IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. No: 2155AHD/2013 & C.O. No.36/Ahd/2014 & ITA No: 2156/AHD/2013 & C.O. No. 37/Ahd/2014 (Assessment Years: 2006-07 & 2008-09) Asst. Commissioner of Inc V/S M/s. J.K. Paper Limited ome-tax Circle-1, Surat P.O. Central Pulp Mills Fort-Songadh, Surat M/s. J.K. Paper Limited V/S Asst. Commissioner of Inc P.O. Central Pulp Mills ome-tax Circle-1, Surat Fort-Songadh, Surat (Appellant) (Respondent) PAN: AAACT6305N Appellant by : Mrs. Vibha Bhalla CIT/DR Respondent by : Shri S.N.Soparkar with Ms. Ukti Shah ORDER Date of hearing : 05 -10-2016 Date of Pronouncement : 18 -10-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 2 ITA Nos. 2155/Ahd/13 & C.O. No. 36/A/14 & ITA Nos. 2156/Ahd/13 & C.O. 37/A/14 . A.Ys. 2006-07 & 2008-09 1. ITA No. 2155/Ahd/2013 & C.O. No. 36/Ahd/2014 are appeal of Revenue and cross objection of Assessee directed against very same order of Ld. CIT(A)-1, Surat dated 10.06.2013 and ITA No. 2156/Ahd/2013 and C.O. No. 37/Ahd/2014 are appeal of Revenue and cross objection by Assessee preferred against very same order of ld. CIT(A)-1, Surat dated 10.06.2013 for A.Y. 2006-07 & 2008-09 respectively. 2. Appeals of revenue and cross objections of Assessee were heard together and disposed of by this common order for sake of convenience. ITA No. 2155/Ahd/2013 & C.O. 36/Ahd/2014 for A.Y. 2006-07 3. sum and substance of grievance of revenue is that ld. CIT(A) erred in annulling assessment order made u/s. 147 r.w.s. 143(3) of Act vide order dated 25.10.2012. 4. Briefly stated facts of case are that original assessment was made u/s. 143(3) of Act vide order dated 26.12.2008. completed assessment was reopened by notice issued u/s. 148 dated 23.03.2012. date of notice clearly shows that completed assessment has been reopened beyond period of 4 years from end of relevant assessment year. 3 ITA Nos. 2155/Ahd/13 & C.O. No. 36/A/14 & ITA Nos. 2156/Ahd/13 & C.O. 37/A/14 . A.Ys. 2006-07 & 2008-09 5. reasons recorded by Assessing Officer for reopening assessment reads as under:- " assessee is engaged in business of manufacturing and trading of paper. assessee filed its revised return of income on 22. 09. 2007 declaring NIL income after set off of unabsorbed depreciation of Rs 16,52,47,1307- and paid tax u/s 115 JB . case was finalized u/s 143 (3) of I T Act deciding total assessed income of Rs NIL after making addition of Rs 9,16,87,6207- and enhancing book profit by Rs 4,75,46,243/-forthe purpose of MAT. As per explanation below section 115JB of Act, for purpose of this section, ' book profit means net profit as shown in profit and loss account for relevant previous year prepared under sub - section (2), as increased by [g] amount of income tax and provision thereof [h] amount of carried to any reserves, [i] amount of set aside by way of provisions made for meeting liability, [j] amount by way of provisions for losses [k] amount of dividend paid or proposed [I] amount of expenditure relatable to any income to which section 10 section 10A or section 10B or section 11 or 12 apply. If any of such item debited to P &L A/c and as reduced by [c] amount withdrawn from any reserve or provision [d] amount of income to which section 10 or 10A or 10B or 11 or 12 apply and Further more (c- g). Scrutiny of assessment records revealed that while computing book profit for purpose of 115JB did not add back provision of FBT of Rs 1,05,74,900/- and expenditure of Rs 58,60,628/- incurred on social forestry to earn exempted income ( as per assessment order dated 26.12.2008 ( clause 2) as per explanation 4 ITA Nos. 2155/Ahd/13 & C.O. No. 36/A/14 & ITA Nos. 2156/Ahd/13 & C.O. 37/A/14 . A.Ys. 2006-07 & 2008-09 given below said provision. Omission to do so, has resulted in under assessment of book profit of Rs 1,64,35,528/- ". 6. Having heard rival contentions, we have carefully perused orders of authorities below. Undisputedly, notice was issued after 4 years from end of relevant assessment year, therefore proviso to Section 147 squarely apply on facts of case. 7. perusal of reasons mentioned hereinabove shows that A.O. reopened assessment for making addition of provision of FBT of Rs. 1,05,74,900/- and expenditure of Rs. 58,60,629/- incurred on Social Forestry for earning exempt income. 8. We find that provision of FBT was mentioned in Profit and Loss account which was before Assessing Officer at time of original assessment proceedings. Therefore, it cannot be said that there was failure on part of assessee to disclose truly and fully all material facts before Assessing Officer. 