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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM ITA No.4339/Mum/2015 (A.Y:2001-02)
Dy. Commissioner of Income Tax, Godrej Industries Circle 14(1)(2) Pirojsha Nagar Eastern Vs. 470 Aayakar Bhavan, 4 th Floor, Express High way Vikhroli M.K. Marg, Mumbai-20 (E), Mumbai-400 070 .. Appellant Respondent PAN No. AAECG2953R Revenue by .. Miss Vidisha Kalra, CIT DR Shri Jitendra Jain, AR Assessee by .. Date of hearing .. 23-03-2017 Date of pronouncement .. 07-04-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the Revenue is arising out of the order of CIT(A)-22, Mumbai, in appeal No. CIT(A)-22/IT/123/2014-15 dated 10-04-2015. The Assessment was framed by ACIT Central Circle 10(2), Mumbai for the A.Y. 2001-02 vide order dated 27-02-2004 u/s 154 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO on account of book profit under section 115JB of the Act in respect to provision for diminution in view of long term investment of Rs. 19,15,16,662/- by resorting through rectification under section 154 of the Act. For this Revenue has raised following ground: -
“1. On the facts and in the circumstances of the case ad in law, the Ld. CIT(A) erred in deleting the addition of Rs. 19,51,16,662/- made by the AO to the Book Profit under section 115JB of the Act, in order under section 154 without appreciating the fact that the rectification
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order was passed taking into consideration the retrospective amendment in Finance No.2 Act, 2009.”
Briefly stated facts are that the assessee has filed its return of income declare nil income under the normal provision of the Act on 30-10-2001. The assessee computed book profit under section 115JB of the Act at Rs. 33,13,25,132/-. The return of income was accompanied with a copy of the audited balance sheet, profit and loss account and tax audit report under section 44AB of the Act. The AO completed the assessment under section 143(3) of the Act vide order dated 27-02-2004 by making the following adjustments. “a) Disallowance of expenditure related to exempt income. b) Non-compete fees treated as revenue. c) Disallowance of prior period expenses d) Disallowance of amortization of lease land.” 4. The adjustment to the book profit for the purpose of computation of income under section 115JB of the Act was made in respect of deduction under section 80HHC of the Act. The AO while completing the assessment under section 143(3) originally, allowed the provision for diminution in the value of investment, which was debited to the profit and loss account of the assessee for the year under consideration in accordance with the provision of the Act as they existed on the same date while computing the book profit under section 115JB of the Act. This issue has become final at the time of original assessment passed under section 143(3) of the act vide order dated 27-02-2004. Against other additions, the assessee preferred the appeal before CIT(A) and CIT(A) passed the appellate order vide order dated 05-10-2004 dealing with the issue in favour of assessee on account of computation of book profit for the purpose of section 115JB of the Act. Then in regard to the provision for diminution in the value of investments, the AO gave appeal fact to the order of CIT(A), wherein deduction under section 80HHC of the Act was allowed as per the order of CIT(A). The assessee carried the matter to the Tribunal in respect to the disallowance confirmed by CIT(A) as expenditure related to exempted income and non- compete fees. The department also filed an appeal against the order of CIT(A), Page 2 of 13
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against the allowance of claim in regard to computation of deduction under section 80HHC of the Act available determination of book profit under section 115JB of the Act and disallowance of prior period expenses while computing the total income under the normal provisions of the Act. The department appeal was dismissed by the Tribunal in respect to both the issues. The AO giving the effect to the order of ITAT passed on 13-04-2009, which was subsequently rectified under section 154 of the Act vide order dated 29-03-2014, the impugned order. The AO while rectifying the mistake under section 154 of the act vide order dated 29-03-2014 added provision for diminution in value of long term investments at Rs. 19,51,16,662/-. For making this addition the AO observed in Para 8 and 9 as under: -
“8. In view of above discussion, it. is held that there is mistake apparent from records within the meaning of section 154 of the Act in the order giving effect to ITAT's order dated 13.04.2009 as the amount of provision for depletion in value of long term investment is remained to be added back to the computation of book profit u/s 115JB of the Act as per the clause (i) to explanation (1) below section 115JB (2.)-of the Act. Hence, the book profit of the assessee company u/s 115JB of the Act is recomputed under: -
book profit u/s 115JB of the Act (as per order giving effect to the ITAT’s order dated 13.04.2009) Rs. 33,51,66,399/- Add: Provision for depletion in value of long term investment Rs.19,15,16,662/- Revised Book Profit u/s 115JB of the Act Rs.53,02,83,061/-
9.. The total income of the assessee company remains unchanged at Rs. NIL, as determined as per order giving effect to ITAT' order dated 13.04.2009. Since, the tax
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payable on the book profit u/s 115JB of the Act per MAT provisions is higher than the, tax payable on total income as per normal provision of the Act, the same is considered for the purpose of computation of tax liability of the assessee company.”
