Andhra HC (Pre-Telangana)
Commissioner Of Income Tax, Ap-I, ... vs M/S. Orbit Travel And Tours Pvt. Ltd., ... on 6 February, 1999
Equivalent citations: 1999(3)ALD343
Author: P. Venkatarama Reddi
Bench: P. Venkatarama Reddi
ORDER P. Venkatarama Reddi, J.
1. In these petitions filed by the Commissioner of Income Tax, A.P. I under Section 256(2) of Income Tax Act, the Revenue seeks reference of the following questions :
(1) Whether on the facts and in the circumstances of the case, ITAT was correct in law in holding that the adjustment made by the Assessing Officer in determining the income of the assessee under Section 115-J is a debatable one, though the issue was settled by the A.P. High Court's decision in the case of V.V. Tram Investments (P) Ltd., 207 ITR 508;
(2) Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that the decision of the A.P. High Court referred to above is not applicable to the assessee's case, since the decision was rendered subsequent to processing the return under Section 143(1)(a);
2. However in JTC No.94 of 1998, the following question was framed:
"Whether on the facts and in the circumstances of the case, the ITAT was correct in holding that the adjustment made by the Assessing Officer while processing the return under Section 143(1)(a) was not in accordance with the provisions of Section 115-J of the Income Tax Act;"
3. At the outset, we may point out that the question framed in ITC 94/98 and the second question framed in the other ITCs do not arise for consideration at all. Obviously, these questions were framed without proper application of mind. While framing the defective questions, the petitioner did not raise the questions which really arise out of the Tribunal's order and which arise for consideration in these ITCs. The learned senior Standing Counsel for the Department has. however, addressed us on the following questions which bring out the real controversy :
Whether the Assessing Officer exceeded his jurisdiction under Section 143(1)(a) of the Income Tax Act by making adjustments in such a way as to exclude the unabsorbed depreciation in calculating the loss for the purpose of Section 115-J. In other words, whether the adjustment made by the ITO under Section 115-J while computing the book profit under Section 115-J are of debatable nature, going out of the purview of the Section 143(1)(a).
The next allied question is whether on an application filed by the assessee under Section 154, the Assessing Officer ought to have cancelled the aforementioned adjustments made while processing the return under Section 143(1)(a).
The other question argued for the first time before us is whether in an appeal against the order rejecting the application under Section 154, the appellate Commissioner or Tribunal can declare that the adjustments made under Section 143(1)(a) vis-avis Section 115-J are unsustainable and thereby delete the addition/ adjustment.
It is in the tight of these questions debated before us, we proceed to consider these applications.
4. In the proceedings under Section 143(1)(a) of the IT Act for the years 1988 to 1990, the Assessing Officer computed the loss excluding unabsorbed depreciation of earlier years. While arriving at the book profit under Section 115-J, whereas according to the assessec's return, loss is calculated including unabsorbed deprecia-tion thereon. Thereafter, the assessee filed a petition for rectification under Section 154. The assessee contested the method of computation of business loss as per Section 115-J while processing the return under Section 143(1)(a) and that petition was rejected on the ground that there was no apparent mistake in the 'intimation' which needs to be rectified under Section 154. On second appeal, either by the assessee or by the Revenue, the Tribunal held that in view of the debatable nature of issue involved, the Assessing Officer ought not have resorted to prima facie adjustment under the provisions of Section 143(1)(a) as it then stood. It may be stated that by the date of issuing the intimation under Section 143(1)(a) or rectification order under Section 154, the interpretation and computation of Moss' as per Section 115-J was the subject-matter of controversy and if is only in March, 1992 that the Hyderabad Bench of the Tribunal resolved the issue in favour of the Revenue,
