presentation on section 115jb & 115jc

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2 INTRICACIES OF ALTERNATE MINIMUM TAX (SEC.115JC) & MINIMUM ALTERNATE TAX (SEC. 115JB) By PAWAN SINGLA [email protected]

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Page 1: PRESENTATION ON SECTION 115JB & 115JC

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INTRICACIES OF

ALTERNATE MINIMUM TAX (SEC.115JC) & MINIMUM ALTERNATE TAX (SEC. 115JB)ByPAWAN [email protected]

Page 2: PRESENTATION ON SECTION 115JB & 115JC

A.Y. 1984-85 out of top 23 12 CO'sdid notpay tax

TAX EVASION

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Section

SectionSection

115 J

115 JA115JAA

A.Y 88-89 to 91-92

A.Y.A.Y.

97-98 to 01-0297-98 to 01-02

Section 115 JBSection 115JAA

A.Y.A.Y.

01-02 to…06-07 to …

Section 115 JC A.Y. 2012-13

HISTORY –MAT and AMT

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History

of A M TParticulars Assessment year

2012-13Assessment year2013-14 onwards

Limited LiabilityPartnership

Applicable Applicable

Any other firm or any artificial juridical person, not being company

Not applicable Applicable

Individual, HUF, AOP, BOI, artificial juridical person

Not applicable Applicable if adjusted T.I.

> Rs.20 Lakh

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Chapter XII- BA (Special Provision)

Notwithstanding anything contained in this Act.Applies to all assessees other than company, who has claimed any deduction under sec 10AA or any section included in chapter VI-A part “C” other than sec 80P If regular income tax payable < alternate minimum

Alternate Minimum tax = Adjusted T.I. * 18.5%

tax, then

Adjusted Total income = T.I. + Deduction under Chapter VIA-C, 10AA

Save as otherwise provided in this Chapter, all other provisions ofthe Act shall apply to every assessee referred to in this chapter.

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Section Hit by the Provisions of AMTNewly established Units in Special Economic Zones

Infrastructure development

Development of SEZ.

Certain industrial undertakings and enterprises . Undertakings in

certain special category states. Hotel and convention centers in

specified area.

Section 10AA

Section 80-IA

Section 80-IAB

Section 80 IB

Section 80-IC

Section 80-ID

Section 80-IE

Section 80JJA

Section 80JJAA

Section 80LA

Section 80 QQB

Certain undertaking in North Eastern States.

Collection and processing of bio degradable waste.

Employment of new workman.

Offshore banking units and international financial service center.

Certain royalty to authors of books.• Section 80RRB Royalty on patents.

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Steps – A M T

by CA.K.K.Chhaparia

1.

Find regular income tax liability of non-corporate assessee ignoring A.M.T.

2. Find Adjusted Total income (ATI)Normal Total incomeAdd : Deduction claimed by assessee u/s 80HH to 80RRB or u/s 10AA and not as allowed by Assessing Officer.3. Find 18.5% of Adjusted Total Income

4. If amt computed under Step 1 is >= amt under Step 3, then AMT will not apply.However if amt under Step 3 > amt in Step 1, then ATI will be the deemed totalincome & 18.5% (+SC+EC+SHEC) of ATI will be the deemed tax liability5. The excess amount computed under Step 3 over amount in Step 1 will beavailable as AMT Credit.

6. When AMT becomes applicable, report under Form 29C needs to beobtained from a C.A.

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Case study 1Particulars Amount (Rs.)Net profit as per profit and loss account 67,60,00

0Add : Disallowance u/s 37(1) & u/s 43B 10,000Less : Deduction under section 10AA (65,00,000

)Add : LTCG (on transfer of Equity Shares in StockExchange) – Rs.6,00,000

Exempt

Gross Total Income 2,70,000Less : Deduction u/s 80G (3,000)Less : Deduction u/s 80-IB (48,000)Net Income 2,19,00

0

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Page 10: PRESENTATION ON SECTION 115JB & 115JC

Solution to Case study 1Particulars Amount (Rs.)Tax computation under normal provisionsTax on income of Rs.2,19,000 1,900Add : EC + SHEC 57Total Tax Liability (A) 1,957Computation of Adjusted Total Income (ATI)Net Income 2,19,00

0Add : Deductions claimed u/s 8O-IB 48,000Add : Deductions claimed u/s 10AA 65,00,000Adjusted Total Income 67,67,00

0Computation of Alternate Minimum Tax (AMT)18.5% of Adjusted Total Income 12,51,89

5Add : EC + SHEC 37,557Alternate Minimum Tax (AMT) (B) 12,89,45

2Tax Payable [(a) or (b), whichever is more] (rounded off)

12,89,450Alternate Minimum Tax Credit 12,87,493

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Other important points – A M T

• CA report -Form 29C (Rule 40BA).

