2006 (9) TMI 230 - AT - Income Tax

ITAT Rules Debatable Issues Not Correctable u/s 154, Upholds Assessee's Deduction Claim u/s 80HHC.

The ITAT quashed the order under section 154, determining the issue was debatable and not a mistake apparent on record. It upheld the assessee's claim for ... Rectification Of Mistakes u/s 154 - declared 'Nil' income after claiming depreciation - CIT(A) confirmed the AO's action of not allowing the claim of deduction u/s 80HHC in computing the book profit u/s 115JB - HELD THAT:- In the present case assessee had claimed the deduction on the basis of Kerala High Court decision in G.T.N. Textile Ltd. 's case [2000 (8) TMI 35 - KERALA HIGH COURT]. Hence now holding that the assessee has wrongly claimed the deduction is apparently a debatable issue, which cannot be said to be a mistake apparent on the records. Such a debatable issue cannot be the subject-matter of order u/s 154. A 'mistake apparent' is a mistake that is manifest, plain or obvious, a mistake that can be realized without a debate or dissertation. The plain meaning of the word 'apparent' is that it must be something, which appears to be ex facie that it is incapable of argument or debate. The mistake can be regarded as 'apparent' only when it is glaring obvious or self-evident mistake. The Supreme Court in the case of T.S. Balaram, ITO v. Volkart Bros.[1971 (8) TMI 3 - SUPREME COURT] has held that a mistake apparent on record must be an obvious and patent mistake and not something which can be establish by a long drawn process of reasoning on points on which there are conceivably be two opinions. It is also evident from the submissions of the ld. A.R., that department itself is taking different view in different assessment years. In assessment year 1998-99, the Assessing Officer allowed the claim of the assessee after considering the decision of Hon'ble Kerala High Court. For assessment year 2002-03, the appeal of the assessee is allowed by the CIT(A) on this issue. Since the disallowance made by the Assessing Officer is not a mistake apparent from the record as envisaged by law, the order passed u/s 154 is liable to be quashed. Consequently, we quash the impugned order passed u/s 154 of the Act. In the result, the appeal stands allowed. Issues Involved:1. Legitimacy of the order passed by the Assessing Officer under section 154.2. Validity of the disallowance of the deduction under section 80HHC in computing book profit under section 115JB.Comprehensive Issue-Wise Detailed Analysis:1. Legitimacy of the Order Passed by the Assessing Officer under Section 154:The appeal questioned the legitimacy of the Assessing Officer's order under section 154, which rectified the previously allowed deduction under section 80HHC. The assessee argued that the deduction was based on the decision of the Kerala High Court in CIT v. G.T.N. Textile Ltd. and clause (iv) of the Explanation under section 115JB, which permits reducing the amount of profits eligible for deduction under section 80HHC from book profit. The Tribunal examined whether the issue involved a 'mistake apparent on record' as required under section 154. It was noted that a mistake apparent on record must be obvious and not subject to debate. The Tribunal cited the Supreme Court's decision in T.S. Balaram, ITO v. Volkart Bros., which held that a debatable point of law cannot be rectified under section 154. The Tribunal concluded that the issue was debatable, and therefore, the rectification under section 154 was not justified. Consequently, the order passed under section 154 was quashed.2. Validity of the Disallowance of the Deduction under Section 80HHC in Computing Book Profit under Section 115JB:The core issue revolved around whether the deduction under section 80HHC should be computed based on book profit or the profits and gains of business or profession. The Tribunal traced the legislative history and intent behind sections 115JA and 115JB, which were introduced to ensure that companies with substantial book profits but minimal taxable income under normal provisions still paid a minimum tax. The Tribunal noted that section 115JB, like its predecessor section 115JA, included provisions to exclude export profits eligible for deduction under section 80HHC from the purview of MAT.The Tribunal referred to the Kerala High Court's decision in G.T.N. Textile Ltd., which clarified that for computing book profit under section 115J (and by extension section 115JB), the profit should be taken as the net profit as per the profit and loss account, not as computed under the head 'Profits and gains of business or profession.' The Tribunal also cited the ITAT Hyderabad Bench's decision in Starchik Specialties Ltd. and the ITAT Pune Bench's decision in Smruthi Organics Ltd., which supported the view that the deduction under section 80HHC should be based on book profit.The Tribunal emphasized that section 115JB is a separate code for computation of tax, starting with a non-obstante clause, and intended to provide relief for export profits. It was concluded that the assessee's claim for deduction under section 80HHC based on book profit was valid, and the disallowance by the Assessing Officer was incorrect. The Tribunal allowed the appeal, reinstating the deduction under section 80HHC in computing the book profit under section 115JB.Conclusion:The Tribunal quashed the order passed under section 154, holding that the issue was debatable and not a mistake apparent on record. It also upheld the assessee's claim for deduction under section 80HHC based on book profit, allowing the appeal in favor of the assessee.