2002 (5) TMI 203 - AT - Income Tax

Summary

Issues Involved:
1. Rectification of Intimation u/s 143(1)(a) and subsequent proceedings u/s 154.
2. Disallowance of Dry Dock expenses in assessment order u/s 143(3).

Issue 1: Rectification of Intimation u/s 143(1)(a) and subsequent proceedings u/s 154
The assessee filed a return declaring Nil income, which led to an intimation u/s 143(1)(a) disallowing Dry Dock expenses of Rs. 4,53,61,339. The assessee appealed and also filed an application u/s 154. The Assessing Officer (AO) rectified the intimation, deleting the disallowance. Subsequently, the AO issued another notice u/s 154 to adjust a "Loss on sale of investments" as a capital loss. The assessee objected, arguing that the loss was business-related. The AO disagreed, treating it as a capital loss. The CIT(A) ruled that the issue was debatable and outside the scope of rectification u/s 154. The Tribunal agreed with CIT(A), dismissing the revenue's appeal, stating that the adjustment was outside the scope of section 143(1)(a) and rectification u/s 154(2) could not be made.

Issue 2: Disallowance of Dry Dock expenses in assessment order u/s 143(3)
The assessee, engaged in shipping, claimed a deduction of Rs. 5,67,01,674 for Dry Dock expenses in the return, though only Rs. 1,13,40,335 was debited in the profit and loss account as deferred revenue expenditure. The AO disallowed Rs. 4,53,61,339, arguing that the benefit of the expenditure was spread over multiple years. The CIT(A) allowed the entire deduction, stating that there is no concept of deferred revenue expenditure under the Income Tax Act. The Tribunal, however, reversed CIT(A)'s order, emphasizing that the method of accounting regularly employed by the assessee should be followed. The Tribunal held that the AO rightly insisted on following the treatment given in the books of account, restoring the assessment order.

Conclusion
The Tribunal dismissed the revenue's appeal regarding the rectification of intimation u/s 143(1)(a) and subsequent proceedings u/s 154, but allowed the revenue's appeal concerning the disallowance of Dry Dock expenses, restoring the assessment order.