▫ To be furnished before due date u/s 139(1). – Section 115JC(3).

• AMT shall not apply if ATI(other than firm & LLP) < Rs. 20 Lacs –Section 115JEE(2)

• AMT Credit shall be allowed for the next ten consecutive years- S.115JD

▫▫

AMT Credit shall vary consequent to assessment or appeal

No interest shall be payable on tax credit allowed.

Credit can be set off only in the year in which the Regular Tax payable

exceeds the AMT

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MAT Vs. AMT

by CA.K.K.Chhaparia

Particulars MAT AMT

Start point ofcalculation

Audited accounts Total income as per

assesseeRate of Tax 18.5% of BP 18.5% of Adjusted TIImpact on asst

/disallowancesNo impact on BP (generally)

Every addition shall impact – Sec 115JD(6)Impact of b/fd

lossNo impact(generally)

Impact TI, hence ATI

Exemption No exemption Rs.20 lacs in certaincases

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Who is liable to pay MAT1.The Finance Act, 2012 has inserted new sub-section 5A to provide that section 115JB shall not apply to any income accruing or arising to a company from life insurance business.2.Company has no taxable income but has a positive book profit.3.Where a Company has a negative net profit as per its P&L account but has positive book profit.4.Applicability to foreign companies P No.14 of 1997(1998) 100 Taxman 1 (AAR). Contrary decision in Timken Co. In re (2010) 193 Taxman 20 (AAR-ND)

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5. Exemption from MAT to developer of SEZ or unit located in SEZ has been withdrawn from AY 2012-13 by Finacne Act, 2011 by inserting a proviso in section 115JB (6)

6. Applicability of MAT to companies eligible for tax holiday refer Sidcul Industrial Association Vs State of Uttrakhand (2011) 199 Taxman 75. Ganesh Housing Corporation Vs CIT, Gujarat

7. Main Provision of Section 115JB(2) as amended by the Finance Act, 2012 a new explanation 3 brought those company also under MAT who are not required to prepare accounts in accordance with schedule VI of the company’s Act 1956 eg. Banks, Electricity companies.

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INCOMETAXRESERVE

PROVISIONSDIMINUTION INVALUE OF ASSET PROV LOSS OF SUB

REVALUATION

RESERVE DIVIDEND

DEPRECIATION

DEFERRED TAX &PROVISION

EXP FOR EXEMPTINCOME

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B/FD LOSSUNABSORBED Depreciation

Revaluation Depn,Revaluation res

SICK CO.

u/s 10, 11,12

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SOME ISSUES U/S MATA. Prior period items and extraordinary items The format of P &L account given in part II if new Schedule VI envisages distinct disclosure of extraordinary items as separate line item and is silent about prior period items However, note 5 (L) of part II of Revised Schedule VI requires disclosure in notes to accounts of aggregate expenditure and income in respect of prior period .

Reference Sree Bhagawathy Textiles Ltd. Vs. ACIT (2011) 199 Taxman 14 (Ker.)

Gulf Oil Corporation Ltd. Vs. ACIT(2008) 111 ITD 124 (HYD)

Shivshahi Punarvasan Prakalp Ltd. V.ITO (2011)15 taxmann.com 352 (Mum)

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B. Gain due to restatement at the balance sheet date of foreign currency term loan can not be reduced from the net profit for the purposes of working out “book profit”. If a profit and loss account has been made in terms of companies Act (i.e. Accounting Standards and Schedule VI), then no adjustment or tinkering is available except as provided in Explanation 1 to section 115JB(2)-City Gold Media Ltd. v. ITO [2012] 17 taxmann.com 232 (Ahd)C. Profit on sale of assets credited to profit and loss account cannot be excluded in computing book profit under section 115JB even though capital gain arising from sale of that asset is not subject to tax under normal provisions of Act by virtue of provisions of section 54EC-Technicarts (P.) Ltd. v. ITO [2011] 12 taxmann.com 1 (Mum),Growth Avenue Securities (P.) Ltd. v. DCIT[2010] 126 ITD179 (Delhi),N.J. Jose & Co. (P.) Ltd. [2008] 174 Taxman 141 (Ker.).

