The Assessing Officer accepted nil income under the normal computation after setting off brought-forward losses, but then charged AMT at 18.5 per cent on the net profit without allowing that set-off. Can he compute total income one way for the normal provisions and another way for AMT?
No. Section 115JC charges the minimum tax on adjusted total income, and adjusted total income starts from the total income, which by s.2(45) is computed after giving effect to the provisions of the Act — including the set-off of brought-forward losses under s.72. The Assessing Officer's contrary interpretation, treating total income as net profit for AMT purposes only, was rejected.
Decided by the ITAT (V. Durga Rao, Judicial Member and G. Manjunatha, Accountant Member (ITAT Chennai 'C' Bench)) on 2022-04-01, reported as I.T.A. No.1212/Chny/2019 (assessee) and I.T.A. No.282/Chny/2020 (Revenue), Assessment Year 2014-15; heard 21 March 2022, pronounced 1 April 2022. It bears on section 115JC, section 115JC(1), section 115JC(2), section 2(45), section 72, section 263, section 143(3), section 139(1) of the Income Tax Act 1961, in Assessment & Scrutiny, Revision & Rectification and Deductions & Disallowances matters.
This is the most common arithmetical error in an AMT computation and it can turn a nil-tax year into a demand of over a crore, as it did here. The chain is short and worth reciting in a reply: s.115JC(1) charges tax on adjusted total income; s.115JC(2) defines adjusted total income as the total income increased by the three specified add-backs; and "total income" is a defined expression under s.2(45) meaning income computed in the manner laid down in the Act, which includes Chapter VI set-off. The return form corroborates it — Schedule AMT in ITR-4 draws the total income figure from Part B-TI, that is from the figure arrived at after set-off. The Tribunal's own words on this are short: the substantive reasoning is the CIT(A)'s, which the Tribunal read, found to contain no mistake and expressly affirmed as rightly decided on merits. Note also the procedural point in the same order: because the merits were decided against the Revenue in its own appeal, the assessee's separate appeal against the s.263 order was disposed of as academic.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee, a limited liability partnership, filed its return for AY 2014-15 on 18 November 2015 admitting total income of Rs.3,39,00,858. The assessment under s.143(3) was completed on 28 December 2016 allowing set-off of brought-forward business loss. The Principal Commissioner revised that order under s.263 by order dated 27 February 2019 on the ground that the Assessing Officer had allowed set-off of brought-forward business loss under s.115JC, and the assessee appealed against the revision. In the consequential assessment under s.143(3) read with s.263 the Assessing Officer levied alternate minimum tax at 18.5 per cent on Rs.3,61,91,450 and raised a demand of Rs.1,21,90,120. On appeal the CIT(A)-2, Chennai, by order dated 29 November 2019, allowed the assessee's appeal, holding that the Assessing Officer had taken contrary interpretations of "total income" — arriving at nil total income under the normal computation after set-off of brought-forward losses while computing AMT on net profit without that set-off — and directing AMT to be computed on total income after set-off. The Revenue appealed against that order.
The Revenue's appeal was dismissed and the assessee's appeal against the s.263 order allowed as academic. On merits the CIT(A) had rightly decided the issue of computing total income after set-off of brought-forward losses with the net profit as stipulated under s.115JC, and no interference was warranted (paragraphs 7 and 8).
The Tribunal went through the CIT(A)'s order and found no mistake in it. The reasoning it affirmed is that s.115JC(1) charges income-tax at 18.5 per cent on the adjusted total income where the regular income-tax payable by a person other than a company is less than the alternate minimum tax, and s.115JC(2) defines adjusted total income as the total income before giving effect to the Chapter, increased by deductions claimed under any section other than s.80P included in Chapter VI-A under heading C, by a deduction claimed under s.10AA, and by a deduction claimed under s.35AD as reduced by the depreciation allowable under s.32 had no s.35AD deduction been allowed. Section 115JC therefore stipulates that AMT is to be computed only on the total income, and s.2(45) defines total income as income computed after giving effect to the provisions of the Act, which include s.72 requiring brought-forward losses to be set off against net profits. The return form confirms the same sequence: in Part B-TI of the ITR total income is computed after set-off of brought-forward losses, and Schedule AMT computes AMT on total income taken from that item. The Assessing Officer had used one meaning of total income for the normal computation, arriving at nil, and another for AMT, and it followed that AMT had to be computed on total income after set-off (paragraph 6, affirmed at paragraphs 7 and 8). Because the merits were decided in the Revenue's appeal, the order under s.263 became academic and required no adjudication (paragraph 9).
