High Court Of Calcutta
Nicco Corporation Ltd. vs. CIT
Section 154
Asst. Year 1988-89
M.H.S. Ansari & Soumitra Pal, JJ.
IT Appeal No. 375 of 2000
8th April, 2004
Counsel Appeared :
J.P. Khaitan, for the Appellant : Dipak Kumar Deb, for the Respondent
JUDGMENT
M.H.S. Ansari, J. :
This is an appeal under s. 260A of the IT Act, 1961. The same was admitted by this Court and the following questions of law arising out of an order dt. 2nd May, 2000, passed by the Tribunal, “C” Bench, Calcutta, in IT appeal being ITA No. 425/Cal/1995 for the asst. yr. 1988-89, were framed : “(1) Whether the determination and/or computation under s. 115J is required to be made in an order under s. 143(3) and not having been so made, the liability, if any, under s. 115J lapses and cannot be introduced by seeking to rectify a subsequent order under s. 154 ?
(2) Whether in a case where according to the Department the determination and/or computation under s. 115J was required to be made in the original order of assessment under s. 143(3) but was not made, can such determination and/or computation under s. 115J be made by seeking to rectify a subsequent order under s. 154 ?
(3) Whether an order under s. 154 can be said to suffer from a mistake apparent from the record by reason of non- determination/non-computation of income under s. 115J when according to the Department such determination and/or computation was required to be made in the original assessment under s. 143(3) ? (4) Whether and in any event s. 115J can be applied and any determination and/or computation thereunder can be made in proceeding under s. 154 ?”
The facts to the extent relevant for consideration of the questions as framed above, briefly stated, are as under : The assessee filed a return on 12th Aug., 1988, showing total income of Rs. 36,00,000 being 30 per cent of the book profit which was higher than the total income as per computation of the assessee at Rs. 29,97,170 as per the provisions of the Act. Subsequently, the assessee filed a revised return of income showing a total income of Rs. 39,75,514 which was more than 30 per cent of the book profit.
The assessment was completed under s. 143(3) of the Act on 25th March, 1991, and the total income was determined at Rs. 3,10,90,561. Aggrieved thereby, the assessee preferred an appeal from the order dt. 25th March, 1991, before the CIT(A). By his order dt. 17th Jan., 1992, the CIT (A) allowed substantial reliefs to the assessee. The AO gave effect to the said appellate order and modified the assessment order under s. 143(3) r/w s. 251 by an order dt. 10th Feb., 1992, and determined the income at Rs. 67,56,139. On an application for rectification filed by the assessee under s. 154 the total income was redetermined at Rs. 53,56,140.
In the meanwhile, the assessee’s appeal for the earlier asst. yr. 1986-87 was decided by the Tribunal whereby the unabsorbed loss was allowed to be carried forward to subsequent years. The AO gave effect to the same by an order under s. 154, dt. 29th Sept., 1992. By reason of the carried forward of loss from the asst. yr. 1986-87, the income for the asst. yr. 1988-89 was reduced to “nil”. Thus the income for the asst. yr. 1988-89 with which we are concerned in the present appeal, finally stood at “nil”. In the said order under s. 154 dt. 29th Sept., 1992, the AO determined that the assessee was entitled to the refund of the entire amount of tax paid by it. Subsequently, the AO issued a notice under s. 154 of the Act dt. 14th Oct., 1992, to rectify the order passed under s. 154 dt. 29th Sept., 1992. As according to the AO, the total income for the asst. yr. 1988-89 was reduced to “nil” and the assessee had the book profit in the P&L a/c, the provisions of s. 115J were attracted for determination of income at 30 per cent of the adjusted book profit. The Authorised Representative of the assessee expressed no objection to the rectification of the said order and the AO vide order dt. 21st Oct., 1992, passed a rectification order under s. 154 of the Act and computed the total income under s. 115J at Rs. 35,66,740.
7. It is against the said order of rectification passed under s. 154 on 21st Oct., 1992, that the income assessable under s. 115J at 30 per cent of the book profit was determined and it is that order which was questioned by the assessee by an appeal before the CIT(A).
