OSAKA ALLOYS & STEEL PRIVATE LIMITED,JALANDHAR vs. DCIT/ACIT, CIRCLE-1, JLD, JALANDHAR

Thereafter, the assessee filed a revised return on 31/08/2013, revising the MAT computation u/s 115JB, determining MAT payable at Rs.5,821/- (and claiming refund of excess tax paid), by reducing the book profits to the extent of the capital receipts relating to excise duty refund of Rs.5,69,745/-.

The assessment was completed u/s 143(1) by the AO - CPC, Bangaluru, vide intimation, dated 28/11/2013, denying the claim of Rs.17.38 lakhs u/s 80IB(4)of the Act.

Subsequently, on a rectification application u/s 154 of the Act , the AO allowed the claim of Rs.17.38 lakhs u/s 80IB(4) vide order dated 30/03/2018, but enhanced the book profits by Rs.5,69,745/- for the purpose of calculation of MAT and determined MAT payable at Rs.1,24,557/- (against Rs.5,821/- as returned by the assessee).

The matter carried in appeal has been dismissed by the Ld first appellate authority on the ground that the issue of exclusion of capital subsidy for the purpose of computation of book profits has never been deliberated or claimed in proceedings u/s 154 and even otherwise also in the instant case the deduction u/s 80IB is allowed at Rs.17.38 lakhs and adjusted book profits being much lesser at Rs. 6 lakhs only, (as

“6.2 Though the issue dealt in the order u/s 154, relates to taxation of book profit without allowing deduction of 80IB available under the normal provisions of the Act, while computing a book profit, the appellant had filed an appeal on a tangential issue in respect of exclusion of capital subsidy in computing the book profit, which was never deliberated or claimed during the proceedings at the time of passing the original order u/s 154. Moreover, even at the time of appellate proceedings, no evidence was brought on record to indicate the actual quantum subsidy received and the treatment given to it in the books of accounts.

Before the Tribunal the Ld AR of the assessee has filed paper book containing copies of ITR, intimation u/s 143(1), rectification application, order u/s 154, copies of VAT – 11 and tax remission claim form, copies of assessment order u/s 143(3) for AY 2014-15, ITAT order dated 26/06/2024 for AY 2014-15 ( as evidence that identical matter was also in dispute before the tribunal for the above year).

He submitted that in the year under appeal , amount of Rs.5,69,745/- has been received on account of excise duty refund which is capital in nature (capital subsidy)

The Ld AR further submitted that the adjustments of the book profits carried out by the AO in proceedings u/s 154 is a debatable issue and the said adjustments has been done against the provisions of section 154(3),without an opportunity of being heard to the assessee.

He further referred to the copy of the assessment order for the assessment year 2014-15 which is enclosed in page no. 63 of the paper book where the AO has accepted the claim for exclusion of excise duty subsidy from book profit u/s 115JB of the Act, which again was a subject matter of revision u/s 263 of the Act, and ultimately the issue travelled to the tribunal, and in dated 26.06.2024the Hon’ble bench opined against assumption of jurisdiction u/s 263 by the Ld PCIT .

It is further argued by the ld. AR of the assessee that only mistakes which are apparent from the record can be rectified u/s 154 and in the instant case, which is something which involves a debatable point of law and involves statutory provisions and there a reasonable scope for more than one interpretation the remedy of rectification is not available . He further referred to the Hon’ble Apex Court Judgment in the case of T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 where the Hon’ble court has held that a mistake apparent form record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there can conceivably be two opinions. A decision on a debatable point of law is not mistake apparent from the record.

In support of his above contention he referred to the various other judgments of various Courts as follows:

Commissioner of Income Tax v. Reliance Industries Ltd. [2014] 48 taxmann.com 362 (Bombay) 4. Principal Commissioner of Income Tax v. Lanshree Products & Services Ltd. [2023] 150 taxmann.com 389 (Calcutta).

Gujarat High Court, the Principal Commissioner of Income Tax-1 v. M/s Setco Automotive Ltd [2024] (3) TMI 829.

Principal Commissioner of Income Tax v. Steco Automotive Ltd. [2024] 161 taxmann.com 254 (Gujarat) 7. Banswara Syntex Ltd. v. Assistant Commissioner of Income Tax, Circle, Chittorgarh [2017] 108 ITD 48 (Jodh).

