Advocate Akhilesh Kumar Sah
Hon’ble Supreme Court in the leading case, ITO vs. Volkart Brothers [(1971) 82 ITR 50 (SC)] has 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.
Recently, in City Clinic Pvt. Ltd. vs. ACIT [ITA No. 112/Chd/2017, decided on 2 June, 2017], one of the question raised was whether on law, facts and circumstances of the case, the CIT (A) was unjustified in not allowing the issue that computation of book profit and reduction of brought forward loss or depreciation whichever was less as per books of accounts couldnot be taken up in proceedings under section 154 and the rectification carried out was beyond the scope of the provisions of section 154 of the Act.
Briefly, facts of the case were that the assessee filed return declaring total income of Rs. NIL. The case was selected for scrutiny. The assessee was 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) of the Act dt. 25/11/2008. The assessee had calculated tax under section 115JB of the Act and shown tax liability as NIL. The AO on perusal of computation sheet noted that assessee had shown book profit at Rs. 48,84,807 during the relevant assessment year under appeal. The assessee had also shown Rs. 9,25,932 as brought forward business losses set off and Rs. 59,51,104 as brought forward depreciation set off. Thus for the purpose of computation of tax under section 115JB of the Act, an amount of Rs. 9,25,932 was to be reduced from the book profit of Rs. 48,84,807. The assessee had reduced an amount of Rs. 59,51,104 from the book profit resultantly reduce the MAT as 9,43,492 and had not paid any tax under section 115JB of the Act. The AO, therefore, noted that there was a mistake apparent on record and issued notice under section 154 of the Act to the assessee. The assessee filed reply before the AO. The AO, however, passed the order under section 154 of the Act.
The assessee preferred an appeal before the CIT(A) against the order under section 154 of the Act, which was dismissed.
On further appeal before ITAT, the learned Judicial Member of the ITAT, Chandigarh observed that the calculation under section 115JB of the Act was available on record of the AO. The AO passed the original assessment order after scrutiny under section 143(3) of the Act 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 was 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 section154 of the Act. The issue raised by the AO in proceeding under section 154 of the Act was highly debatable and required 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 had declared all particulars regarding computation and assessment to be framed under section 115JB of the Act. When the AO had consciously taken the view to frame regular assessment and made certain additions, AO was not empowered to take contrary view to review entire assessment order already framed. It was against the spirit of provision of section 154 of the Act. The AO cannot be allowed to pass order under section 154 of the Act on debatable issue. There was no 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. The order of the authorities below was set aside and the order under section 154 of the Act was quashed and additions were deleted.
Section 154 of the Act has limitations and on the grab of rectification of mistake under this section assessment cannot be reviewed, only mistakes apparent on record can be rectified.