Book profit adjustment for non-performing assets and rectification under section 154 depend on retrospective amendment and settled precedent.

A provision for diminution in the value of assets, including non-performing assets, was required to be added back in computing book profits under section 115JA after the retrospective insertion of clause (g) in the Explanation, which brought such provisions within the book-profit computation. On rectification, an intimation under section 143(1)(a) could not be corrected under section 154 when the disallowance remained debatable and no binding clarification had yet settled the point; once the issue stood settled by binding precedent, rectification became permissible.

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Issues: (i) Whether a provision for non-performing assets was required to be added back while computing book profits under section 115JA of the Income-tax Act, 1961. (ii) Whether the intimation under section 143(1)(a) of the Income-tax Act, 1961 could be rectified under section 154 of the Income-tax Act, 1961 in relation to the disallowance for non-performing assets.

Issue (i): Whether a provision for non-performing assets was required to be added back while computing book profits under section 115JA of the Income-tax Act, 1961.

Analysis: The provision for diminution in the value of assets was brought within the scope of book profits by the legislative amendment inserting clause (g) in the Explanation to section 115JA with retrospective effect from 01.04.1998. The legal position after the amendment was that amounts set aside as provision for diminution in value of assets were liable to be added back in computing book profits.

Conclusion: The provision for non-performing assets was liable to be added back to book profits; the issue was decided against the assessee for the later assessment year and in favour of the Revenue.

Issue (ii): Whether the intimation under section 143(1)(a) of the Income-tax Act, 1961 could be rectified under section 154 of the Income-tax Act, 1961 in relation to the disallowance for non-performing assets.

Analysis: For the earlier assessment year, the rectification order was passed before the relevant jurisdictional decision had clarified the position, so the disallowance remained a debatable issue and could not be treated as a mistake apparent from the record. For the later assessment year, the rectification was made after the binding decision had already settled the point, and the correction was permissible.

Conclusion: The rectification was not valid for the earlier assessment year and was valid for the later assessment year.

Final Conclusion: The appeals were disposed of on different outcomes for the two assessment years, with relief granted to the assessee for the earlier year and relief denied for the later year.

Ratio Decidendi: A provision for diminution in the value of assets is includible in book profits under section 115JA after the retrospective amendment, and rectification under section 154 is impermissible where the point remains debatable but is permissible once the issue stands settled by binding precedent.

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