Maccaferri Environmental Solutions (P.) Ltd. v. Income Tax Officer, Ward-3(2), Mumbai [2019] 103 taxmann.com 154 (Mumbai Trib.)

He further submitted that without prejudice, subsidy was inserted in clause xiii of (section 2(24) w.e.f. 01.04.2016 and as per circular no 19 dated 27th November, 2015, containing explanatory notes to the above provisions, of the Finance Act 2015, it is clarified that the said amendment will take effect from 1st April, 2016 , and would accordingly apply from assessment year 2016-17and subsequent years and as such the subsidy will not qualify as an income under the definition as envisaged in section 2(24) of the Act, for the year under appeal and since it does not form a part of the total income as defined, it cannot be subjected to tax neither under normal computation nor under 115JB of the Act .

In support of his contention he relied on Hon’ble Calcutta High Court in the case of (i) PCIT v. Krishi Rasayan Exports (P.) Ltd. and (ii) also on Ankit Metal and Power Ltd:

Lastly before concluding, the Ld. AR submitted that in the instant case, the Act of the AO is legally flawed in absence of any notices of hearing u/s 154(3) of the Act and he submitted that as per the above provisions and also from the aspect of the natural justice, the assessee should have been provided with a notice of hearing which has not been done in this case and he relied on a number of judgments on this issue that any exercise where right or interests of the assessee are being affected , reasonable opportunity to defend should be allowed to the assessee and in the instant case since no opportunity to defend has been allowed (no notice u/s 154(3) has been served )the order is violative of the principles of natural justice and should be quashed .

In support of his contention he relied on the following decisions:

As such, the Ld AR prays that the claim of the assessee may please be allowed.

The ld. DR relied on the order of the ld. CIT(A) but he has not been able to controvert as to why no opportunity of hearing has been allowed to the assessee u/s 154(3) of the Act and secondly , whether rectification proceedings are at all applicable in issues which are debatable in nature. However, he prays for the appellate order to be sustained.

We have heard the rival submissions and considered the materials on record and we observe that the initial dispute revolved around the claim for deduction u/s 80IB of the Act, amounting to Rs. 17.38 lakhs, which was disallowed in proceedings u/s 143(1), against which application for rectification u/s 154, was filed by the assessee and the AO allowed the said claim u/s 80IB vide order dated 30/03/2018.

We are of the opinion that this act of the AO has an effect of enhancing an assessment resulting in increasing in liability of the assessee and the same is not legally justified without a separate SCN as per provisions of section 154(3) of the Act and in this case the assessee has not been allowed the right to defend. We are also of the opinion that the rectification proceeding u/s 154 was initiated at the behest of the assessee for correcting an error u/s 80IB of the Act and the computation of book profits u/s 115JBwas never an issue in the rectification application, and as such the AO could not have proceeded with the same without a fresh notice for that specific purpose, which has not been done in this case, rendering the proceeding legally unacceptable being violative of the principles of natural justice , because both sections operate in different perspective.

On this issue we rely on the decision of the Hon’ble Calcutta High court in the case of Arun Kumar Bose Vs ITO (supra) the relevant paragraph reproduced:

Secondly, we are also of the opinion that the entire issue revolves around the nature and character of the excise subsidy received whether capital or revenue and the issue itself is debatable one, and the AO has allowed the deduction in the case of the assessee itself , in the Asst year 2014-15 , and as observed by us ( in paragraph – 16 and 17 above )it is very much debatable, whether or not , the subsidy will form a part of the total income as per provisions of section 2(24) of the Act and as such we are of the opinion that debatable issues which involves interpretation of the statute and facts will not be covered under the provisions of section 154 of the Act , because this section is only restricted to correction of mistakes which are manifest, plain or obvious which can be realized without a debate or dissertation, which is glaring, or T S Balaram ITO vs Volkart Brothers [ 1971] 82 ITR 50 .

As such considering the entire factual aspect of the matter we have no hesitation in deleting the addition made by the AO in proceedings u/s 154 of the Act and we are not in agreement with the order of the Ld first appellate authority, and the same is set aside, and the claim of the assessee regarding treatment of excise subsidy as capital receipt for the purpose of computation of book profits u/s 115JB is upheld.

In the result, the appeal filed by the assessee is allowed.