2016 (12) TMI 1005 - HC - Income Tax

Addition made to Book Profit by an order u/s 154 - MAT - rectification of mistake - Held that - We are of the view that the issue stands concluded by the decision of this Court in Sakseria Cotton Mills Ltd. (1979 (2) TMI 17 - BOMBAY High Court) in favour of the assessee and against the appellant Revenue. The distinction sought to be made by the appellant Revenue on the basis of the amendment to Section 115JB of the Act in 2009 with retrospective effect from 2001 does not address the fundamental issue of nonmerger of the order dated 27th February, 2004 with the order dated 30th December, 2008. Therefore, any rectification of the order dated 27th February, 2004 is required to be done within 4 years from 27th February, 2004 as provided under Section 154 of the Act. It is not disputed before us that issue of the provisions made for diminution in value of assets which is sought to be rectified is an issue which was never the subject matter of consideration in the order dated 30th December, 2008 passed under Section 143(3) r/w Section 254 of the Act. Therefore, in these circumstances, it could not be rectified under Section 154 of the Act. Thus, the distinction sought to be made is of no consequence. - Decided in favour of assessee

Summary

Issues:
Challenge to Income Tax Appellate Tribunal's order relating to Assessment Year 2001-02; Interpretation of Section 115JB of the Income Tax Act, 1961; Jurisdiction of Assessing Officer to rectify orders; Merger of assessment orders; Application of retrospective amendments to tax laws.

Analysis:
The appeal before the High Court challenged the Income Tax Appellate Tribunal's order related to Assessment Year 2001-02. The main question raised was whether the Tribunal erred in setting aside the order of CIT(A) and directing the deletion of an addition to Book Profit made by the Assessing Officer under Section 154 of the Income Tax Act. The issue stemmed from a retrospective amendment to Section 115JB of the Act, specifically concerning the treatment of amounts set aside as provisions for diminution in the value of assets in computing book profits.

The facts leading to the appeal revealed that the Assessing Officer had passed an order in 2004 accepting the respondent assessee's claim of book profits under Section 115JB, including provisions for diminution in asset value. Subsequently, in 2008, certain issues were restored by the Tribunal to the Assessing Officer for readjudication, but the provision issue was not included. In 2010, the Assessing Officer rectified the 2008 order to include the provision amounts in book profits based on a retrospective amendment to Section 115JB.

The High Court analyzed the jurisdiction of the Assessing Officer to rectify orders and the concept of merger of assessment orders. It was held that the 2004 assessment order did not merge with the 2008 order, and therefore, the rectification made in 2010 did not affect the 2004 order. The Court relied on precedent and determined that any rectification should have been done within four years of the 2004 order, as per Section 154 of the Act. Since the provision issue was not part of the 2008 order, it could not be rectified under Section 154.

The Court dismissed the appeal, emphasizing that the decision in a previous case was applicable to the present circumstances. The distinction made by the Revenue based on the 2009 amendment to Section 115JB was deemed inconsequential, as the fundamental issue of non-merger of assessment orders prevailed. The Court concluded that the rectification made in 2010 was not valid, and the Tribunal's decision to delete the addition to book profits was upheld.

In summary, the High Court's judgment clarified the jurisdictional limits of Assessing Officers in rectifying orders, the concept of merger of assessment orders, and the application of retrospective amendments to tax laws. The decision highlighted the importance of timely rectifications and adherence to legal principles in tax assessments.