Aggrieved assessee preferred the appeal before CIT(A). 5. The CIT(A) decided on the legality of the rectification order passed by AO under section 154 of the Act and held that the rectification passed under section 154 of the Act is time barred. For this he observed in Para 3.2 and 3.3 as under: - “3.2 The facts of the case are discussed above. The appellant claims that issuing of notice under sec. 154 was time barred because the original assessment was completed on February 27, 2004 in which the AO allowed for diminution in the value of investments and which was not a matter of appeal before the CIT(A)/ITAT. No disallowance was made by the AO and this issue has become final on the date of passing of the assessment order dt. 27.02.2004 by the AO. Notice: as per the appellant h4s to be issued by March 31, 2008. However, notice was issued by the AO on January 21, 2014 which is completely time barred. This issue has come into consideration of CIT(A)'s order f6r. the AY 2005-06 on the identical issue in para 2.3 at page 26 of the paper book wherein it is held as under:
"2.3 I have considered appellant's submission. The facts are mentioned above. The main issue is with regard to rectification u/s.154 in computation of book profit for diminution in the value of the investments which appellant had debited in the P&L account. The appellant after receiving assessment order appealed before
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CIT(A) and ITAT as there is no addition in the original assessment order and there was no grounds of appeal or, this issue. However, A.O. had issued notice u/s.154 which was received by the appellant on 02.04.2012 and the order was rectified u1s.154 on 1 7'O1.2014. The appellant's main claim in this order is that the order is barred by limitation u/s.154(7J Sec 154(7) reads as under:
"Save as otherwise provided in section 155 or sub-section (4) of section 186 no amendment under this section shall be made after the expiry of four years from the end of the financial: year in which the order sought to the amended was passed."
In the present case in the original assessment order which was passed on 28.11.2008 there was no addition of sec. 115JB regarding diminution in the value of the investments which appellant had debited in the P&L account. Even in appeal this issue had not come into consideration -'for counting the limitation date, date to be recognized is date in which original assessment is passed i.e. 28.11.2008, hence, order u/s.154 can be passed within 4yeajz from the end of the assessment year in which original assessment order was passed. In this case order u/s.154 has to be passed before 31.03.2013, however, AM. had passed the order u1s.154 on 17.01.2014, hence, it is barred by limitation. The addition made by A.0. is deleted. These grounds of appeal are allowed.
3.3 Following the above decision of d14(A)'s order, the AO has to issue notice under sec. 154 by 3.1st Page 5 of 13
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44arch 200:8. However the AO issued notice under see. 154 on January 21, 2014 &th1ch is completely time barred by limitation. Hence AO's addition is deleted-and ground of appeal is allowed.”