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D. No part of the liability that has ceased on account of settlement of loan liability of bank and credited to P & L account can be excluded even though part of the liability may represent waiver of principal amount of loan. Profit on sale of capital assets as well as profit on sale of stock in trade form part of same profit and loss and taken into account while determining the book profit. – Duke Offshore Ltd. v. DCIT [2011] 45 SOT 399 (Mum.)E. Long term capital gain exempt under section 47(iv) can not be reduced from net profit. Rain Commodities Ltd. [2010] 40 SOT 265 (Hyd.)(SB)F. Interest on borrowed capital not debited to P&L account and capitalized as part of cost of new project can not be reduced from net profit.- CIT v. Avery Cycle Industries[2004] 89 ITD 497 (Chd.)

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G. Where Government of India had waived loan and interest thereon due from assessee and assessee did not incorporate effect of waiver in its books of account, though it disclosed details of waiver in its annual report placed before shareholders, AO was justified in adding amount of interest waiver to arrived at book profit. Hindustan Shipyard Ltd. v. DCIT [2010] 130 TTJ 213 (Vishakhapattanam)H. Arrears of depreciation for past years debited due to change in method of depreciation from Straight Line Method (SLM) to Written Down Value (WDV) method and debited to profit and loss account should not be added back to net profit working out book profit. Kinetic Motor Co. Ltd. v. DCIT [2003] 133 Taxman 956 (Bom).However, dissented judgement has been given by MP High Court in case of Gilt Pack Ltd. V. UOI [2007] 163 taxman 331

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I. Amount or amounts set aside as provision for diminution in value of any asset was inserted by Finance Act, 2009 with retrospective effect from AY 2000-2001. The above amendment was carried out to overcome the Supreme Court decision in CIT v. HCL Comnet Systems & Services Ltd. [2008] 174 Taxman 118 example- provision for doubtful debts, provision for impairment, provision for fall in value for investment.

J. Amount of Defferred Tax and provision therefore was inserted by same Finance Act, 2008 with retrospective effect AY 2001-02. The above amendment was carried out overcome the ITAT’s decision in ACIT v. Balarampur Chini Mills Ltd. [2007] 14 SOT 372 (Kol.)

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K. Addition of expenditures related to tax free income to net profits as per clause (f) of explanation 1 below section 115JB. The disallowance made u/s 14A is to be added back to book profit as held by EIH ASSOCIATED HOTELS LTD v/s DCIT, 2013-TIOL-796-ITAT-MAD & Income-tax Officer, Ward -4(2)(3), Mumbai v/s RBK Share Broking (P.) Ltd. [2013] 37 taxmann.com 128 (Mumbai - Trib.) Delhi High court in case of  CIT v/s GOETZE (INDIA) LTD (,2014) 97 DTR(DEL) 169  has reversed the order of ITAT and has held that disallowance u/s 14A has to be added to Book profit u/ s115JB.

L. The Finance Act, 2006 introduced clauses (g), (iia) and (iib) in explanation 1 below section 115JB. The implication of above three clauses are that the company does not stand to benefit from a MAT prospective by upward revaluation of assets and debiting higher depreciation (on revalued amounts) to P & L account and reducing net profit.

M. Addition to net profit of income-tax amountAmount of Income-taxAccording to Explanation 2 below section 115JB(2), for the purposes of clause (a) of Explanation 1, the amount of income-tax shall include-

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Page 24: PRESENTATION ON SECTION 115JB & 115JC

(i) Any tax on distributed profits under section 115-O (dividend distribution – i.e. DDT) or tax on distributed inocme under section 115R;

(ii) Any interest charged under this Act;(iii) Surcharge, if any, as levied by the Central Acts;(iv) Education cess on income-tax, (v) Secondary and Higher Education Cess on income-tax,(vi) In ACIT Vs Chettinad Cement Corporation Ltd. (2011)

15 taxmann.com 262 (Chennai), ITAT has ruled that provision for wealth tax would come within the ambit of clause (a) of Explanation to section 115JA.

(vii) Provision of taxation made by the foreign branches of the banks are to be added back to net profits for arriving at book profit – Bank of India, In re (2007) 165 Taxman 627 (AAR- New Delhi)

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(N) Share of profit from AOP is includible in book profits to determine MAT as held in

ACIT, Circle -1(3) v/s B. Seenaiah & Co. Projects Ltd. [2013] 37 taxmann.com 241 (Hyderabad – Trib)

(O) Benefit arising on premature payments of 'deferred sales tax loans' at net present value cannot be excluded in computing book profit under section 115JB as held in ACIT,Circle-10 , Pune v/s Spicer India Ltd, [2013] 38 taxmann.com 317 (Pune - Trib.)

