Case Law Details
he issue raised by the AO in proceeding under section 154 of the Act is highly debatable and requires the issue to be reconsidered by the AO about applicability of provision of section 115JB of the Act which was not raised by the AO in the original assessment proceeding. Therefore AO has no power to review his entire assessment order and to make certain additions in the order under section 154 of the Act. The assessee has declared all particulars regarding computation and assessment to be framed under section 115JB of the Act. When the AO has consciously taken the view to frame regular assessment and made certain additions, AO is not empower to take contrary view to review entire assessment order already framed. It is against the spirit of provision of section 154 of the Act. The AO cannot be allowed to pass impugned order under section 154 on debatable issue. The decision relied upon by the Ld. Counsel for the assessee squarely applies to the facts and circumstances of the case. I therefore do not find any justification for the AO to pass rectification order under section 154 of the Act to disturb the calculation under section 115JB of the Act, already considered. I accordingly set aside the order of the authorities below and quash the order under section 154 of the Act.
Relevant Extract of ITAT Judgment
2. Brief facts of the case are that the assessee filed return declaring total income of Rs. NIL. The case was selected for scrutiny. The assessee is running a hospital under the name and style of Mukut Hospital and Heart Institute at Chandigarh. The AO disallowed some expenses and computed the total income at Rs. 2,63,419/- and after reducing unabsorbed depreciation income was assessed at NIL vide order under section 143(3) date 25/11/2008. The assessee has calculated tax under section 115JB and shown tax liability as NIL. The AO on perusal of computation sheet noted that assessee has shown book profit at Rs. 48,84,807/- during the relevant assessment year under appeal. The assessee has also shown Rs. 9,25,932/- as B/F business losses set off and Rs. 59,51,104/- as B/F depreciation set off. Thus for the purpose of computation of tax under section 115JB, an amount of Rs. 9,25,932/- was to be reduced from the book profit of Rs. 48,84,807/-. The assessee has reduced an amount of Rs. 59,51,104/- from the book profit resultantly reduce the MAT as 9,43,492/- and has not paid any tax under section 115JB of the Act. The AO therefore noted that there is a mistake
apparent on record and issued notice under section 154 of the Act to the assessee. The assessee filed reply before the AO which is reproduced in the order under section 154 of the Act and reads as under :
“That from the above referred figure of book profit, the assessee reduced a figure of Rs. 8,28,299/- being the lower of unabsorbed depreciation or business loss whichever is less. However on perusal of the present notice, it appears that here lies some dispute. Your good self is of the opinion that actually business loss is Rs. 9,25,932/- and unabsorbed depreciation is Rs. 59,51,104/-. Hence the lower of these two i.e. Rs. 9,25,932/- should have been allowed deduction from book profit instead of Rs. 58,28,299/- claimed by the assessee. It is submitted that the figure of business losss is Rs. 9,25,932/- and unabsorbed depreciation is Rs. 59,51,104/-, pointed out by your goodself to be reduced, is actually figure of loss/depreciation as per provisions of Income Tax Act whereas the figures to be reduced from Profit as per P&L account are as per books of accounts. The relevant extract of provision is reproduced as under:
“(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.
Explanation, For the purpose of this clause.
(a) the loss shall not include depreciation;
(b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or”
From the above extract, it is clear that the amount to be reduced from Profit as per P&L account is as per books of accounts and not as per Income Tax Provisions. The assessee has rightly claimed the said figures. A copy of statement of losses and unabsorbed depreciation as per books of accounts is enclosed. The figures of brought forward total loss as on 31/03/2005 as per Balance Sheet is Rs. 2,66,66,990.86. Copy of relevant page of Balance sheet is enclosed. The breakup of this figure is Rs. 2,08,37,277.88 is business loss and Rs. 58,28,298.68 is unabsorbed depreciation. The lower of these two being Rs. 58,28,298.68 has been rightly claimed as deduction to arrive at figure of book profit.”