5. It is not in dispute that in exercise of jurisdiction under Section 143(1)(a) of the Act, as ii stood at the relevant point of time, the Assessing Officer cannot proceed to make such adjustments regarding which there could be scope for doubt or argument in the sense that two views can reasonably be taken in the matter. The question whether the loss includes depreciation for the purpose of arriving at the income under Section 11 5-J of the Income Tax Act was admittedly the subject matter of controversy before various Benches of Income-Tax Appellate Tribunal and there was no unanimity of view. It was only in March, 1992 that the Hyderabad Bench of the Income Tax Appellate Tribunal resolved the issue in favour of the Revenue and against the Assessee. This view of the Tribunal was confirmed much later by the High Court in 207 ITR 508. By the time the Assessing Officer completed the assessment under Section 143(1)(a) of the Act by impliedly rejecting the assessee's claim and making necessary adjustments on the view taken by him, the legal position was in a state of flux. The learned senior Standing Counsel, however, points out that by that date, the CBDT by Circular No.495, dated 22-9-1987 clarified the legal position and as the same was binding on the Department, insofar as the Assessing Officer is concerned, no doubt could have been entertained. We have gone through the circular. The only principle of relevance stated in the circular is that "brought forward losses or unabsorbcd depreciation, whichever is less, would be reduced in arriving at the book profit'. The illustration appended to the circular only amplifies this principle. It does not necessarily mean that depreciation cannot be included in loss at all for the purpose of Section 115-J. In any case, the circular does not lay down in categorical terms the proposition which the Revenue is contending for. Thus, this is not an appropriate case where the Assessing Officer should have resorted to the unilateral adjustments by invoking Section 143(1)(a), more so when the asscssee was, at the relevant' point of time, left without the remedy of appeal and the effect of applying Section 143 (1)(a) would be to saddle the assessee with the additional tax liability of 20%.
6. The question is whether Section 154 could be invoked by the assessee after intimation under Section 143 (1)(a) was sent to him. Adverting to this aspect, the learned standing Counsel for the Income Tax Department reminds us of the scope of Section 154 whereunder only obvious and patent errors could be rectified but not such of those errors which are open to debate and argument. The learned Standing Counsel proceeds to contend that if for the purpose of Section 143(1)(a) the question as to how the loss has to be computed under Section 115-J remained a debatable issue at the relevant point of time, it would be equally so for the purpose of Section 154. In the case of the rectification petition disposed of after the Tribunal's decision (for e.g., in the case of ITC 122/98), it would be an 'a fortiori' case inasmuch as by that dale, the legal position was settled by the Tribunal leaving no scope to invoke Section 154. The argument, though plausible, does not commend to our acceptance. By resorting to adjustments of controversial nature in purported exercise of power under Section 143(1)(a), the Assessing Officer, in view of what is stated above, outstepped his jurisdiction thereby determining the income much higher than what was returned by the assessee. This has obviously introduced an error which is apparent from the record. When such an error is pointed out to the Assessing Officer, he was by duty bound to amend the intimation sent under Section 143(1)(a). This is a case where the illegality or mistake in the intimation under Section 143(1)(a) arises for the reason that the said provision which ought not to have been invoked has been invoked and the income was wrongly determined by making unilateral adjustments which do not fall within the ambit of the said Section. Thus, the assessing authority failed to exercise the jurisdiction which he ought to have exercised under Section 154.
7. The legal position as regards the scope of Sections 143(1)(a) and 154 being well settled and the facts being what they are, we do not think that any useful propose would be served by calling for reference.
8. Before we part with the case, we would like to advert to the argument advanced by the learned Standing Counsel, He contends that in an appeal against the order rejecting the assessee's application under Section 154, the Tribunal should not have adjudicated on the validity of the adjustments made under Section 143(1)(a) and set aside the intimation given under that provision. In answer to this, the learned Counsel for the respondent submits that the order passed by the Tribunal is only consequential to the view expressed by it and falls well within the ambit of the appellate jurisdiction. This is a contention which was not raised before the Tribunal, not even in the reference application or even in the petition under Section 256(2) of the Act and no such question of law-has been formulated. We are not, therefore, inclined to deal with this aspect and call for reference on a question which is not even raised in the petition under Section 256(2). The ITCs are, therefore, dismissed. No costs.