Aggrieved, now Revenue is in second appeal before Tribunal. 6. We have heard the rival contention and gone through the facts and circumstances of the case. Before us, the learned CIT DR Miss Vidisha Kalra, argued that the issuance of notice under section 154 of the Act was due to retrospective amendment in regard to the provision for diminution in value of any asset was to be added back in term of section 115JB of the Act. The learned CIT DR pointed out in Para 7.5 of the AO’s order which reads as under: -
“Even though, the order 'giving effect to the ITAT's order dated 13.04.2009 was passed by the A.O to give effect to the express directions of the ITAT but the fact remains that the AO was required to determine the correct total income as per the provisions of the Act. While doing so, the AO cannot ignore the clear provisions of the Act which even though may not be arising out of the ITAT's order but are vital for the determination of the correct total income. Hence, the claims of the assessee company that there is no mistake apparent from records in the order giving effect to the ITAT's order is not valid and is therefore rejected as being not tenable”
In view of the above, she argued that the AO has rectified the order dated 13-04- 2009 giving effect to the order of ITAT. According to her by any logic, the AO cannot rectify the original assessment order under section 143(3) of the Act because that order does not exist in its original form but has been transformed by the subsequent order of CIT(A) and ITAT and what survives at the time of issuance of notice under section 154 of the Act as only order giving effect to the order of ITAT. She explained that the only requirement under section 154(7) of the Act is that the ammendment under this section should be made within four Page 6 of 13
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years from the FY in which order sought to be amended is passed. She accordingly, urged that since 4 years has not elapsed from the date of passing the order giving effect to the ITAT’s order the notice under section 154 of the Act is not at all bar by limitation. In support of her contentions she relied on the decision of the Hon’ble Supreme Court in the case of Hindware Industries Ltd. vs. CIT (1995) 2012 ITR 639 (SC) and also relied on the Delhi High Court decision in the case of CIT vs. Tony Electronics Ltd. (2010) 320 ITR 378 (Del). She also tried to distinguish the decision of the Hon'ble Supreme Court in the case of CIT vs. Alagendran Finance Ltd. (2007) 293 ITR 1 (SC) by stating that the issue before Supreme Court was the interpretation of provisions of section 263 and in section 154 of the Act, according to her, the period of limitation was decided for action under section 263 of the Act with reference to the date of original assessment order and in the subsequent reassessment order wherein lease equalization fund were not revisited by AO and if the issue of lease equalization fund was a matter which can be rectified under section 154 of the Act, there would have been no bar for the AO to rectify its mistake in 2004. According to her in the case of Hindware Industries Ltd. (supra) the issue decided is in relation to that the order has not been revisited by Hon’ble Supreme Court in Alagendran Finance Ltd. (supra).
On the other hand, the learned Counsel for the assessee relied on the decision of Hon’ble Supreme Court in the case of CIT Vs. Sakseria Cotton Mills Ltd. (1980) 124 ITR 570 (Bom) wherein rectification of mistake under section 154 of the Act, the period of limitation under section 154(7) of the Act will apply from the date of original assessment order and date of assessment order of the AO giving effect to appellant’s order in respect to the points not subject matter of order under section 154 of the Act and in that situation it is held by Hon’ble Bombay High Court that the period of limitation will be reckoned from the date original assessment order in respect of points not subjected to appellate jurisdiction. The learned Counsel for the assessee also relied on the decision of Hon'ble Supreme Court in the case of Alagendran Finance Ltd. (supra).
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After hearing both the sides and going through the facts of the case, we find that the issue raised in the present appeal of the Revenue is whether the order of the AO under section 154 of the Act dated 29-03-2014 to rectify the order giving effect to the Tribunals order dated 13-04-2009 is bar by limitation or not? The assessee has filed chronology of events of order which reads as under: -
We find that the rectification order has been passed to give effect to the retrospective amendment made by the Finance Act 2009 whereby clause 1 was inserted in explanation 1 to section 115JB of the Act. The said clause deals with book profit to be increased by the amounts set aside as provision that diminution in value of any asset and the said retrospective amendment was made to overcome the decision of Hon’ble Supreme Court in the case of CIT vs. HCL Comnet System & Services (2008) 305 ITR 409 (SC). It is an admitted and undisputed position that the issue of the book profit to be increased by the provision made for diminution in the value of an asset was never the subject matter of appeal either before the CIT(A) or before the Tribunal. The issues raised in appeal before the CIT(A) and Tribunal were disallowance u/s.14A of the Act, taxability of non-compete fees, addition on account of MODVAT credit, disallowance of foreign exchange loss and computation of deduction u/s.8OHHC of the Act. These very issues were also the subject matter of appeal before the Tribunal in cross appeals filed by the parties. But AO issued notice u/s.154 of the Act dated 21 January 2014 seeks to rectify the order dated 13th April 2009 passed consequent to the Hon'ble Tribunal's order in ITA No. 8983/M/2004 dated 30th August 2007 i.e. the order giving appeal effect to the order of ITAT.
