VIRGO PROPERTIES P LTD.,CHENNAI vs. ACIT, CHENNAI

This is an Appeal by the assessee arising out of the Order dated 27.03.2017 by the Commissioner of Income Tax (Appeals)-11, Chennai (‘CIT(A)’ for short), dismissing the assessee’s appeal contesting the order u/s. 154 dated 06.10.2015 for assessment year (AY) 2011-12.

The sole issue arising in the instant appeal is the maintainability of the order u/s. 154 seeking to assess the book profit of the assessee at the ‘correct’

Before us, the ld. Authorized Representative (AR) would, taking us through the assessment order u/s. 143(3), attempt to exhibit that book profit had in fact not been assessed at all, and that the assessment was limited to regular income (at �. 158.66 lacs) only. How could, then, the same be rectified? It is only where an assessment is made that a mistake in arriving at or computing the correct figure could at all be made. On being asked of the basis of the figure of �. 64.65 lacs, as stated in the notice u/s. 154(3), he explained that though the assessee had initially returned the book profit at �. 506.05 lacs, i.e., as per the profit and loss account, it was subsequently revised to �. 64.65 lacs per a return filed on 27.06.2012 by making some adjustments, and toward which he would take us to para 1 of the assessment order, bearing reference to the filing of the revised return. The ld. Departmental Representative (DR) would submit that the AO had brought the correct amount of book profit to tax, and that a mistake u/s. 154 would include an omission in adopting the right figure, even as held by the ld. CIT(A). The AR would, in rejoinder, place reliance on the decisions in the case of CIT v. Hero Cycles [1997] 94 Taxman 271 (SC) and CIT v. O.RM.SM.SV.Sevugan [1948] 16 ITR 59 (Mad), to press home the point that 3 (AY 2011-12) Virgo Properties Pvt. Ltd. v. Asst. CIT where a point – of law or of fact, has not been examined at all, the same cannot be regarded as a mistake apparent from record.

We have heard the parties, perused the material on record, and given a careful consideration to the matter. The primary facts are not in dispute. The assessee per its original return u/s. 139(1) returned book profit as per profit and loss account, i.e., at �. 506,04,764/-. The same was revised u/s. 139(4) to �. 64,64,764/- by deleting the profit of �. 441.40 lacs on the sale of shares credited to the profit and loss account, duly audited. It is this profit that the Revenue has subject to book profit tax through recourse to s. 154. This is borne out by the notice u/s. 154(3) dated 29/1/2015, the contents of which are extracted in the ‘Statement of Facts’ forming part of the appeal before the first appellate authority. The AO made the adjustment in the absence of any objection thereto raised by the assessee before him, while the ld. CIT(A) not only found the same to be in order, i.e., in accordance with the provision of s. 115-JB, but also noted, again, an absence of any objection (i.e., on merits of the impugned adjustment) before him. In other words, no case against the adjustment on merits has been made at any stage. Coming to the assessee’s pleadings before us, the income tax computation form dated 19/3/2014 (copy on record) enclosed along with the assessment order, noted as so therein, forms part of the assessment order itself, as explained in Kalyankumar Ray v. CIT [1991] 191 ITR 634 (SC). The same vide para 17 clearly states of the deemed income by way of book profit at �. 64,64,764/- . It is therefore incorrect to say, as does the assessee before us, that there has been no assessment of book profit in the first instance, i.e., u/s. 143(3) dated 19.03.2014. The reliance by the assessee on the cited decisions is thus misplaced. In fact, even otherwise, the word ‘mistake’, which is a composite of the words ‘mis’ and ‘take’, is a word of wide and indefinite import, so that a 4 (AY 2011-12) Virgo Properties Pvt. Ltd. v. Asst. CIT mistake u/s. 154 would include an omission on the part of an authority to do what it was bound to do, i.e., to assess the book profit in view of the assessee having returned the same and its profit and loss account disclosing a net profit. The same surely cannot be equated with the non-examination of any aspect in assessment, and which is subsequently sought to be carried under sec.

The next question is if the AO, in view of the limited purview of s. 154, exceeded his jurisdiction in altering the assessed figure of �. 64,64,764/- to �. 506,04,764/-, i.e., by including the profit on the sale of shares. Without doubt, debatable issues, either of fact or of law, are outside the ambit of s. 154, so that alteration of the book profit by the AO u/s. 154 could only be subject to it being not a debatable or a contentious issue. That is, is only a mistake, apparent from record, on the part of the AO in assessing at the said figure. In this regard, it is well settled that s. 115-JB is a self contained code, and only the adjustments delineated under Explanation-1 to s. 115JB could be made to the net profit as disclosed by the profit and loss account adopted by the company (in its’ annual general meeting) to arrive at the book profit u/s. 115JB. Reference for this may be made to the decisions in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 (SC) and Ajanta Pharma Ltd. v. CIT [2010] 327 ITR 305 (SC). The only thing therefore that needs to be seen in this regard is if the company, in reducing the profit on the sale of shares, has followed any of the specified adjustments under Explanation 1 to s. 115JB. We find that none of the specified adjustments correspond to the said adjustment, made by the assessee to the net profit per the revised return, and neither has the assessee stated any at any stage. This, rather, raises a question on the validity of the said revision, which u/s. 139(5) could only be rectify an omission or wrong statement in the original return, so that it is incumbent on the assessee to state what omission or wrong statement informs its revision, i.e., its’ basis, and which it has abysmally failed to. Continuing further, capital gains on transactions in securities has been specified for reduction (from

In the result, the assessee’s appeal is dismissed. Order pronounced on July 31, 2017 at Chennai.