8. The appeal was allowed by the learned CIT(A) holding that there was no mistake in the order under s. 154 dt. 10th Feb., 1992, which the AO wanted to rectify by the order dt. 21st Oct., 1992. It was further held that s. 154 is not the forum for creating charge under s. 115J. It was further held that liability under s. 115J lapsed after the order of assessment was made under s. 143(3) of the Act. After such lapse the liability, it was held, could not be revived. The Revenue, aggrieved by the said order, preferred an appeal before the Tribunal. By its order under appeal the Tribunal allowed the appeal in the following terms and for the reasons contained therein which read as under : “… It is apparent from the above facts that the assessee was liable to be assessed under s. 115J of the Act. We are of the view that in not considering s. 115J of the Act while giving effect to the Tribunal’s order dt. 29th Sept., 1992, reducing the total income to nil for the assessment year under appeal, is a mistake of law. We are of the view that the action of the AO in rectifying the mistake by order dt. 21st Oct., 1992, is in order and as such we set aside the order of the learned CIT(A) and restore the order of the AO.”
9. The questions framed as above are dependent upon the interpretation of s. 115J of the Act and the power of rectification under s. 154.
10. Mr. Dipak Kumar Deb, learned counsel for the Revenue, submitted that s. 115J has a scheme of its own and the object of introducing the said section was to make every company pay a minimum corporate tax on the profits declared by it in its own accounts. It was submitted that under this provision a company will have to pay tax on atleast 30 per cent of its book profits. Reliance was placed by Mr. Deb upon the judgment of the Supreme Court in Surana Steels (P) Ltd. vs. Dy. CIT (1999) 153 CTR (SC) 193 : (1999) 237 ITR 777 (SC); therein the Supreme Court in a different context, namely, interpretation of cl. (iv) under the Explanation to s. 115J construed the provision contained in s. 115J as under : “Sec. 115J was introduced in the asst. yr. 1988-89 to take care of the phenomenon of prosperous zero tax companies which had continued inspite of the enactment of s. 80VVA. These were companies which were paying no income-tax though they had profits and were declaring dividends. A minimum corporate tax was sought to be ensured on prosperous companies. A plain reading of s. 115J shows that if the assessee be a company and its total income determined under the IT Act in respect of a previous year be less than thirty per cent of its book profit, fictionally it will be deemed that its total income chargeable to tax for the relevant previous year was an amount equal to thirty per cent of such book profit. The total income of the assessee shall first be computed in accordance with the provisions of the IT Act and if the total income so computed be less than thirty per cent of the book profit, then the P&L a/c of the company for the relevant previous year shall have to be prepared under sub-s. (1A) of s. 115J in accordance with Parts II and III of Sch. VI to the Companies Act. The book profit so arrived at under the Companies Act shall be suitably adjusted so as to satisfy the requirements of the Explanation…….” (emphasis, italicized in print, supplied)
11. It is thus clear that s. 115J has a scheme of its own. The total income of the assessee is, in the first instance, required to be computed in accordance with the provisions of the IT Act and only if the total income so computed be less than 30 per cent of the book profit then fictionally it will be deemed that the total income chargeable to taxof the said company would be an amount equal to 30 per cent of the adjusted book profit. Judged in the light of the above, it is apparent that when the order dt. 29th Sept., 1992, was passed by the AO under s. 154 giving effect to the carried forward loss for the earlier asst. yr. 1986-87, the income for the asst. yr. 1988-89 with which we are concerned was reduced to “nil”. The provisions of s. 115J were accordingly attracted. While passing the order under s. 154 dt. 29th Sept., 1992, the AO without applying the provisions of s. 115J determined that the assessee was entitled to refund of the entire amount of tax paid by it. This, in our view, was a glaring mistake. The question, however, is as to whether the same could be rectified in exercise of the power conferred under s. 154 of the Act ?
