2014 (7) TMI 870 - HC - Income Tax

Deduction u/s 80HHC Computation of income u/s 115JB Rectification of order u/s 154 - Tribunal rightly directed to compute the deduction u/s 80HHC for the purpose of determining book profit u/s 115JA only with reference to profit as per the accounts and not to restrict the same to the amount computed and allowed under the normal provisions of the Act - there was no mistake in the order passed by the AO on 24.07.2006 giving effect to the order of the CIT (A) on this issue warranting any rectification u/s 154 - whether deduction u/s 80HHC while computing book profit u/s 115JA is to be allowed with reference to eligible profit as shown by the assessee in the Profit and Loss Account or with reference to the eligible profit as computed under the provisions of the I.T. Act. The exercise undertaken by the Tribunal is with reference to the facts and peculiar to the case - Tribunal rightly held that the powers u/s 154 could not have been resorted to and to initiate and complete an exercise referred in details by it - In effect the initial order of rectification is sought to be further rectified and which is impermissible - when the Revenue did not take the matter further from the initial stage and against the order dated 24.07.2006 - the nature being understood in the factual backdrop and particularly the orders of the Authorities - the order is rendered in the backdrop of the facts peculiar to the Assessee Decided against Revenue.

Summary

Issues Involved:
1. Deduction under Section 80HHC while computing book profits under Section 115JB.
2. Rectification of errors under Section 154 of the Income Tax Act, 1961.
3. Applicability of explanation (baa) to Section 80HHC in the context of book profits.

Detailed Analysis:

1. Deduction under Section 80HHC while computing book profits under Section 115JB:
The core issue revolves around whether the deduction under Section 80HHC should be computed with reference to the profit as per the accounts or as per the normal provisions of the Income Tax Act, 1961. The Assessee filed a return declaring taxable income of Rs. NIL under normal provisions and Rs. 24,29,04,33,473/- under Section 115JB. The Assessing Officer initially did not allow the deduction under Section 80HHC while computing the income under Section 115JB, arguing that there was no provision to allow such a deduction. However, the Commissioner of Income Tax (Appeals) directed the Assessing Officer to compute the deduction under Section 80HHC based on the profit as per the accounts, which was subsequently allowed. The Tribunal upheld this direction, stating that the deduction should be computed with reference to the profit as per the accounts and not restricted to the amount computed under the normal provisions.

2. Rectification of errors under Section 154 of the Income Tax Act, 1961:
The Assessing Officer passed a rectification order under Section 154, reducing 90% of other income such as interest and profit from the eligible business profits while computing the deduction under Section 80HHC. This rectification was challenged by the Assessee and upheld by the Commissioner of Income Tax (Appeals). However, the Tribunal found that there was no mistake apparent on the face of the record to warrant the rectification under Section 154. The Tribunal emphasized that the issue was highly debatable and beyond the scope of Section 154, which is meant for correcting apparent mistakes, not for addressing debatable issues.

3. Applicability of explanation (baa) to Section 80HHC in the context of book profits:
The Revenue argued that the Assessee's deduction of 90% of the rent income should be consistent with the explanation (baa) to Section 80HHC, which applies to the computation of book profits. The Tribunal, however, noted that the specific direction from the Commissioner of Income Tax (Appeals) was to compute the deduction with reference to the profit as per the accounts. The Tribunal held that the Assessing Officer could not go beyond this direction, and any adjustment based on explanation (baa) was not warranted in the context of Section 115JB. The Tribunal also referenced the decision in Commissioner of Income Tax v/s Syncome Formulations (I) Limited, which supported the deduction computation based on adjusted book profit, not on the regular profit computation.

Conclusion:
The Tribunal concluded that the rectification order under Section 154 was not justified as the issue was debatable and beyond the scope of Section 154. The Tribunal upheld the direction that the deduction under Section 80HHC should be computed with reference to the profit as per the accounts for determining the book profits under Section 115JB. The High Court agreed with the Tribunal's findings, emphasizing that the rectification powers under Section 154 could not be used to address debatable issues. The Appeals by the Revenue were dismissed as devoid of merit, with the Court noting that any larger questions or controversies could be raised in appropriate proceedings but not in the present case.