2006 (10) TMI 179 - AT - Income Tax

Issues Involved:
1. Computation of 'book profit' under Section 115JA of the IT Act.
2. Applicability of Section 154 for rectification of mistakes.
3. Double deduction claim of Rs. 120.39 crores.
4. Deletion of additions for provisions of doubtful debts and diminution in the value of investment.

Detailed Analysis:

1. Computation of 'book profit' under Section 115JA of the IT Act:
The primary issue was the computation of the assessee's 'book profit' for the assessment year 1997-98. The AO computed the book profit at Rs. 1,06,23,51,779 by adding Rs. 1,20,39,00,000 to the net profit of Rs. (-)30,32,03,000 as per the assessee's P&L account. The assessee argued that since their P&L account was prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956, the AO was not justified in going beyond the net profit shown therein. The Tribunal held that the AO's addition of Rs. 120.39 crores to the book profit was unjustified as the P&L account was certified by statutory auditors and prepared as per the Companies Act. The Tribunal followed the Supreme Court's decision in Apollo Tyres Ltd. vs. CIT, which restricts the AO from modifying the net profit shown in the P&L account except as provided in the Explanation to Section 115JA.

2. Applicability of Section 154 for rectification of mistakes:
The AO invoked Section 154 to rectify what was perceived as an apparent mistake in the net profit computation. The Tribunal noted that the scope of Section 154 is limited to rectifying apparent mistakes and does not extend to debatable issues. The Tribunal found that the AO's rectification involved a debatable issue regarding the double deduction claim, which is beyond the purview of Section 154. Therefore, the Tribunal quashed the AO's order under Section 154, emphasizing that the rectification power under this section is not applicable to issues of a debatable nature.

3. Double deduction claim of Rs. 120.39 crores:
The AO contended that the assessee claimed a deduction of Rs. 120.39 crores twice: once in the assessment year 1996-97 and again in the assessment year 1997-98. The Tribunal clarified that the deduction was claimed in the computation of total income under the IT Act for the assessment year 1996-97, but not debited in the P&L account. The amount was subsequently debited in the books of account in the assessment year 1997-98. The Tribunal held that the claim of deduction from the total income and the book profit are separate computations. The Tribunal concluded that the AO's assertion of double deduction was incorrect, and the deduction of Rs. 120.39 crores was not claimed twice under Section 115JA.

4. Deletion of additions for provisions of doubtful debts and diminution in the value of investment:
The CIT(A) had deleted the additions made by the AO for provisions of doubtful debts (Rs. 26.42 crores) and diminution in the value of investment (Rs. 15.36 crores). The Revenue appealed against this deletion. The Tribunal referred to the Special Bench decision in Usha Martin Industries Ltd., which held that Explanation (c) to Section 115JA does not apply to provisions for doubtful debts and diminution in the value of investment. Consequently, the Tribunal upheld the CIT(A)'s decision to delete these additions, affirming that such provisions cannot be added to the book profit under Explanation (c) to Section 115JA.

Conclusion:
The appeals filed by the assessee for the assessment years 1997-98 and 1998-99 were allowed, and the Revenue's appeal was dismissed. The Tribunal concluded that the AO's adjustments to the book profit were unjustified and that the rectification under Section 154 was not applicable to debatable issues. The Tribunal also upheld the deletion of additions for provisions of doubtful debts and diminution in the value of investment.

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