(P) Claim of reduction from book profits computed under section 115JB of amount of deduction eligible under section 80-IB/IC is an incorrect claim as held in

Sankhla Polymers (P.) Ltd. v/s ITO, Ward 12(2), Bangalore , [2013] 31 taxmann.com 166 (Karnataka) ACIT , Haridwar v/s SBL Industries (P.) Ltd. [2013] 35 taxmann.com 233 (Delhi - Trib.)

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ImplicationDepreciation

or Loss

Assessment Depreciation Loss as per Total (Rs.) AsYear as per Books books computed excluding by A.O.

depreciation1999-2000 42,25,696 94,88,756 1,37,14,452 42,25,6962000-2001 44,42,777 1,30,33,168 1,74,75,945 44,42,7772001-2002 44,53,565 (7,30,402) 37,23,163 Nil2002-2003 19,93,456 22,84,195 42,77,651 19,93,456 1,51,15,494 2,40,75,717 3,91,91,211

1,06,61,929Consolidated figure of loss and depreciation for earlier year in totality to be considered- In Amiline textiles (P) Ltd. V. ITO (2009) 27 SOT 152 (Mum)

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Carry Forward of MAT credit in case of Amalgamation

• Income Tax Act silent on the issue

• Genuine doubt about interpretation of law benefitAssessee.

to be given to the

▫ CIT v. Vegetable Products Ltd., [1973] 88 ITR 192 (SC)

• In SKOL Breweries Ltd. v. ACIT, 28 ITAT India 998 (Mum.) ITA No.313/Mum./07 A.Y. 2003-04 decision dated 15-5-2008 the Tribunal allowed set off of MAT credit of amalgamating company in the hands of the appellant assessee being the amalgamated company

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Whether Sec 115JB applies on ForeignCompanyCastleton Investment Ltd. (AAR New Delhi) 211 Taxman 282

Assessee was a foreign Company incorporated under the law of Mauritius.Assessee earned LTCG on sale of sharesHeld Co. u/s 2(17) of the IT Act includes a non-resident company S.115JB does not make any distinction between resident/ NR co.

View again confirmed in the case of ZD, In re* (AAR New Delhi) 29taxmann.com 147

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What if the Foreign Co. has no presence orpermanent establishment in IndiaTimken Co., IN re (AAR New Delhi) 233 ITR 334• Facts

Assessee was a foreign co. having no permanent place ofpresence in IndiaClaimed LTCG on sale of shares is exempt u/s 10(38)Claimed not required to pay MAT on book profit u/s 115JB

business or

• Held A Non Resident Co. having no permanent place or presence in India not

required to prepare b/a as per Sec 594 read with Sec 591 of the Co’s Act Hence Sec 115JB is not designed to be applicable in such a case

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CERTAIN ISSUES WHICH NEEDS SERIOUS CONSIDERATION OF THE DEPARTMENT

As per provision of sec. 254(2) of the Income Tax Act, 1961 “The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the [Assessing] Officer:

Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard :

[Provided further that any application filed by the assessee in this sub-section on or after the 1st day of October, 1998, shall be accompanied by a fee of fifty rupees.]”

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(1) In case of ACIT vs. Saurashtra Kutch Stock Exchange of India 305 ITR 227 (SC) conclude the issue? It was observed there:

The core issue, therefore, is whether non-consideration of a decision of Jurisdictional Court (in this case a decision of the High Court of Gujarat) or of the Supreme Court can be said to be a "mistake apparent from the record"? In our opinion, both - the Tribunal and the High Court - were right in holding that such a mistake can be said to be a "mistake apparent from the record" which could be rectified under Section 254(2). The SC has held that a judgment of the jurisdictional High Court and that of the SC, even if rendered subsequently, will constitute a mistake apparent from the record. The full text is available here:http://www.caclubindia.com/judiciary/acit-vs-saurashtra-kutch-stock-e... (2) A similar question came up for consideration before the High Court of Gujarat in Suhrid Geigy Limited v. Commissioner of Surtax, Gujarat, (1999) 237 ITR 834 (Guj).

It was held by the Division Bench of the High Court that if the point is covered by a decision of the Jurisdictional Court rendered prior or even subsequent to the order of rectification, it could be said to be "mistake apparent from the record" under Section 254 (2) of the Act and could be corrected by the Tribunal.

