COMMISSIONER OF INCOME TAX, COCHIN vs. THIRUAMBADI RUBBER CO. LTD.,

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN WEDNESDAY, THE 24TH MARCH 2010 / 3RD CHAITHRA 1932 ITA.No. 1082 of 2009() ---------------------- ITA.1203/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: -------------------- THE COMMISSIONER OF INCOME TAX,COCHIN. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: --------------- THE THIRUMBADI RUBBER COMPANY LTD, 234A,RACE COURSE ROAD, COIMBATORE-18. ADV. SRI.A.KUMAR FOR R THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24/03/2010, THE COURT ON 24/03/2010 DELIVERED THE FOLLOWING:

C.R. C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. .................................................................... I.T. Appeal No.1082 of 2009 .................................................................... Dated this the 24th day of March, 2010. JUDGMENT Ramachandran Nair, J. The question raised in the appeal filed by the Revenue is whether the Tribunal was justified in confirming the order of C.I.T.(Appeals) cancelling the rectification order issued under Section 154 of the Income Tax Act, whereby tax liability was computed under the MAT scheme under Section 115JA of the Act in the case of the respondent- assessee. We have heard Standing Counsel for the appellant and Adv. Sri.A.Kumar appearing for the respondent-assessee. 2. Assessee is a plantation company which returned loss for the assessment year 1997-98. The Assessing Officer processed the return and issued intimation under Section 143(1)(a) of the Act accepting the loss returned. However, later the Assessing Officer noticed that assessee had received profit on sale of rubber trees and so much so, book profits should have been considered for assessment under Section

ITA No.1082/2009 2 115JA of the Act. Besides notice under Section 154, notice under Section 143(2) was also issued and thereafter rectification order as well as separate order under Section 143(3) were issued for the very same assessment determining 30% book profit at Rs.8,43,740/-. The assessee carried the rectification order in appeal without challenging Section 143(3) order and contended that the original order namely, intimation issued under Section 143(1)(a), does not suffer from any mistake justifying rectification. The assessee's contention was accepted by the first appellate authority, which was confirmed by the Tribunal, against which this appeal is filed by the Revenue. 3. The contention of Revenue is that the Tribunal as well as the first appellate authority went wrong in holding that there was no mistake in the original assessment. According to Standing Counsel, in the case of companies covered by Chapter XIIB, it was the duty of the Assessing Officer to consider the book profit and see whether income computed is less than 30% of the book profit and if so, to make assessment on the book profit in terms of the said provisions. Even though counsel for the assessee contended that there is no mistake in

ITA No.1082/2009 3 the intimation issued under Section 143(1(a), we are unable to accept the same because under Section 115JA it is mandatory on the part of the Assessing Officer to compare the income computed by him under the provisions of the Act with 30% of the book profit and if 30% of the book profit is more than the income computed under the provisions of the Act, it was his duty to make assessment under Section 115JA treating 30% of the book profit as deemed income assessable under the Act. In this case admittedly the Assessing Officer has not considered the application of Section 115JA and so much so, the assessment so completed without referring to Section 115JA is a patently mistaken order which calls for correction in proceedings under Section 154. In fact, in our view, Section 143(3) assessment is possible after issuing notice under Section 143(2) even without rectifying Section 143(1)(a) order because the Supreme Court has in COMMISSIONER OF INCOME-TAX VS. GUJARAT ELECTRICITY BOARD reported in (2003) 260 ITR 84 held that a 143(3) assessment is permissible even after issuing intimation under Section 143(1)(a). However, in this case, the Assessing Officer in the course of rectification under Section 154

ITA No.1082/2009 4 determined the book profit and in the separate order issued under Section 143(3) he has incorporated the book profit and made regular assessment. 4. The contention of counsel for the assessee is that the Assessing Officer is not justified in making assessment under Section 115JA in proceedings initiated to rectify intimation under Section 143(1)(a). However, we notice that simultaneously notice was issued under Section 143(2) and a regular assessment was also completed under Section 143(3), copy of which is produced before us by Standing Counsel for the department. It is seen that the income determined under Section 115JA in the rectification proceedings is adopted and incorporated in the regular assessment. Therefore, the objection raised is only technical because regular assessment is also simultaneously completed making assessment on book profit. As already noticed, by issuing intimation under Section 143(1)(a) without considering the application of Section 115JA based on book profit, the Assessing Officer has committed a mistake and the same could be rectified in proceedings under Section 154. Further, the relevance of the

ITA No.1082/2009 5 rectification proceeding disappears when a regular assessment under Section 143(3) is completed assessing book profit under Section 115JA. Consequently the order of the Tribunal as well as the first appellate authority are not tenable. We, therefore, allow the appeal by setting aside the orders of the Tribunal and that of the first appellate authority. However, since assessee has raised dispute about the quantum of income and tax determined under the MAT assessment under Section 115JA, matter is remanded to the Tribunal for rehearing on the quantum relief sought by the assessee. The Tribunal is directed to dispose of the appeal after hearing both sides within a period of three months from the date of receipt of copy of this judgment.

C.N.RAMACHANDRAN NAIR Judge P.S.GOPINATHAN Judge pms