We have already decided that on merits, the ld. CIT(A) has rightly decided the issue of computing total income after set off of brought forward losses with the net profit as stipulated under section 115JC of the Act and therefore, no interference is warranted.
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Handle my notice → Ask a CA on WhatsAppNo. Section 115JC charges the minimum tax on adjusted total income, and adjusted total income starts from the total income, which by s.2(45) is computed after giving effect to the provisions of the Act — including the set-off of brought-forward losses under s.72. The Assessing Officer's contrary interpretation, treating total income as net profit for AMT purposes only, was rejected. This was decided by the ITAT (V. Durga Rao, Judicial Member and G. Manjunatha, Accountant Member (ITAT Chennai 'C' Bench)) and bears on section 115JC, section 115JC(1), section 115JC(2), section 2(45), section 72, section 263, section 143(3), section 139(1) of the Income Tax Act 1961. It is reported as I.T.A. No.1212/Chny/2019 (assessee) and I.T.A. No.282/Chny/2020 (Revenue), Assessment Year 2014-15; heard 21 March 2022, pronounced 1 April 2022. This is the most common arithmetical error in an AMT computation and it can turn a nil-tax year into a demand of over a crore, as it did here. The chain is short and worth reciting in a reply: s.115JC(1) charges tax on adjusted total income; s.115JC(2) defines adjusted total income as the total income increased by the three specified add-backs; and "total income" is a defined expression under s.2(45) meaning income computed in the manner laid down in the Act, which includes Chapter VI set-off. The return form corroborates it — Schedule AMT in ITR-4 draws the total income figure from Part B-TI, that is from the figure arrived at after set-off. The Tribunal's own words on this are short: the substantive reasoning is the CIT(A)'s, which the Tribunal read, found to contain no mistake and expressly affirmed as rightly decided on merits. Note also the procedural point in the same order: because the merits were decided against the Revenue in its own appeal, the assessee's separate appeal against the s.263 order was disposed of as academic. If it applies to you, the first step is this: Compute total income in the ordinary way first, giving effect to s.72 and every other set-off, and only then apply the three add-backs in s.115JC(2) to reach adjusted total income.
The assessee, a limited liability partnership, filed its return for AY 2014-15 on 18 November 2015 admitting total income of Rs.3,39,00,858. The assessment under s.143(3) was completed on 28 December 2016 allowing set-off of brought-forward business loss. The Principal Commissioner revised that order under s.263 by order dated 27 February 2019 on the ground that the Assessing Officer had allowed set-off of brought-forward business loss under s.115JC, and the assessee appealed against the revision. In the consequential assessment under s.143(3) read with s.263 the Assessing Officer levied alternate minimum tax at 18.5 per cent on Rs.3,61,91,450 and raised a demand of Rs.1,21,90,120. On appeal the CIT(A)-2, Chennai, by order dated 29 November 2019, allowed the assessee's appeal, holding that the Assessing Officer had taken contrary interpretations of "total income" — arriving at nil total income under the normal computation after set-off of brought-forward losses while computing AMT on net profit without that set-off — and directing AMT to be computed on total income after set-off. The Revenue appealed against that order. The matter was decided on 2022-04-01 by the ITAT (V. Durga Rao, Judicial Member and G. Manjunatha, Accountant Member (ITAT Chennai 'C' Bench)). On those facts the ITAT held as follows. The Revenue's appeal was dismissed and the assessee's appeal against the s.263 order allowed as academic. On merits the CIT(A) had rightly decided the issue of computing total income after set-off of brought-forward losses with the net profit as stipulated under s.115JC, and no interference was warranted (paragraphs 7 and 8).