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(3) The MUMBAI TRIBUNAL in case of KAILASHNATH MALHOTRA v/s JT.CIT(TM) 34 SOT 541 has held that

A judgment of the jurisdictional High Court and that of the SC, even if rendered subsequently, will constitute a mistake apparent from the record under Section 254 (2) of the Act and could be corrected by the Tribunal. (4)S. 254(2) : Appellate Tribunal – Rectification of Mistakes – Subsequent decision of Jurisdictional High Court or Supreme Court V. R. Chittanandam vs. ACIT (2010) 5 ITR 258 (Chennai)(Trib.)

Decision of the Supreme Court or the Jurisdictional High Court is binding on the Tribunal, and therefore, constitute an apparent error in the order, which is contrary to the principle laid down in the subsequent decision. Accordingly, the subsequent law laid down by the Supreme Court or the jurisdictional High Court has to be considered for rectifying the mistake under section 254(2) of the Income Tax Act 1961.

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The MUMBAI TRIBUNAL in case of KAILASHNATH MALHOTRA v/s JT.CIT(TM) 34 SOT 541 has held that Section 254 of the Income Tax Act

“It will be an error apparent from records , if the order is not in conformity with the retrospective amendment carried out to the statutory provision covering the period and point in dispute , subject to the fulfillment of other conditions prescribed in the Act such as limitation period etc”115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, [2007]], is less than [ten per cent]] of its book profit, [such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of [ten per cent]]].

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Finance Act, 2008, w.r.e.f 01/04/2001 has inserted clause (h) below explanation-1 that book profit shall be increased by :(h) “the amount of deferred tax and the provision therefore”If debited to Profit & Loss Account.

The above said amendment was brought to nullify the judgments which have held that deferred tax if debited to P & L A/c cannot be added back to Book Profit as per sec. 115JB. Maharaja Shree Umaid Mills Ltd v/s ACIT.(2007) 17 SOT 72 (JAIPUR)ACIT .C.C XIX Kolkata v/s Balrampur Chini Mills Ltd(2007) 14 SOT 372(KOL)

Section 115JB of the Income-tax Act, 1961 - Minimum alternate tax - Assessment year 2007-08 - Assessing Officer made an addition of amount of deferred tax under Explanation (c) to section 115JB(2) for purposes of computing book profit - Whether since deferred tax charge is not covered by any of clauses of Explanation to section 115JB(2), such deferred tax charge is not required to be added back in computation of book profit for purpose of section 115JB and, therefore, addition made by Assessing Officer was to be deleted - Held, yes

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(2) Finance Act, 2008 w.r.e.f 01/04/2001 has inserted explanation-2 to widen the scope of the term Income Tax.Explanation 2.— For the purposes of clause (a) of Explanation 1, the amount of income-tax shall include—(i) any tax on distributed profits under section 115-O or on distributed income under section 115R;(ii) any interest charged under this Act;(iii) surcharge, if any, as levied by the Central Acts from time to time;(iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; andSecondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time.]Suggestion;

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(3) Finance Act, 2009 w.r.e.f. 01/04/2001 has inserted clause (g) below explanation-1 that book profit shall be increased by :

(i) the amount or amounts set aside as provision for diminution in the value of any asset,Thus now (a)provision for bad & doubtful debts(b) provision for diminution in value of investment(c) provision for obsolete inventory(d) provision for impairment of assets

has to be added back to book profit u/s 115JB in view of this amendment which has been given retrospective effect.

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((i) The Assessing Officer may be directed to file MA u/s 254(2) in ITAT if ITAT has deleted the addition or 154 to CIT (A) if he has deleted the addition. Department will be able to recover thousands of crores of tax amount which is pending in litigation at various levels. (ii) The Assessing Officer may be directed to review all cases in which assessee has not added back deferred tax/interest on income tax/provision for diminution in the value of assets for the purpose of sec. 115JB from A.Y. 2007-08 onwards and to take necessary remedial action under section 147/263 of the act as applicable(4) There was dispute between different High courts regarding levy of interest u/s 234B, 234C, when income is calculated u/s 115JA& 115JB.However recently Apex Court decided in favour of revenue:

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Joint Commissioner of Income-tax v/s ROLTA INDIA LTD [2011] 196 TAXMAN 594 (SC)

Section 234B of the Income-tax Act, 1961 - Interest, chargeable as - Whether interest under sections 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under section 115JA/115JB - Held, yesCircular and Notifications : CBDT Circular No. 13/2001, dated 9-11-2001 (i) The Assessing Officer may be directed to file MA u/s 254(2) in ITAT if ITAT has deleted the addition or 154 to CIT (A) if he has deleted the addition. Department will be able to recover thousands of crores of tax amount which is pending in litigation at various levels.  

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Thanks giving

Thank youfor listening to me patiently.

I am always available to you for any query.E-mail id [email protected]

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