2012 (4) TMI 287 - HC - Income Tax

Rectification of mistake A.O. in its rectification order disallowed adjustment on account of change in depreciation method while calculating book profits u/s 115JB on account of it being prior period expenses original order framed u/s 143(3) Held that - The jurisdiction u/s 154 is confined and restricted to rectification of errors and mistakes which are apparent from the record. The issues and contentions being debatable and in the realm of uncertainty, we do not think the A.O. was right in invoking Section 154. The Tribunal was right in observing that the action of the Assessing Officer under Section 154 was not warranted Decided against the Revenue.

Summary

Issues:
1. Whether the adjustment made by the Assessing Officer under Section 154 of the Income Tax Act, 1961 was valid?
2. Whether the change in the method of depreciation by the assessee should be considered while computing book profits under Section 115JB?

Issue 1: Adjustment by Assessing Officer under Section 154
The Assessing Officer, in this case, assessed the total income of the assessee at Nil under Section 143(3) of the Act. Subsequently, a rectification order was passed under Section 154, disallowing a prior period adjustment claimed by the assessee. The CIT(Appeals) upheld this decision, stating that the adjustment for prior period expenses cannot be allowed while computing book profits under Section 115JB. However, the High Court noted that the Assessing Officer's jurisdiction under Section 154 is limited to rectifying errors apparent from the record. The court emphasized that the Assessing Officer cannot delve into debatable issues or matters with multiple views. The court highlighted that the controversy surrounding the adjustment indicated that it was not a clear-cut issue, and therefore, the Assessing Officer's decision was not justified.

Issue 2: Change in Depreciation Method and Book Profits under Section 115JB
The respondent-assessee had changed its method of depreciation from straight-line to written down value method, resulting in a decrease in the current year's book profits. The question arose whether this change should be considered while computing book profits under Section 115JB. The court noted that the Finance Act, 2006 introduced clause (iia) to Explanation 1 of Section 115JB(2), which addresses the amount of depreciation debited to the profit and loss account. However, the court refrained from delving into this issue, stating that the Assessing Officer's jurisdiction under Section 154 does not extend to debating such matters. The court highlighted various decisions and interpretations regarding the treatment of depreciation adjustments in book profits, emphasizing that the Assessing Officer's actions were not warranted in this case. The court concluded that the Assessing Officer's invocation of Section 154 was not justified, as the issue was debatable and fell within the realm of uncertainty.

In conclusion, the High Court dismissed the appeal filed by the Revenue, as it found no substantial question of law arising in the case. The court emphasized the limited scope of the Assessing Officer's powers under Section 154 and highlighted the importance of avoiding involvement in debatable issues. The judgment underscored the need for clarity and certainty in tax assessments, particularly regarding the computation of book profits under Section 115JB.