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We find from the facts of the case that the CIT(A)' order, against which the present appeal is filed, has discussed this issue at page 6 para 3.2 and has followed an order passed in the case of the group concern of the assessee company on a similar issue. The said order in the case of group concern was also challenged by the Revenue by filing an appeal to the Tribunal and the Tribunal in the case of ACIT vs. M/s Godrej Sara Lee Ltd. (Now amalgamated into Godrej Consumer Products Ltd.) in ITA No.118/Mum/2015 vide order dated 22- 08-2016 has dismissed the Revenue's appeal and decided this very issue of limitation in favor of the assessee by observing as under: -
“We have heard the rival submissions and perused the material before us. We find that, while completing the original assessment, the AO had determined book profit of the assessee at Rs.40.89 crores, that the assessee had preferred an appeal before the FAA against the order of the AO passed u/s.143 (3) of the Act, that in the appeal it had not agitated the issue of 115 JB of the Act ,that it had challenged the additions made by the AO under the normal provisions, that the matter had travelled up to the Tribunal, that neither in the order of the FAA nor in the order of the Tribunal the issue of completion of book profit was deliberated upon. In the circumstances the order passed by the AO on 28/11/2008 could be rectified up to 31/03/2013. The AO had passed the rectification order in the month of January, 2014. Clearly, the order of the AO was barred by limitation. We find that in the case of Tony Electronics Limited (supra),the Hon’ble Delhi High Court decided the issue in favour of the Department consider -ing the peculiar facts of that case. In that case the AO had made certain additions u/s.143(3) of the Act that were challenged before the FAA. The AO had passed order giving effect to the order of the FAA. Therefore, the
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Hon’ble Court had held that once an appeal against the order passed by an authority was decided by an Appellate Authority the order of the said authority would merge in the order of the FAA. However, in the case under consideration, as stated earlier, issue of computation u/s. 115JB was never adjudicated upon. First four cases relied upon by the assessee support the view taken by us. Even on merits, we find that the issue stands decided in favour of the assessee as held by the Hon'ble Supreme Court in case of Vijaya Bank (supra). Hence, in our opinion, the order of the FAA does not suffer from any legal infirmity. Confirming his order, we decide the effective ground of appeal against the AO.”
We notice from the provision of Section 154(1A) of the Act which provides that the AO can rectify the order in respect of a matter other than the matter which has been considered and decided by the appellate/revisional authority. In the instant case since the issue of diminution in value of an asset for calculating book profit was not a subject matter of appeal or revision, the original order u/s. 143(3) of the Act dated 27th February 2004 is the order which can be rectified by the AO and since the order passed in 2004 cannot be rectified after a period of 4 years, the order passed under 154 of the Act dated 29th March 2014 is barred by section 154(7) of the Act. The Revenue in its submissions filed before the Tribunal also accepts that they cannot rectify the order u/s.143(3) of the Act. It is the case of the Revenue that what is sought to be rectified is the order giving effect to the Tribunal's order dated 13th April 2009 and therefore the order under 154 of the Act dated 29th March 2014 is within limitation. If this proposition is accepted then the effect would be that the AO is sitting in appeal over the Tribunal's order and more so when the issue of diminution in the value of an asset for calculating book profit was not the subject matter of the Tribunal's order. It is a settled position that the AO while giving effect to the Tribunal's order cannot go beyond the directions of the Tribunal and since in the instant case the issue of calculation of book profit qua diminution in the value of an
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asset was not the subject matter of the appeal, the Revenue is not justified in contending that the order is within the time limit.