9. So far as expenditure of Rs. 58,60,628/- is concerned, we find that this amount was added by A.O. in computation of income as per normal provisions of Act. Therefore, it cannot be said full facts related to this issue were not disclosed before A.O. at time of original assessment. 5 ITA Nos. 2155/Ahd/13 & C.O. No. 36/A/14 & ITA Nos. 2156/Ahd/13 & C.O. 37/A/14 . A.Ys. 2006-07 & 2008-09 10.Considering above facts and totality, we find that there was no failure on part of assessee to disclose truly and fully all material facts before Assessing Officer at time of original assessment proceedings. 11.In light of proviso to Section 147 of Act, we do not find any error or infirmity in findings of ld. CIT(A). Appeal filed by Revenue is accordingly dismissed. 12.The learned Senior Counsel did not press Cross Objection of Assessee; therefore same is dismissed as not pressed. ITA No. 2156/Ahd/2013 & C.O. No. 37/Ahd/2014 for A.Y. 2008-09. 13.The substantive grievance of revenue reads as under:- 1. On facts and circumstances of case, whether Ld CIT(A) is justified in deleting addition of Rs.6,13,84,689/- made on account of adjustment of MAT credit entitlement while computing book profit u/s.115JB? 2. On facts and circumstances of case, whether Ld CIT(A) is justified in deleting addition of Rs.1,83,67,000/- out of total addition of Rs.2,88,96,000/- made on account of Exchange fluctuation as repayment of loan by assessee was capital in nature? 14.The first grievance relates to deletion of addition of Rs. 6,13,84,689/- towards adjustment of MAT credit entitlement for computing book profit u/s. 115JB. 6 ITA Nos. 2155/Ahd/13 & C.O. No. 36/A/14 & ITA Nos. 2156/Ahd/13 & C.O. 37/A/14 . A.Ys. 2006-07 & 2008-09 15.During course of scrutiny assessment proceedings and on verification of assessment records, A.O. noticed that assessee has credited amount of Rs. 6,13,84,689/- as MAT credit entitlement which was not reduced from net profit for computing book profit. Drawing support from Explanation 1 to section 115JB of Act, A.O. was of opinion that there is no provision for any adjustment in respect of MAT credit entitlement credited to Profit and Loss account. assessee was asked to justify its claim. 16.The assessee filed detailed reply vide letter dated 07.09.2012, main contentions of assessee reads as under:- 1. above adjustment is in accordance with Explanation (1) below section (2) of section 115JB of Act, wherein it is specified that ' Book Profit ' means net profit as shown in profit in profit and loss account for relevant previous year prepared under sub- section (2) as reduced by ' amount of deferred tax, if any such amount is credited to profit and loss account " Since, MAT credit entitlement of Rs 613.85 lac credited to Profit & Loss account is recoverable tax as prescribed in section 115JAA of Act same therefore is Deferred tax. Therefore, credit of MAT credit entitlement of Rs 613. 95lac was correctly deducted by assessee while computing 'Book Profit . 1. Without prejudice on above contention, we submit that MAT credit entitlement is also tax as defined in section 115JAA of Act, which is adjustable in future years subject to certain condition as prescribed in section 115JAAofthe Act. Explanation (1) below sub - section (2) of section 115JB of Act prescribes that for purpose of this section, ' book profit ' mans that net profit as shown in 7 ITA Nos. 2155/Ahd/13 & C.O. No. 36/A/14 & ITA Nos. 2156/Ahd/13 & C.O. 37/A/14 . A.Ys. 2006-07 & 2008-09 profit and loss account for relevant previous year prepared under section (2), as increased by :- a) amount of income tax paid or payable, and provision therefore ...... Since MAT credit is of same nature as on income tax, adjustment of same is also required while computing book profit u/s 115 JB. 2. Further without prejudice to above contentions, we submit that spirit of section 115 JB of Act is to bring all adjustments under tax net which are in nature of appropriation of profit as per Schedule-VI. In this regard, we refer Circular no. 1/2009 dated 27. 03.2009 issued by CBDT wherein it gives explanatory note to provisions of Finance Act, 2008 In paragraph No.22 to 22. 