2012 (6) TMI 209 - AT - Income Tax

Allowance of debenture redemption reserve and short provision of expenses - invoking Section 154 by A.O. as the assessee did not include the two while determining book profits u/s 115JB Held that - if the issue requires debate and discussion, it cannot become a subject-matter of rectification under section 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 section 154 - T.S.Balaram, ITO Vs. Volkart Brothers& Others 1971 (8) TMI 3 (SC) - as the facts of the case were debatable questions but when the Revenue have not placed any material in order to controvert findings of the ld. CIT(A) nor even pointed out any contrary decision while the issues are debatable no need to interfere with the conclusion of the ld. CIT(A) against revenue

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 163.96 lacs on account of debenture redemption reserve.
2. Deletion of disallowance of Rs. 47.72 lacs on account of short provision of expenses of earlier years.
3. Applicability of section 154 r.w.s. 143(1) of the Income-tax Act, 1961 for the above disallowances.

Detailed Analysis:

1. Deletion of Disallowance of Rs. 163.96 Lacs on Account of Debenture Redemption Reserve:
The CIT(A) deleted the disallowance made by the AO, holding that the debenture redemption reserve is not a reserve for the purpose of Section 115JB of the Income-tax Act, 1961. The CIT(A) relied on the Supreme Court's decision in National Rayon Corporation Ltd. Vs. CIT (1997) 227 ITR 764, which held that the debenture redemption reserve is not a reserve but money set aside to meet a known liability. This decision was also supported by ITAT decisions in IOL Ltd. Vs. DCIT and Hindalco Industries Ltd. Vs. ACIT, which concluded that the debenture redemption reserve should not be added back to the book profit under Section 115JB.

2. Deletion of Disallowance of Rs. 47.72 Lacs on Account of Short Provision of Expenses of Earlier Years:
The CIT(A) also deleted the disallowance of Rs. 47.72 lacs, reasoning that prior period expenses debited to the P&L account cannot be added back for determining book profit under Section 115JB, as there is no specific provision in the Explanation to Section 115JB allowing such an adjustment. The CIT(A) emphasized that the provisions of Section 115JB are special and must be strictly construed. Moreover, adjustments under Section 143(1) can only address arithmetical errors or incorrect claims apparent from the return, which was not the case here.

3. Applicability of Section 154 r.w.s. 143(1) of the Income-tax Act, 1961 for the Above Disallowances:
The CIT(A) found that the adjustments made by the AO under Section 154 were not justified, as the issues were debatable and not apparent mistakes. The CIT(A) referred to the Supreme Court's ruling in T.S. Balaram, ITO Vs. Volkart Brothers, which held that a mistake apparent from the record must be obvious and not require elaborate reasoning. The CIT(A) concluded that the debenture redemption reserve and prior period expenses were debatable issues and could not be rectified under Section 154.

Final Conclusion:
The ITAT upheld the CIT(A)'s decision, agreeing that the issues were debatable and could not be rectified under Section 154. The ITAT emphasized that mistakes apparent from the record must be obvious and not require detailed argumentation. Consequently, the appeal by the Revenue was dismissed.