2017 (7) TMI 1375 - AT - Income Tax

Rectification u/s 154 - seeking to assess the book profit of the assessee at the correct figure - HELD THAT - Only thing that needs to be seen in this regard is if the company in reducing the profit on the sale of shares has followed any of the specified adjustments under Explanation 1 to s. 115JB. We find that none of the specified adjustments correspond to the said adjustment made by the assessee to the net profit per the revised return and neither has the assessee stated any at any stage. This rather raises a question on the validity of the said revision which u/s. 139(5) could only be rectify an omission or wrong statement in the original return so that it is incumbent on the assessee to state what omission or wrong statement informs its revision i.e. its basis and which it has abysmally failed to. Continuing further capital gains on transactions in securities has been specified for reduction (from net profit) only in the case of a foreign company (Cl. (iid) to Explanation 1 inserted w.e.f. 01/4/2016). The same by itself implies i.e. if there were to be any doubt whatsoever in the matter that the capital gains for an assessee not being a foreign company being not specifically provided is not to be reduced (from the net profit) in arriving at the book profit. Thus even if the shares sold are held as a capital asset which does not appear to be the case on the basis of the assessment order so that the surplus on their sale is a capital gain to the assessee the profit on the said sale cannot be reduced. We accordingly have no hesitation in confirming the impugned order and thereby the rectification by the AO.

Summary

Issues:
1. Maintainability of the order u/s. 154 for assessing book profit.

Analysis:
The appeal before the Appellate Tribunal ITAT Chennai pertained to the order dated 27.03.2017 by the Commissioner of Income Tax (Appeals)-11, Chennai, dismissing the assessee's appeal contesting the order u/s. 154 dated 06.10.2015 for assessment year (AY) 2011-12. The primary issue in this case was the correctness of the order u/s. 154 seeking to assess the book profit of the assessee at the 'correct' figure. The assessee had initially disclosed a book profit of &8377; 506,04,764/-, which was later revised to &8377; 64,64,764/- by making adjustments in a return filed on 27.06.2012. The Assessing Officer (AO) issued a notice u/s. 154(3) stating that the book profit had been wrongly assessed and needed to be corrected to &8377; 506,04,764/-. The dispute revolved around whether the AO had the authority to rectify the book profit figure.

Upon careful consideration, the Tribunal found that the assessee had indeed initially returned the book profit as per the profit and loss account, which was later revised to a lower amount. The Revenue had assessed the lower book profit figure through the provisions of s. 154. The Tribunal noted that the AO had made the adjustment without any objection raised by the assessee and that the ld. CIT(A) also found the adjustment to be in accordance with the law. The Tribunal emphasized that no objection had been raised on the merits of the adjustment at any stage. The Tribunal further clarified that the word 'mistake' under s. 154 is broad in scope and includes omissions on the part of the authority to assess the correct figures. The Tribunal also discussed the limitations of s. 154 in altering figures, emphasizing that debatable issues are beyond the purview of s. 154.

In the context of s. 115-JB, which deals with book profit, the Tribunal highlighted that only specified adjustments under Explanation-1 to s. 115JB can be made to arrive at the book profit. The Tribunal observed that the adjustments made by the assessee did not correspond to the specified adjustments, raising questions about the validity of the revision. The Tribunal also pointed out that capital gains on transactions in securities are specified for reduction only in the case of a foreign company, implying that for other entities, such reductions are not applicable. Based on these considerations, the Tribunal confirmed the rectification made by the AO and dismissed the assessee's appeal.

In conclusion, the Tribunal upheld the impugned order, emphasizing the correctness of the rectification made by the AO. The decision was pronounced on July 31, 2017, at Chennai.