2021 (5) TMI 830 - AT - Income Tax

Tribunal upholds rectification of set-off, questions addition of share premium as unexplained cash credit

M/s Intelenet Global Services Pvt. Ltd Versus ACIT – 12 (2), Mumbai

The Tribunal partly allowed the appeal, upholding the rectification of the set-off of unabsorbed depreciation. However, it ruled that the addition of ... Rectification u/s 154 - unexplained cash credit u/s 68 to the assessee’s income under the normal provisions of the Act and instead wrongly adding the same to the ‘book profit’ of the assessee u/s 115JB - HELD THAT:- We concur with the view taken by the CIT(A) that as the omission on the part of the A.O to add the unexplained cash credit u/s 68 to the assessee’s income under the normal provisions of the Act and instead wrongly adding the same to the ‘book profit’ of the assessee u/s 115JB of the Act was a mistake which was glaring, apparent, patent and obvious from record, the A.O, thus had rightly rectified the same by invoking the powers vested with him u/s 154 We are unable to comprehend as to on what basis it is claimed by the ld. A.R that the issue in question being a debatable one would fall beyond the realm of the jurisdiction vested with the A.O u/s 154 of the Act. Be that as it may, in our considered view as the A.O remaining well within the scope of his jurisdiction had rectified the aforesaid mistake, thus, principally he cannot be held to have traversed beyond the scope of the jurisdiction that was vested with him u/s 154 of the Act. Withdrawal of the set-off of the brought forward unabsorbed depreciation that was earlier allowed by the A.O vide his assessment framed u/s 143(3) r.w.s 144C(1) - CIT(A) while disposing off the assessee’s appeal against the order passed by the A.O u/s 154, had directed him to ascertain the assessee’s claim of brought forward unabsorbed depreciation and allow set-off of the same as per law while computing its total income - CIT(A) that in case the assessee’s claim for brought forward depreciation (as was claimed by the assessee vide its letter dated 14.09.2017) was not admissible, then, the A.O shall in his order give reasons as to why the said claim was not admissible. In our considered view, the CIT(A) had in all fairness directed the A.O to ascertain the assessee’s claim of brought forward unabsorbed depreciation and allow set-off of the same as per law while computing its total income. A.O had been directed to give reasons in case the assessee’s claim for brought forward depreciation is not found to be admissible by him. No infirmity in the aforesaid view of the CIT(A) who in context of the aforesaid issue in question had rightly upheld the exercise of jurisdiction by the A.O u/s 154 of the Act, subject to certain verifications of facts.We are of a strong conviction that the claim of the ld. A.R that the A.O had exceeded his jurisdiction and rectified the aforesaid issues which were not free from debate and involved a long drawn process of reasoning is devoid and bereft of any substance and does not merit acceptance. The Ground of appeal No. 6 is dismissed. Reassessment order passed by the A.O u/s 143(3) r.w.s 147 was quashed by the CIT(A) by treating the same as void ab initio, therefore, no rectification of the said non-existent order could have been carried out - Though the reassessment order passed by the A.O u/s 143(3) r.w.s 147 was quashed by the CIT(A) by treating the same as void ab initio, however, the original assessment order passed under Sec. 143(3) r.w.s 144C(1), wherein the set-off of unabsorbed depreciation was allowed by the A.O therein continued to subsist and did hold the ground. The issue pertaining to allowing of set-off of unabsorbed depreciation by the A.O found its roots in the original assessment order passed by the A.O u/s 143(3) r.w.s 144C(1), and the same was not effaced pursuant to the quashing of the reassessment order passed by the A.O u/s 143(3) r.w.s 147. We, thus, are of the considered view that as the issue pertaining to allowing of set-off of unabsorbed depreciation by him vide the assessment order passed u/s 143(3) r.w.s 144C(1), had not merged in the reassessment order, the A.O, thus, was well within his jurisdiction in rectifying the mistake as regards allowing of set-off of unabsorbed depreciation vide his order passed under Sec. 143(3) r.w.s 144C(1), as the assessee had no unabsorbed depreciation left for set-off for A.Y 2008-09. Accordingly, we uphold the order passed by the A.O to the extent he had rectified his mistake as regards allowing of set-off of unabsorbed depreciation of ₹ 11,49,85,610/- vide his original assessment order passed u/s 143(3) r.w.s 144C(1). The directions given by the CIT(A) to the A.O, viz. (i). to ascertain the assessee’s claim of brought forward unabsorbed depreciation and allow set-off of the same as per law while computing the assessee’s total income; and (ii). to give reasons in case if the assessee’s claim for brought forward depreciation is not found to be admissible by him, are not being disturbed by us. The Grounds of appeal No(s). 