.72 | 2011-12 |
| 3 | Malabar Institute of Medical Science/ AACCM3480H | Kozhikode | 2009-10 | 1.00 | 1.00 | 2011-12 2012-13 |
| 4 | Parrisons Foods Pvt. Ltd/AACCP2898J | Kozhikode | 2007-08 | 0.87 | 0.87 | 2008-09 |
| 5 | Parrisons Foods Pvt. Ltd/AACCP2898J | Kozhikode | 2013-14 | 0.25 | 0.25 | 2014-15 |
| 6 | Tata Sons/ AAACT4060A | Pr CIT 2 Mumbai | 2007-08 2008-09 | 354.54 | 354.54 | 2009-10, 2010-11, 2011-12 |
| 7 | Brinton Carpets Asia Pvt. Ltd./ AAACB7059H | Pr CIT 1 Pune | upto AY 2009-10 | 0.72 | 0.72 | 2010-11, 2011-12 |
| 8 | Igate Computer System Ltd./ AABCP6219N |
Pr CIT 1 Pune |
2011-12 | 7.68 | 7.68 | 2012-13 |
| 9 | Neelkanth Mansion and Infrastructure Pvt Ltd./ AAACN1245R | Pr CIT 14 Mumbai | 2010-11
2011-12 |
1.02 | 1.02 | 2013-14 |
| 10 | Rashtriya Chemicals & Fertilizers Ltd./ AAACR2831H | Pr CIT LTU Mumbai | 2012-13 | 8.75 | 8.75 | 2013-14 |
| 11 | Bristlecone India Ltd./ AAACM5186E | Pr CIT 2 Mumbai | 2006-07,
2007-08 2008-09 |
0.16 | 0.16 | 2010-11,
2011-12 2012-13 |
| 12 | Positive Packaging Industries Ltd./ AAACP2836Q | Pr CIT 3 Mumbai | 2009-10,
2010-11 |
4.05 | 4.05 | 2012-13 |
| Total | 380.53 | 380.53 | ||||
5.5 Conclusion
Excess of tax collected under MAT over tax under the normal provision and allowed to the assessee in the subsequent years as set off of MAT credit nullified to that extent the impact of original objective of introduction of MAT for collection of tax from companies covered under special provisions.
New Delhi
Dated: 10 July 2017
(SANJAY KUMAR)
Principle Director (Direct Taxes)
Countersigned
New Delhi
Dated: 10 July 2017
(SHASHI KANT SHARMA)
Comptroller and Auditor General of India