4 of aforesaid circular, CBDT has clarified intention of law relating to adjustments u/s 1115 JB as under :- Clarification on add back of ' deferred tax ' dividend distribution tax , etc for calculating book profit under section 115JB. Section 115JB of Income - tax Act provides for levy of minimum alternate tax (MAT) on basis of book profits of company. As per Explanation after sub - section(2), expression ' book profit ' means net profit as shown in profit and loss account prepared in accordance with provisions of Part II and III of Schedule VI to Companies Act, 1956, as increased or reduced by certain adjustments, as specified in that section. Clause (a) of aforesaid Explanation , inter - alia provides for increasing book profits by income - tax paid or payable and provision therefore; if debited to profit and loss account. intention behind these add back is that items which mainly appear below line ' in profit and loss account should be added back to arrive at ' book profit' if they appear "above line ' in profit and loss account. Section 115JB has not specifically provided for add back of some such ' below ' line ' items like deferred tax, dividend distribution tax, etc as they were thought to be included in term ' income - tax ' However, there has been some ambiguity regarding add back of these items if debited to profit and loss account. 8 ITA Nos. 2155/Ahd/13 & C.O. No. 36/A/14 & ITA Nos. 2156/Ahd/13 & C.O. 37/A/14 . A.Ys. 2006-07 & 2008-09 With view to clarifying intention, new clause has been (inserted after clause (g) of Explanation 1, as so numbered, so as to provide that book profit shall be increased by amount of deferred tax and provision thereof, if debited to profit and loss account. Hence, in view of above, adjustment for MAT credit Entitlement of Rs 613.85 lacs made in return and accepted in section 143 (3) order is in accordance with provisions of Act. 17.The detailed submissions of assessee did not find any favour with A.O. who was of firm belief that there is no provision for any adjustment in respect of MAT credit entitlement credited to Profit and Loss account and same was required to be reduced from net profit for computing book profit. A.O. accordingly added Rs. 6,13,84,689/- for computing book profit. 18.Assessee carried matter before ld. CIT(A) and reiterated what has been stated before Assessing Officer. 19.After considering facts and submissions, ld.CIT(A) held as under:- 10.3 contentions of Assessing Officer as well as appellant have been examined. It is apparent that MAT credit is Deferred Tax and in view of Explanation to section 115JB, 'book profit" is to be increased if tax is debited and reduced if Deferred Tax is credited in accordance with clause h and clause viii of Explanation -1. Consequently, ground no. 4 is allowed in favour of appellant. 9 ITA Nos. 2155/Ahd/13 & C.O. No. 36/A/14 & ITA Nos. 2156/Ahd/13 & C.O. 37/A/14 . A.Ys. 2006-07 & 2008-09 20.Aggrieved by this, revenue is before us. ld. D.R. placed strong reliance on assessment order. It is say of ld D.R. that MAT is not part of deferred tax. Per contra, learned Senior Counsel reiterated what has been stated before lower authorities. 21.We have given thoughtful consideration to orders of authorities below. Let us first examine how assessee has shown profit before tax in its Profit and Loss account for year ended 31.03.2008, same reads as under:- PROFIT BEFORE DEPRECIATION & TAX 10,578.03 12,250.44 Depreciation 18 5,883.56 4,961.29 PROFIT BEFORE TAX 4,694.47 7,289.15 Provision for Current Tax 741.02 550.80 Provision for fringe Benefit Tax 135.55 105.00 MAT Credit Entitlement (613.85) (550.80) PROFIT BEFORE DEFERRED TAX 4,431.75 7,184.15 Provision for Deferred Tax 254.71 2,378.38 PROFIT AFTER TAX 4,177.04 4,805.77 Debenture Redemption Reserve Written Back 209.54 484.58 Surplus brought forward 9,358.02 5,165.79 13,744.60 10,456.14 22.The book profit for MAT/Tax liability has been computed as under:- Particulars Assessment Year 2007-08 2008-09 Return filed on 30.03.10 A. Net Profit as per P & L A/c 480574564 417709631 B. Add: statutory Additions Provision for Current Tax 55079728 74101907 Provision for Deferred Tax 237838836 25470312 10500000 13554724 Provision for FBT -- 45200000 10 ITA Nos. 2155/Ahd/13 & C.O. No. 36/A/14 & ITA Nos. 2156/Ahd/13 & C.O. 37/A/14 . A.Ys. 2006-07 & 2008-09 Dimunition in value of Investment Total (B) 303418564 158326943 C. Total (A+B) 783993128 5760365574 D. Less: Permissible Deductions Transfer from General Reserve -- 69250000 MAT Credit Entitlement 55079728 61384689 10500000 13554724 Provision for FBT Dividend income exempt u/s. -- 216000 10(33) Total (D) 65579728 144405413 E. Book Profit (C-D) 718413400 431631161 F. MAT Liability @ 11.33% on E 80605983 48903811 23.It can be seen that provision for current tax is shown at Rs. 7,41,01,907/- and MAT credit entitlement has been separately shown at Rs. 6,13,84,689/- It can be further seen that provision for current tax is shown at gross amount. net amount comes to Rs. 1,27,17,218/-, if MAT credit entitlement is reduced from provision for current tax. If assessee had shown net amount of Rs. 1,27,17,218/- and added back same for computation of book profit, revenue would have accepted this computation. But for accounting principles and set guidelines both amounts were shown separately. Considering these facts in totality, we do not find any logic in making addition of Rs. 6,13,84,689/- for computing book profit; same has to be deleted. Ground No. 1 is accordingly dismissed. 