Mr. J.P. Khaitan learned counsel for the assessee, contended that the mistake to be rectified under s. 154 has to be apparent from the record. Reliance was placed by Mr. Khaitan upon the judgment of the Supreme Court in CIT vs. Keshri Metal (P) Ltd. (1999) 155 CTR (SC) 531 : (1999) 237 ITR 165 (SC), wherein it was held that “under the provisions of s. 154 there has to be a mistake apparent from the record. In other words, a look at the record must show that there has been an error and that error may be rectified …….” To similar effect is the judgment of the Supreme Court in CIT vs. Hero Cycles (P) Ltd. (1997) 142 CTR (SC) 122 : (1997) 228 ITR 463 (SC), wherein it was held that rectification under s. 154 can only be made when a glaring mistake of fact or law committed by the officer passing the order becomes apparent from the record. Rectification is not possible if the question is debatable. It was, therefore, the contention of Mr. Khaitan that as assessment under s. 115J is dependent upon the examination of the return, the accounts filed therewith and thereafter to arrive at 30 per cent of the book profit the matter is a debatable one and, therefore, resort cannot be had to s. 154. The submission is sought to be buttressed by the submission that only prima facie adjustments can be made under s. 154 by way of rectification.
On the other hand, Mr. Dipak Kumar Deb, relying upon the judgments of the Supreme Court in : (1) M.K.Venkatachalam, ITO vs. Bombay Dyeing & Manufacturing Co. Ltd. (1958) 34 ITR 143 (SC); (2) Maharana Mills (P) Ltd. vs. ITO (1959) 36 ITR 350 (SC); and (3) ITO vs. Asoka Textiles Ltd. (1961) 41 ITR 732 (SC) contended that when on an examination of the record the AO discovers that he has made a mistake he can rectify the error which may be an error of fact or of law.
16. In Asoka Textiles Ltd. (supra), the earlier judgments have been considered and it was observed that the discovery of an error on the basis of assessment due to an initial mistake in determining the written down value [Maharana Mills (P) Ltd. (supra)] is a mistake from the record and so is a misapplication of the law even though the law came into operation retrospectively [M.K. Venkatachalam’s case (supra)]. The Supreme Court thereupon held in Asoka Textiles Ltd.’s case (supra) that “the ITO can under s. 35 of the Act, examine the record and if he discovers that he has made a mistake, he can rectify the error and the error which can be corrected may be an error of fact or of law”. In that case the assessee-company had declared a dividend and become liable to pay additional income-tax with respect to excess dividends under the Finance Act, 1952, but this fact was overlooked by the ITO in the original assessment. This was rectified by resort to s. 35 of the IT Act. The ITO later discovered that this was also erroneous and by a second order of rectification, he levied additional income-tax and also charged interest on income which the company had failed to pay in advance under the then s. 18A of the Act. The Supreme Court held that the order was not without jurisdiction and that the ITO was required to calculate the interest in the manner provided under the provisions of the Act and had to add to the assessment. Sec. 154 of the IT Act, 1961 (which corresponds to s. 35 of the Indian IT Act, 1922) empowers the IT authorities to rectify any mistake “apparent from the record”. In the case on hand there was such a mistake or a glaring mistake in not computing the income under s. 115J when the income of the assessee was subsequently assessed at “nil”. The assessment under s. 115J could have been made only when the income computed under the provisions of the IT Act fell below 30 per cent of the book profits. This occasion arose when the rectification order was passed under s. 154 on 29th Sept., 1992. Before that date it could not be stated that the provisions of s. 115J are attracted. The question that immediately arises is whether there was material on record to rectify such error in the manner that the ITO did by resort to s. 154 of the Act ?
As already noticed supra, the assessee filed its return under s. 115J of the Act showing the total income being 30 per cent of the book profit which was higher than the total income under other provisions of the Act. A revised return of income was filed showing income under the provisions of the Act which was more than 30 per cent of the book profit. Assessment was, therefore, made under the provisions other than s. 115J of the Act. There was thus material on record for making an assessment in terms of s. 115J on the adjusted book profit. The initial order of assessment would show that for computing the total income chargeable to tax the AO computed the same as under : Rs. Rs. “Net profit as per P&L a/c 1,00,89,134 Add back : (i) Depreciation for separate consideration 52,14,174 (ii) Provision for taxation 18,00,000 70,14,174 1,70,03,308” Thereafter, the AO deducted and added what according to the AO were admissible and inadmissible under various provisions (see p. 26 of the paper book).
