2024 (3) TMI 829 - HC - Income Tax

Adjustment made u/s 115JB in Rectification order u/s 154 - Debatable issue - addition of surrendered income by the assessee was included in the book profit of the assessee as per Section 115JB - ITAT held non-inclusion of income surrendered u/s. 115 JB could not have been corrected in rectification proceedings u/s. 154 - HELD THAT - The Hon ble Delhi High Court in the case of RTCL. LTD. 2012 (4) TMI 287 - DELHI HIGH COURT has held that the book profits as declared by the assessee was in conformity and as per the provisions of parts II and III of the Schedule VI of the Companies Act, 1956 and there was nothing on record to suggest that the book profits were contrary to such provisions or not in consonance with such provisions. In view of the conclusion arrived at by the Tribunal that such inclusion of the disclosure made by the assessee company would require long drawn reasoning and debate and therefore, when the issues and contentions being debatable on uncertainty, the Assessing Officer could not have invoked the power under Section 154 of the Act for rectification of the mistake apparent on record. The Tribunal, therefore, was right in observing that the action of the Assessing Officer as well as the CIT(A) under Section 154 of the Act was not warranted. Decided against revenue.

Summary

Issues involved:
The issue involves the correction of income surrendered u/s. 115JB in rectification proceedings u/s. 154 of the Income Tax Act, 1961.

Details of the Judgment:

Assessment and Additional Income Declaration:
The respondent- assessee filed a return of income declaring total income. The assessment was completed u/s. 143(3) of the Act, making an addition. A survey action u/s. 133A was conducted, during which the assessee declared additional income. The Assessing Officer issued a notice u/s. 154 and added the additional income to the book profit for the purpose of calculating book profit u/s. 115JB based on the survey declaration. The tax payable was reworked accordingly.

Appeals and Tribunal Order:
The CIT(A) confirmed the addition and rectification order, which was further challenged before the Tribunal. The Tribunal allowed the appeal, stating that the inclusion of the disclosed income in the book profit was not supported by incriminating material, making it not a mistake apparent on record for rectification u/s. 154. The Tribunal emphasized the need for incriminating material to justify such inclusions.

Arguments and Court's Decision:
The appellant- Revenue argued that the disclosure should be included in the book profit, citing a Bombay High Court decision. The respondent- assessee contended that the issue was debatable, referring to a Delhi High Court decision. The Court agreed with the Tribunal's reasoning, stating that the disclosed income's non-inclusion in the book profit u/s. 115JB was not a clear error for rectification u/s. 154. The Court highlighted the absence of incriminating material and the need for a detailed reasoning and debate for such inclusions.

Conclusion:
The Court dismissed the appeal, noting that the inclusion of the disclosed income required extensive reasoning and was debatable, thus not warranting rectification u/s. 154. The Court upheld the Tribunal's decision, emphasizing the need for clarity and substantial evidence before making adjustments to book profits under the Income Tax Act.