The AO however passed the order under section 154 of the Act date 18/03/2013 and raised the demand of Rs. 5,14,727/-. The order of the AO is reproduced as under:
The reply given by the assessee has been considered. The assessee has “also furnished a chart in respect of business losses and depreciation losses in respect of previous years, on the basis of which the assessee arrived at the business loss of Rs. 2,08,37,277/- and depreciation loss to the tune of Rs. 58,28,298/-. The assessee has been asked to reconcile the figures by furnishing the balance sheets and computations of previous years on the basis of which the assessee arrived at such figures. The losses claimed are not substantiated by proper documents and therefore, the figures of b/f losses at Rs. 9,25,932/- and b/f unabsorbed depreciation at 59,51,104/- is to be considered for the purpose of MAT calculation.
In this light, the assessee is required to reduce the least’ amount which was Rs. 9,25,932A from the book profit. Since the mistake is apparent from record, the same is hereby rectified and calculation of MAT is as under:
3. The assessee preferred in appeal before the Ld. CIT(A) against the order under section 154 of the Act, however appeal of the assessee has been dismissed.
4. Ld. Counsel for the assessee reiterated the submissions made before the authorities below and submitted that the issue of computation under section 115JB is highly debatable and as such no order under section 154 should have been passed by the AO. Ld. Counsel relied upon the order of ITAT, Agra Bench in the case of ACIT Vs. Cardinal Drugs Pvt. Ltd. [2013] 37 CCH 22 and order of ITAT, Delhi Bench in the case of ACIT Vs. Uflex Ltd. [2013] 55 SOT 43.
5. On the other hand Ld. CIT(A)relied upon the order of authorities below.
6. I have considered rival submissions and perused the material available on record. Honourable Calcutta High Court in case of Hindustan Lever Ltd. Vs. JCIT and Others [2006] 284 ITR 42 held that mistake must be obvious that it can be easily corrected, to wit an arithmetical mistake, quotation of wrong section etc. and not on debatable issue. Honourable Supreme Court in the case of ITO Vs. Volkart Brothers and others 82 ITR 50 held that a mistake apparent on record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. ITAT Agra Bench in the case of ACIT Vs. Cardinal Drugs Pvt. Ltd. (supra) in para 7 to 9 held as under:
7. We have considered the rival submissions and do not find any justification to interfere with the order of the Id. CIT(A). Section 154 of the I.T. Act provides that with a view to rectifying any mistake apparent from record, the Income Tax Authority may amend any order passed by it. Therefore, there should be a mistake apparent from the record of the Income Tax Authorities while exercising jurisdiction under Section 154 of the Act.
7.1. Honourable Calcutta High Court in the case of Hindustan Lever Ltd. Vs. Commissioner of Income-Tax and others [2006] 284 ITR 42 (Cal) held that mistake must be obvious that it can be easily corrected, to wit an arithmetical mistake, quotation of wrong section, etc. and not on datable issue.
7.2 Honourable Supreme Court in the case of ITO Vs. Volkart Brothers & Ors (1971) 82 ITR 50 (SC) held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions.