1 to 4 to the extent relatable to the aforesaid issue in question are dismissed in terms of our aforesaid observations. Addition of the share premium that was added by the A.O vide his order passed u/s 154, dated 16.09.2017 as an unexplained cash credit within the meaning of Sec. 68 - If the rectification in question i.e addition of the share premium that was treated as an unexplained cash credit by the A.O u/s 68 vide his reassessment order passed under Sec. 143(3) r.w.s 147 to the income of the assessee determined under the normal provisions is sustained, then, the same would result to supplementing the original assessment order that was passed by him u/s 143(3) r.w.s 144C(1) with an addition that was never made by the A.O, which we are afraid is absolutely not as per the mandate of law. If the rectification order passed by the A.O u/s 154, dated 16.09.2017 qua the addition of share premium of ₹ 32,21,48,679/- to the income of the assessee determined under the normal provisions is sustained, then, it would result to a blatant traversing or in fact invalid assumption of jurisdiction on the part of the A.O resulting to an enhancement of the assessment originally framed by him vide his order passed u/s 143(3) r.w.s 144C(1), dated 28.01.2014, which we are afraid is not in conformity with the express provisions of law. We, thus are of the considered view that the rectification order passed by the A.O u/s 154 qua the addition u/s 68 of the share premium to the income of the assessee determined under the normal provisions cannot be sustained and is liable to be vacated. Thus issue in question and Ground of appeal No. 5 are allowed in terms of our aforesaid observations. Issues Involved:1. Validity of the order passed under Section 154 of the Income Tax Act, 1961.2. Whether the reassessment order under Section 143(3) read with Section 147 was valid.3. Whether the addition of share premium as unexplained cash credit under Section 68 was justified.4. Whether the set-off of unabsorbed depreciation was correctly allowed or disallowed.5. Jurisdiction of the Assessing Officer (AO) under Section 154.Detailed Analysis:1. Validity of the Order Under Section 154:The assessee challenged the order passed by the AO under Section 154, arguing that the mistakes in the original assessment were not apparent from the record and thus could not be rectified under this section. The Tribunal noted that a mistake must be glaring, apparent, patent, and obvious from the record to be rectifiable under Section 154. The AO had rectified the reassessment order by adding the unexplained share premium to the income under normal provisions and correcting the set-off of unabsorbed depreciation. The Tribunal upheld this rectification as the mistakes were apparent from the record.2. Validity of the Reassessment Order Under Section 143(3) read with Section 147:The reassessment was initiated based on information that the assessee received a substantial share premium. The CIT(A) quashed the reassessment order, ruling that the reopening was invalid as there was no failure on the part of the assessee to disclose material facts. The Tribunal concurred with the CIT(A), noting that the reassessment was initiated after four years from the end of the relevant assessment year, which was not permissible since the assessee had fully disclosed the share premium in its financial statements.3. Addition of Share Premium as Unexplained Cash Credit Under Section 68:The AO had added the share premium to the book profit under Section 115JB, which was incorrect. The CIT(A) observed that such an addition could not be made to the book profit but did not comment on the merits of the addition under Section 68. The Tribunal found that the AO's rectification to add the share premium to the income under normal provisions was justified as it was an apparent mistake. However, since the reassessment order was quashed, the rectification order could not survive independently. The Tribunal ruled that the addition under Section 68 could not be sustained unless the reassessment order was reinstated on appeal.4. Set-off of Unabsorbed Depreciation:The AO had initially allowed the set-off of unabsorbed depreciation, which was later withdrawn in the rectification order. The Tribunal upheld this rectification, noting that the mistake was apparent from the record. The CIT(A) directed the AO to verify the assessee's claim for unabsorbed depreciation and allow it if admissible. The Tribunal found no fault with this direction and upheld the CIT(A)'s order.5. Jurisdiction of the AO Under Section 154:The assessee argued that the AO exceeded his jurisdiction under Section 154 by addressing debatable issues. The Tribunal dismissed this argument, stating that the AO had rectified apparent mistakes within his jurisdiction. The Tribunal emphasized that the rectification was justified as the mistakes were glaring and obvious from the record.Conclusion:The Tribunal partly allowed the assessee's appeal. It upheld the rectification of the set-off of unabsorbed depreciation but ruled that the addition of the share premium as unexplained cash credit could not survive independently after the reassessment order was quashed. The Tribunal directed that if the reassessment order is reinstated on appeal, the addition under Section 68 would also stand restored.