2012 (11) TMI 548 - AT - Income Tax

Whether rectification carried out under section 154 of the Act was both illegal and void, without serving any intimation under section 143(1) and also notice under section 154 of the Act and second grievance was that the issue being debatable was outside the purview of section 154 of the Act Held that - Where any tax or interest was found due on the basis of return of income after allowing adjustment of tax paid, then an intimation shall be sent to the assessee specifying the same so payable and such intimation shall be deemed to be a notice of demand issued under section 156 and the provisions of the Act shall apply accordingly. Where any refund is due on the basis of such return, the same shall be granted to the assessee and and intimation to the effect shall be sent to the assessee provided that no intimation under sub-section shall be sent after the expiry of one year from the end of the financial year in which the return was made. Rectification under section 154 of the Act was carried out by the Assessing Officer suo motu on 26.3.2009 without any notice to the assessee whatsoever - no merit in the proceedings carried out by the Assessing Officer in this regard - appeal of assesse is allowed. In the interest of justice and in the entirety of the facts and circumstances, issue of adjudication of application moved by the assessee under section 154 of the Act vis- -vis the claim of set off of brought forward losses for computing book profits under section 115JB of the Act and the tax thereof, restored to the file of the Assessing Officer after affording reasonable opportunity of hearing appeal is allowed for statistical purposes.

Issues Involved:
1. Legality of rectification under Section 154 of the Income Tax Act, 1961.
2. Service of intimation under Section 143(1) and notice under Section 154 of the Income Tax Act, 1961.
3. Debatable issues being outside the purview of Section 154.
4. Set-off of brought forward losses for computing book profits under Section 115JB.

Detailed Analysis:

1. Legality of Rectification under Section 154:
The assessee contested the rectification carried out by the Assessing Officer (AO) under Section 154 of the Income Tax Act, 1961, arguing that it was both illegal and void. The AO had suo motu passed a rectification order on 26.03.2009 and a subsequent order on 23.06.2009, dismissing the rectification application moved by the assessee. The Tribunal found that the AO had processed the return of income and created a demand without serving any intimation or notice, which was a compulsory requirement under the Act. The Tribunal held that the rectification under Section 154 was not valid as it was done without serving the necessary intimation and notice to the assessee.

2. Service of Intimation under Section 143(1) and Notice under Section 154:
The Tribunal emphasized that the provisions of the Act require the service of intimation under Section 143(1) when any demand is created or refund is due. In this case, the AO created a demand of Rs. 10,86,670/- against the assessee's claim of refund without serving the intimation. The Tribunal found that the AO's action of passing a rectification order without serving notice under Section 154 was not in accordance with the law. The Tribunal concluded that the intimation under Section 143(1) and the notice under Section 154 were compulsory and their absence rendered the rectification invalid.

3. Debatable Issues Being Outside the Purview of Section 154:
The assessee argued that the issues involved were debatable and thus outside the purview of Section 154, which is meant for rectifying apparent mistakes. The Tribunal noted that the computation of tax liability, especially under the Minimum Alternate Tax (MAT) provisions, involved complexities that could be considered debatable. Therefore, the Tribunal found merit in the assessee's claim that the issues were beyond the scope of rectification under Section 154.

4. Set-off of Brought Forward Losses for Computing Book Profits under Section 115JB:
The Tribunal examined the return of income filed by the assessee, noting discrepancies in the declaration of book profits and the set-off of brought forward losses. The Tribunal acknowledged that the e-return format did not provide a column for declaring brought forward losses against book profits under Section 115JB, leading to errors in the computation. The Tribunal found merit in the assessee's claim made through the rectification application that the brought forward losses should be considered for computing book profits. Consequently, the Tribunal restored the issue to the AO for a fresh adjudication of the rectification application, ensuring that the AO re-examines the set-off of brought forward losses in accordance with the law.

Conclusion:
The Tribunal allowed the appeal in ITA No.1063/Chd/2010 and allowed the appeal in ITA No.440/Chd/2011 for statistical purposes. The AO was directed to re-adjudicate the rectification application filed by the assessee, considering the set-off of brought forward losses for computing book profits under Section 115JB, after providing a reasonable opportunity of hearing to the assessee.

← Previous Next →