Tribunal rules on deferred tax adjustments in book profit computation

The Tribunal held that the Assessing Officer had no jurisdiction to rectify the order under section 154 as the issue of deferred tax liability was debatable and not an apparent mistake. Regarding the adjustment of Rs. 1,14,24,000 for deferred taxation in book profit computation under section 115JB, the Tribunal ruled that deferred tax liability should not be added back to the book profit as it is an ascertained liability and not income-tax "paid" or "payable." The Tribunal emphasized that adding deferred tax liability would result in double taxation and directed the deletion of the addition, ruling in favor of the assessee.

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Issues Involved:
1. Validity of the order passed under section 154.
2. Action of the Assessing Officer in making an adjustment of Rs. 1,14,24,000 in respect of provision for deferred taxation while computing the book profit for the purpose of section 115JB.

Issue-wise Detailed Analysis:

1. Validity of Order Passed under Section 154:

The revenue contested the validity of the order passed under section 154, arguing that the CIT(A) erred in upholding the rectification. The assessee contended that section 154 could not be invoked since there was no "mistake apparent from the record" as required by law. The Supreme Court's ruling in T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 was cited, emphasizing that a mistake must be obvious and patent, not one that requires elaborate reasoning or is debatable. The Tribunal agreed with the assessee, finding that the issue of deferred tax liability was debatable and not an apparent mistake, thus section 154 was inapplicable. The Tribunal concluded that the Assessing Officer had no jurisdiction to rectify the order under section 154, making the rectification order invalid.

2. Adjustment of Rs. 1,14,24,000 for Deferred Taxation in Book Profit Computation:

The primary issue was whether the deferred tax liability should be added back to the book profit under section 115JB. The Tribunal examined the provisions of section 115JB and the relevant clauses in the Explanation under sub-section (2). The deferred tax liability was scrutinized to determine if it fell under clause (a) or (c) of the Explanation. Clause (a) pertains to "the amount of income-tax paid or payable, and the provisions therefor," while clause (c) relates to "the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities."

The Tribunal found that deferred tax liability is not income-tax "paid" or "payable," nor is it a provision for such tax. It is an ascertained liability computed as per Accounting Standard-22 (AS-22) issued by the Institute of Chartered Accountants of India (ICAI), which mandates its recognition. The Tribunal emphasized that deferred tax liability is a well-ascertained sum, not falling under unascertained liabilities, and thus should not be added to the book profit under clause (c).

The Tribunal also noted that adding deferred tax liability to the book profit would lead to double taxation when it converts to current tax in future years, which is not the legislative intent. The Tribunal relied on the Supreme Court's decision in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273, which held that the Assessing Officer cannot alter the book profit certified under the Companies Act except as expressly provided in the Explanation to section 115JB.

In conclusion, the Tribunal found that the lower authorities erred in adding the deferred tax liability to the book profit. The Tribunal directed the deletion of the Rs. 1,14,24,000 addition, allowing the appeal in favor of the assessee.

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