2004 (4) TMI 7 - HC - Income Tax

Power u/s 154 invoked by AO - Revenue, is right in contending that when proceedings are taken for rectification of assessment under section 154 those proceedings must be held to be proceedings for assessment. In proceedings u/s 154 what the Assessing Officer 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 - As noticed, the power u/s 154 was invoked by the Assessing Officer as according to him there was a mistake while passing the order u/s 154 as the provision of section 115J was not taken into account while computing the refund. The Income-tax Appellate Tribunal by its order under appeal upheld the said action of the Assessing Officer and in our view rightly.

Issues Involved:
1. Determination and/or computation under section 115J in an order under section 143(3).
2. Rectification of a subsequent order under section 154 for determination and/or computation under section 115J.
3. Mistake apparent from the record under section 154 due to non-determination/non-computation of income under section 115J.
4. Applicability of section 115J in proceedings under section 154.

Issue-wise Detailed Analysis:

1. Determination and/or computation under section 115J in an order under section 143(3):
The court examined whether the determination and/or computation under section 115J of the Income-tax Act, 1961, should be made in an order under section 143(3). The court noted that the assessee filed a return showing total income higher than 30% of the book profit and subsequently filed a revised return. The initial assessment was completed under section 143(3), and the total income was determined without invoking section 115J. The court emphasized that section 115J has a scheme of its own, requiring the total income to be computed under the Income-tax Act provisions first, and if it is less than 30% of the book profit, then the income is deemed to be 30% of the book profit.

2. Rectification of a subsequent order under section 154 for determination and/or computation under section 115J:
The court considered whether the determination and/or computation under section 115J could be made by rectifying a subsequent order under section 154. The court observed that the Assessing Officer (AO) issued a notice under section 154 to rectify the order and computed the total income under section 115J at 30% of the adjusted book profit. The court held that the AO's action in rectifying the mistake by invoking section 154 was appropriate, as there was a glaring mistake in not applying section 115J when the income was reduced to "nil" due to carried forward losses.

3. Mistake apparent from the record under section 154 due to non-determination/non-computation of income under section 115J:
The court analyzed whether the non-determination/non-computation of income under section 115J constituted a mistake apparent from the record. The court referenced the Supreme Court judgments in CIT v. Keshri Metal P. Ltd. and CIT v. Hero Cycles P. Ltd., which stated that rectification under section 154 is permissible when a glaring mistake of fact or law is apparent from the record. The court concluded that the non-application of section 115J in the initial assessment was a glaring mistake, justifying rectification under section 154.

4. Applicability of section 115J in proceedings under section 154:
The court examined whether section 115J could be applied and any determination and/or computation thereunder could be made in proceedings under section 154. The court cited various Supreme Court judgments, including M.K. Venkatachalam v. Bombay Dyeing and Manufacturing Co. Ltd., Maharana Mills (Pvt.) Ltd. v. ITO, and ITO v. Asok Textiles Ltd., which supported the view that errors of fact or law apparent from the record could be rectified under section 154. The court held that the AO had the jurisdiction to rectify the mistake and compute the income under section 115J, as the material for such computation was already on record.

Conclusion:
The court concluded that the questions of law framed were answered in favor of the Revenue and against the assessee. The appeal was dismissed, and it was held that the AO's action in rectifying the mistake by invoking section 154 and applying section 115J was justified. The court emphasized that section 115J has a specific scheme, and the AO was required to compute the total income under the Income-tax Act provisions first and then apply section 115J if the computed income was less than 30% of the book profit. The court also noted that proceedings under section 154 are part of the assessment process, and rectification of mistakes apparent from the record is permissible.

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