8. The assessee filed return of income declaring loss of Rs. 9,81,556/-, which was accompanied by Auditor’s report in which it has been certified by the Auditors that the tax payable under Section 115JB in respect of assessment year under appeal is Nil, which has been determined on the basis of details in Annexure-A to this form. The A.O. passed the assessment order under Section
143(3) of the Act by making addition of the disallowance on account of provision of interest write back from MPFC & SBI and of relief in loan to the assessee due to it being not sick industrial company and has computed the income at Rs. 12,83,00,230/-. The said addition has been admittedly deleted by the Id. CIT. CIT(A) vide order dated 23.07.2008 (P.B.32) A.O. gave appeal effect under Section 250 of the Act on dated 26.08.2008 (P.B.53) and total loss was carried forward in a sum of Rs. 9,81,556/-. The Tribunal also upheld the order of the Id. CIT(A) by dismissing the departmental appeal. The Auditor of the assessee in Annexure-A also reduced the loss of sick industrial company from the profit. Therefore, assessee has disclosed all the particulars regarding income to be computed under Section 115JB while filing return of income. The certificate regarding assessee is sick industrial company issued by BIFR was also filed at the assessment stage. Therefore, when the A.O. applied his mind to all the facts and circumstances of the case and passed the assessment order by making certain additions which have been deleted by the CIT(A) and while giving appeal effect, ultimately the income/loss declared by the assessee has been accepted. There was no scope for the A.O. to have resorted to the provision of Section 154 of the Act for the purpose of enhancing the income of the assessee. The Id. CIT (A) gave specific finding of fact that the assessee is sick industrial company during the year under consideration. Therefore, the A.O. on long drawn process of reasoning should not have passed the order under Section 154 of the Act. The issue raised by the A.O. in proceeding under Section 154 of the Act is highly debatable which requires the issue to be reconsidered by the A.O. about applicability of the provision of Section 115JB of the Act which was not raised by the A.O. in assessment or appellate proceedings. Therefore, A.O. has no power to review his entire assessment order and to make certain additions which are not part of the record. The assessee has declared all particulars regarding assessment and assessment to be framed under Section 115JB of the Act. When the A.O. has consciously taken the view to frame a regular assessment and made certain additions, which have been deleted by the Id. CIT(A) and confirmed by the Tribunal, the A.O. is not empowered to take a contrary view to review the entire assessment order already framed. It is against the spirit of provision of Section 154 of the Act. Therefore, Id. CIT(A) correctly held that there was no mistake apparent from record and A.O. cannot be allowed to pass the impugned order on debatable issue. Ld. CIT(A) correctly cancelled the order under Section 154 of the Act. Ld. counsel for the assessee also correctly demonstrated from the provision of Section 115JB(2) of the Act that whatever amount was reduced from the profit of business on account of loss to sick industrial company were in accordance with law. Therefore, there was no justification for A.O. to pass the order under Section 154 of the Act. We, therefore, do not find any merit in the appeal of the Revenue. The same is accordingly dismissed.
9. In the result, the appeal of the Revenue is dismissed.
ITAT Delhi Bench in the case of ACIT Vs. Uflex Ltd. (supra) held as under:
“ If the issue requires debate and discussion, it cannot become a subject-matter of rectification under s. 154 of the Act because under this section only patent and obvious mistakes of law and facts can be rectified. It is not open to the AO to go into the true scope of the relevant provisions of the Act in proceedings under s. 154 of the Act. It is clear from the facts of the case that there were debatable questions relating to debenture redemption reserve and prior period expenses while determining books profits u/s. 115JB of the Act.”.
7. Considering the facts of the case in the light of the above decisions, it is clear that AO has wrongly exercised jurisdiction under section 154 of the Act . The calculation under section 115JB was available on record of the AO. The AO passed the original assessment order after scrutiny under section 143(3) after examining the books of account produced before him. AO did not dispute the computation under section 115JB of the Act at original assessment stage. The assessee explained before the AO that there is dispute with regard to the explanation sought from the assessee in the rectification notice and actual calculation made by the assessee as per law. Therefore, the AO, on long drawn process of reasoning should not have passed the order under section 154 of the Act. The issue raised by the AO in proceeding under section 154 of the Act is highly debatable and requires the issue to be reconsidered by the AO about applicability of provision of section 115JB of the Act which was not raised by the AO in the original assessment proceeding. Therefore AO has no power to review his entire assessment order and to make certain additions in the order under section 154 of the Act. The assessee has declared all particulars regarding computation and assessment to be framed under section 115JB of the Act. When the AO has consciously taken the view to frame regular assessment and made certain additions, AO is not empower to take contrary view to review entire assessment order already framed. It is against the spirit of provision of section 154 of the Act. The AO cannot be allowed to pass impugned order under section 154 on debatable issue. The decision relied upon by the Ld. Counsel for the assessee squarely applies to the facts and circumstances of the case. I therefore do not find any justification for the AO to pass rectification order under section 154 of the Act to disturb the calculation under section 115JB of the Act, already considered. I accordingly set aside the order of the authorities below and quash the order under section 154 of the Act. Addition stands deleted.
