2022 (10) TMI 340 - AT - Income Tax

Rectification u/s 154 - enhancement of income for the purpose of section 115JC - whether the CIT(A) is right in holding that it was not apparent from assessment order that the AO intended to enhance the adjusted total income of the assessee for the purpose of section 115JC and that based on the material available on record it cannot be said that there was a mistake apparent on record warranting rectification u/s 154? - HELD THAT - It is a settled decision position that the scope of rectification is limited to correcting error of facts or error of law on the basis of material available on record. The Hon'ble Supreme Court in the case of Appollo Tyres 2002 (5) TMI 5 - SUPREME COURT has laid down the principle that the AO does not have the jurisdiction to go beyond the net profit shown in the Profit Loss Account except to the extent provided in Explanation to Section 115JB. We notice that in the case of PCIT vs. Mphasis Software and Services (India) Pvt Ltd 2022 (1) TMI 790 - KARNATAKA HIGH COURT which considered in the case of J.J. Glastronics P. Ltd 2022 (4) TMI 1187 - KARNATAKA HIGH COURT held that invoking section 154 would be untenable when the matter requires adjudication upon the issue which is debatable issue. In view of these discussions and considering the decisions of the jurisdictional High Court we hold that the AO is not correct in enhancing the book profits u/s.115JC by passing an order under Section 154 of the Act. We therefore see no reason to interfere with the order of the CIT(A) for both the assessment years. - Decided in favour of assessee.

Summary

Issues:
Appeals against orders of Commissioner of Income Tax for assessment years 2015-16 and 2016-17; Adjustment of additional income offered during survey proceedings to book profits for computing Alternate Minimum Tax (AMT) under Section 115JC; Jurisdiction of AO to make adjustments to book profits under Section 115JC through rectification order under Section 154 of the Act.

Analysis:
The appeals before the Appellate Tribunal ITAT Bengaluru were against the orders of the Commissioner of Income Tax for assessment years 2015-16 and 2016-17, involving the adjustment of additional income offered during survey proceedings to book profits for computing Alternate Minimum Tax (AMT) under Section 115JC. The AO had made additions to the income declared by the assessee, and subsequently issued a rectification order under Section 154 of the Act to adjust these additions to the book profits for the purpose of Section 115JC. The CIT(A) deleted this adjustment, leading to the Revenue's appeal before the Tribunal for both assessment years.

The main issue raised by the Revenue was whether the CIT(A) erred in holding that there was no apparent mistake on record warranting rectification under Section 154 to enhance the adjusted total income of the assessee for Section 115JC purposes. The learned A.R. argued that the AO exceeded jurisdiction by adding disallowances to book profits, citing legal precedents to support the contention that such adjustments were not permissible under Section 115JC. The learned D.R., on the other hand, supported the AO's rectification order, emphasizing the availability of material to justify the adjustment.

In its analysis, the Tribunal considered the scope of rectification under Section 154, highlighting that it is limited to correcting factual or legal errors based on available records. Referring to legal precedents, including the decision in Appollo Tyres case, the Tribunal noted that adjustments to book profits under Section 115JC based on normal provisions' additions were debatable issues. Citing the jurisdictional High Court's decision in PCIT vs. Mphasis Software and Services, the Tribunal concluded that the AO's action in enhancing book profits under Section 115JC through a Section 154 order was incorrect.

Ultimately, the Tribunal dismissed the Revenue's appeals for both assessment years, upholding the CIT(A)'s decision to delete the adjustment of disallowances to book profits under Section 115JC. The Tribunal's decision was based on the debatable nature of the issue and the jurisdictional High Court's stance on invoking Section 154 in such cases.

In conclusion, the Tribunal's detailed analysis focused on the limitations of rectification under Section 154, the legality of adjustments to book profits under Section 115JC, and the debatable nature of the issue, leading to the dismissal of the Revenue's appeals.