19. From the order of rectification dt. 21st Oct., 1992, subject-matter of appeals before the CIT, Tribunal and leading to this appeal, shows that the computation under s. 115J of the Act has been made as follows : Rs. “Tax payable under s. 115J of the IT Act. Book profit 1,00,89,134 Add : Provision for taxation 18,00,000 Profit 1,18,89,134 provision of Rs. 35,66,740”
20. On the facts of the instant case, there is no debatable question involved in computing the book profits which, as noticed supra, the AO had computed in his original assessment order based upon the return and the accounts of the assessee. The power conferred upon the AO, in the light of the deeming provision contained in s. 115J, is limited. The AO cannot go behind the P&L a/c for computing the fictional income (30 per cent of the book profits). Also there was material on record based on which such rectification could be made. There is the IT return filed by the assessee based whereupon in the original assessment, the AO computed the profit as per the P&L a/c. The return, as noticed supra, was filed under s. 115J. The present is a case where the AO invoked the jurisdiction to rectify the assessment order. There can be no dispute that such action can be justified only on the ground of a mistake apparent from the record. We have already noticed that such a mistake was detected only when the rectification order under s. 154 was passed on 29th Sept., 1992, when the income was reduced to nil, that is to say, below the book profit. The material on record justifies the action for rectification and, therefore, it cannot be said that the AO either had no jurisdiction or that there was no mistake which was required to be rectified. All the data is evidently on record from the time the first assessment was made but under the scheme of s. 115J the assessment, in the first instance, was required to be and was accordingly made under the provisions of the Act. Unless it is established that all the material on record for computing the income under s. 115J did not exist on record, no fault can be found with the action of the AO in rectifying the mistake apparent from the record in exercise of the powers conferred under s. 154. This takes us to the next contention urged on behalf of the assessee and which found favour with the CIT(A). The learned CIT(A) held that the liability under s. 115J lapsed after the order of assessment was made under s. 143(3) of the Act. The question of lapse can arise when there is an option to the AO to make the assessment either under other provisions of the Act or to make an assessment under s. 115J. In our view, there is no such option to the AO. The second situation that can be visualised is based upon the statutory provision barring the exercise of such power of rectification under s. 154. Neither of the two conditions exists in the case on hand. As already noticed supra, under the scheme of s. 115J, the AO is required, in the first instance, to compute the total income of the assessee in accordance with the provisions of the IT Act and it is only if the total income so computed be less than 30 per cent of the book profit that the assessment under s. 115J is to be made on the adjusted book profit. The fiction in s. 115J has to be given effect to at that stage. Further, we are of the view that Mr. Deb, learned counsel for the Revenue, is right in contending that when proceedings are taken for rectification of assessment under s. 154, those proceedings must be held to be proceedings for assessment. In proceedings under s. 154 what the AO does is to correct errors in, or rectify, the order of assessment made by him and orders making such corrections or rectifications are, therefore, clearly part of the proceedings for assessment. It was so held in the context of s. 35 of the Indian IT Act, 1922, in S. Sankappa vs. ITO (1968) 68 ITR 760 (SC). The contention of the assessee has accordingly to be rejected.
We observe that the questions of law as framed are not happily worded in the context of the order of the Tribunal which we have extracted elsewhere in this judgment. As noticed, the power under s. 154 was invoked by the AO as according to him there was a mistake while passing the order under s. 154 dt. 29th Sept., 1992, as the provision of s. 115J was not taken into account while computing the refund. The Tribunal by its order under appeal upheld the said action of the AO and, in our view, rightly. Therefore, all the questions referred to above are answered in favour of the Revenue and against the assessee.
In the result, the appeal is dismissed. No order as to costs.
Soumitra Pal, J. :
I agree.
[Citation : 272 ITR 58]