The Tribunal went through the CIT(A)'s order and found no mistake in it. The reasoning it affirmed is that s.115JC(1) charges income-tax at 18.5 per cent on the adjusted total income where the regular income-tax payable by a person other than a company is less than the alternate minimum tax, and s.115JC(2) defines adjusted total income as the total income before giving effect to the Chapter, increased by deductions claimed under any section other than s.80P included in Chapter VI-A under heading C, by a deduction claimed under s.10AA, and by a deduction claimed under s.35AD as reduced by the depreciation allowable under s.32 had no s.35AD deduction been allowed. Section 115JC therefore stipulates that AMT is to be computed only on the total income, and s.2(45) defines total income as income computed after giving effect to the provisions of the Act, which include s.72 requiring brought-forward losses to be set off against net profits. The return form confirms the same sequence: in Part B-TI of the ITR total income is computed after set-off of brought-forward losses, and Schedule AMT computes AMT on total income taken from that item. The Assessing Officer had used one meaning of total income for the normal computation, arriving at nil, and another for AMT, and it followed that AMT had to be computed on total income after set-off (paragraph 6, affirmed at paragraphs 7 and 8). Because the merits were decided in the Revenue's appeal, the order under s.263 became academic and required no adjudication (paragraph 9). In the words reproduced by the source cited on this page: "We have already decided that on merits, the ld. CIT(A) has rightly decided the issue of computing total income after set off of brought forward losses with the net profit as stipulated under section 115JC of the Act and therefore, no interference is warranted."
It was decided by the ITAT on 2022-04-01 and is reported as I.T.A. No.1212/Chny/2019 (assessee) and I.T.A. No.282/Chny/2020 (Revenue), Assessment Year 2014-15; heard 21 March 2022, pronounced 1 April 2022. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 115JC, section 115JC(1), section 115JC(2), section 2(45), section 72, section 263, section 143(3), section 139(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeal was dismissed and the assessee's appeal against the s.263 order allowed as academic. On merits the CIT(A) had rightly decided the issue of computing total income after set-off of brought-forward losses with the net profit as stipulated under s.115JC, and no interference was warranted (paragraphs 7 and 8). It arises in Assessment & Scrutiny, Revision & Rectification and Deductions & Disallowances matters, on section 115JC, section 115JC(1), section 115JC(2), section 2(45), section 72, section 263, section 143(3), section 139(1) of the Income Tax Act 1961, and was decided by V. Durga Rao, Judicial Member and G. Manjunatha, Accountant Member (ITAT Chennai 'C' Bench). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where the Assessing Officer has computed AMT on net profit, put the two computations side by side and point out that he has used two different meanings of "total income" in the same order. Cite s.2(45) expressly — the definition, not merely s.115JC, is what carries the point. Support the reading with the return form: Schedule AMT in the ITR draws the total income figure from the Part B-TI computation, that is after set-off of brought-forward losses. Check first whether AMT applies at all: it is triggered only by a deduction under Chapter VI-A heading C other than s.80P, or s.10AA, or s.35AD, and is subject to the s.115JEE threshold for individuals, HUFs, AOPs, BOIs and artificial juridical persons.
Validity check could not be completed. Validity check could not be completed. No later treatment of this order was located and it is not known whether the Revenue appealed under s.260A to the Madras High Court. Nothing contrary to the proposition that AMT is computed on total income as defined in s.2(45) was found on this pass. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Tribunal's own reasoning is very short: it read the CIT(A)'s order, found no mistake and held at paragraph 8 that the CIT(A) had rightly decided the issue of computing total income after set-off. The analysis reproduced at paragraph 6, including the reproduction of s.115JC(1) and (2) and of s.139(1), is the CIT(A)'s. The order does not record what deduction triggered AMT for this LLP in the first place — that question was not in issue before the Tribunal, the dispute being confined to the base on which AMT is computed. Two reporting oddities: the record shows a demand of Rs.1,21,90,120 raised on AMT at 18.5 per cent of Rs.3,61,91,450, which does not reconcile arithmetically on the face of the order and presumably includes surcharge, cess and interest; and the assessee's own appeal ITA No.1212/Chny/2019 against the s.263 order was "allowed being academic" without any finding on the validity of the revision. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was dismissed and the assessee's appeal against the s.263 order allowed as academic. On merits the CIT(A) had rightly decided the issue of computing total income after set-off of brought-forward losses with the net profit as stipulated under s.115JC, and no interference was warranted (paragraphs 7 and 8).
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