2001 (1) TMI 223 - AT - Income Tax

Summary

Issues Involved:
1. Computation of book profits under section 115J.
2. Applicability of section 154 for rectifying the assessment order.
3. Set-off of unabsorbed depreciation while computing book profits under section 115J.

Issue-wise Detailed Analysis:

1. Computation of Book Profits under Section 115J:
The primary issue revolves around the method of calculating book profits under section 115J. Initially, the Assessing Officer (AO) computed the income under regular provisions and section 115J, determining the income under regular provisions to be higher and thus, taxable. The CIT(A) provided reliefs, leading to a revised income lower than the original computation under section 115J. The AO later rectified this by adopting the higher income computed under section 115J, which the assessee contested, arguing that the computation of book profits was debatable and should not have been considered under section 154.

2. Applicability of Section 154 for Rectifying the Assessment Order:
The AO invoked section 154, treating the omission to consider section 115J income as a "mistake apparent from record." The assessee argued that section 154 should not apply as the issue was debatable. The CIT(A) upheld the AO's action, stating the AO was merely correcting an oversight from the original assessment. The Tribunal noted that the assessee had no opportunity to contest the section 115J computation initially, as it was an academic exercise not acted upon until the rectification under section 154. The Tribunal held that the assessee had the right to contest the computation when the AO invoked section 154.

3. Set-off of Unabsorbed Depreciation while Computing Book Profits under Section 115J:
The assessee contended that unabsorbed depreciation from previous years should be set off while computing book profits under section 115J. The AO initially followed the Andhra Pradesh High Court's decision in Surana Steels, which was later reversed by the Supreme Court, favoring the assessee. The Tribunal acknowledged that the lower authorities did not consider the merits of the assessee's objections due to the prevailing High Court decision. However, the Tribunal ruled that the Supreme Court's decision now governs the issue, entitling the assessee to set off unabsorbed depreciation.

Conclusion:
The Tribunal directed the AO to recompute the profits under section 115J in light of the Supreme Court's decision in Surana Steels, comparing it with the modified income as per the CIT(A)'s order and reframing the assessment based on the higher of the two amounts. Consequently, the assessee's appeal was allowed.