24.The next ground relates to deletion of addition of Rs. 1,83,67,000/-. 11 ITA Nos. 2155/Ahd/13 & C.O. No. 36/A/14 & ITA Nos. 2156/Ahd/13 & C.O. 37/A/14 . A.Ys. 2006-07 & 2008-09 25.While scrutinizing return of income, A.O. noticed that assessee has charged Profit and Loss account with amount of Rs. 2,88,96,000/- on account of Exchange Fluctuation on repayment of Foreign Currency Term Loan. A.O. was of opinion that since repayment of loan was capital in nature; therefore, expenditure on account of exchange fluctuation on repayment of such loan was also capital in nature. assessee was asked to justify allowability of same. In its reply vide letter dated 07.09.2012, assessee placed strong reliance on judgment of Hon ble Supreme Court in case of Woodward Governor India Pvt. Ltd. 312 ITR 254. 26.The contention of assessee did not find any favour with A.O. who was of strong belief that judgment of Hon ble Supreme Court (supra) is clearly distinguishable on facts. A.O. observed that Hon ble Supreme Court has held that repayment of Foreign Exchange Fluctuation is allowable only if it is not capital in nature. But in instant case, repayment of loan is capital in nature and hence not allowable. A.O. accordingly made addition of Rs. 2,88,96,000/-. 27.Assessee carried matter before ld. CIT(A) and reiterated its claim as made during course of assessment proceedings. After considering facts, ld. CIT(A) was convinced that out of Rs. 288.96 lacs, Rs. 183.67 lacs is on account of revenue and, therefore, directed A.O. to delete addition to extent of Rs. 183.67 lacs. 12 ITA Nos. 2155/Ahd/13 & C.O. No. 36/A/14 & ITA Nos. 2156/Ahd/13 & C.O. 37/A/14 . A.Ys. 2006-07 & 2008-09 28.Aggrieved by this, revenue is before us. 29.The ld. D.R. strongly stated that bifurcation of foreign currency loss given by assessee and considered by ld. CIT(A) was not before A.O. Therefore, same needs to be verified by A.O. ld. Senior Counsel fairly conceded to this submission of ld. D.R. 30.We find that following bifurcation was given to ld. CIT(A) and considered by him:- Details of Foreign currency Loss of Rs. 288.96 lacs debited to P & L Account Loan Required Loan Loan Loan Foreign Foreign Total for Amount Repaid Outstanding Exchange Exchange Foreign purpose of During As On Loss Loss Exchange (On which F.Y. 31.03.2008 Attributable Attributable Loss such loss was 2007- To Loan To Loan O/S incurred) 08 Repaid & Recast As During On Year 31.03.2008 1 2 3 4 5 6 7(5+6) Lacs Lacs/Rs Lacs/Rs Lacs /Rs Lacs/Rs Lacs/Rs For acquiring $ 100 & 798.85 9271.64 11.90 93.39 105.29 capital assets EUR 23.51 & INR 3000 Working INR 5000 710.82 7353.04 14.22 169.45 183.67 capital & $ 50 & requirement Others buyer credit etc Total 3107.37 16624.68 26.12 262.84 288.96 13 ITA Nos. 2155/Ahd/13 & C.O. No. 36/A/14 & ITA Nos. 2156/Ahd/13 & C.O. 37/A/14 . A.Ys. 2006-07 & 2008-09 31.A perusal of aforementioned chart shows that Foreign Exchange Fluctuation loss on account of working capital is at Rs. 183.67 lacs. Since, this loss is attributable to working capital requirement, therefore, it has been considered as revenue loss. This needs to be verified by A.O. In interest of justice and fair play, we restore this issue to files of A.O. A.O. is directed to examine aforementioned chart by calling for necessary details from assessee. assessee is directed to provide necessary details for examination. Needless to mention, A.O. shall give reasonable opportunity of being heard to assessee before deciding this issue afresh. In result, Ground No. 2 is treated as allowed for statistical purpose. 32.Appeal of Revenue is allowed in part for statistical purpose. 33.The ld. Senior Counsel did not press cross objection of Assessee, therefore, same is dismissed as not pressed. Order pronounced in Open Court on 18 - 10- 2016. Sd/- Sd/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: True Copy Rajesh Copy of Order forwarded to:- 1. Appellant. 2. Respondent. 3. CIT (Appeals) 4. CIT concerned. Asst. Commissioner of Inc ome-tax Circle-1, Surat v. M/s. J.K. Paper Limited