We also find that this issue of doctrine of merger came for consideration of the Hon’ble Bombay High Court in the case of Seksaria Cotton Mills (Supra). The Hon'ble High Court has on similar facts held by applying the doctrine of merger theory that the limitation will be recognized from date of the original order in respect of points not subjected to appellate jurisdiction. A similar issue arose before the Hon’ble Bombay High Court in the case of Ratilal Bacharilal & Sons 282 ITR 457 (page 32 of case law compilation) wherein after applying the doctrine of merger theory, the Hon'ble High Court held that since the deduction u/s.35B of Rs. 563,350/- was not the subject matter of appeal, the CIT was justified in exercising jurisdiction u/s 263 of the Act qua Rs. 563,350/- although deduction under 35B on Rs. 327,326/- was in appeal.
We have gone through the judgment of Hon’ble Supreme Court in the case of Hind Wire Industries(Supra), wherein the Apex Court was posed with the interpretation of section 154(1)(a) of the Act and not section 154(1A) of the Act with which this appeal is concerned because in Hind Wire Industries the original order was not the subject matter of appeal and what was sought to be rectified was the order u/s.143(3) read with 154 of the Act. The relevant facts are as under:
(i) The assessee was assessed to tax vide the original assessment order dated September 21, 1979.
(ii) There was a mistake in the said order, and consequent thereto, the assessee filed a petition for rectification of the said order under section 154 of the Act.
(iii) Consequent thereto, the assessment order was rectified on July 12, 1982
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(iv) However, there was a mistake in the said rectification order, and consequent thereto, the assessee again applied for rectification of the fresh order dated July 12, 1982, vide letter dated July 4, 1986.
(v) The Income Tax Officer dismissed the claim of the assessee, saying that it was time barred, and such order was confirmed by the Commissioner (Appeals).
(vi) The Tribunal however upheld the contention of the assessee that the rectification application was within the time period as per the statute.
(vii) The High Court once again reversed the order of the Tribunal, and held that the period of four years was to be counted from the date of the initial assessment, and not from the fresh order passed on July 12, 1982.
(viii) On the basis of these facts, the Supreme Court held that the assessment order dated July 12, 1982 could be rectified as per the application dated July 4, 1986, in view of the fact that there was a mistake in the order dated July 12, 1982 and consequent thereto, the application for rectification dated July 4, 1986 was not time barred.
But in the instant case, since the original order was subjected to appeal and hence provisions of section 154(IA) of the Act would be applicable and the decision of Hon’ble Supreme Court will not apply on facts of the case. Hon’ble Supreme Court in the case of Alagendran Finance Ltd(Supra) was dealing with section 263(2) of the Act read with clause(c) to Explanation 263(1) which is identical to section 154(1A) of the Act. The Hon'ble Supreme Court held that since issue of lease equalization fund was not the subject matter of reassessment proceedings, the limitation for revising the assessment order qua lease equalization fund will start from the original assessment order passed u/s. 143(3) of the Act and not from the date of reassessment order passed u/s. 147 of the Act. Therefore, according to us the facts of the instant appeal are identical to the Page 12 of 13
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case of Alagendran Finance Ltd. and therefore the issue is squarely covered against the Revenue and in favor of the assessee. Hence, we confirm the order of CIT(A) and this appeal of Revenue is dismissed.
In the result, the appeal of revenue is dismissed. Order pronounced in the open court on 07-04-2017.
Sd/- Sd/- (RAJESH KUMAR) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 07-04-2017 Sudip Sarkar /Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, Assistant Registrar //True Copy// ITAT, MUMBAI
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