JCIT(OSD), CIRCLE -4, KOLKATA, KOLKATA vs. M/S TONGANI TEA CO. LTD., KOLKATA

The relevant facts of the case giving rise to this appeal are that the assessee is a Company, which filed its return of income for the year under consideration declaring total income of Rs.96,03,528/- under the normal provisions of the Act and book profit of Rs.64,99,092/- under section 115JA of the Act. In the assessment originally completed under section 143(3)/147 vide an order dated 27.12.2005, the total income of the assessee under the normal provisions of the Act was determined by the Assessing Officer at Rs.10,78,00,000/- while the book profit under section 115JA was determined by him at Rs.8,18,91,021/-.

Against the order passed by the Assessing Officer under section 143(3)/147, an appeal was preferred by the assessee before the ld. CIT(Appeals). Meanwhile the ./2012 Assessment year: 2000-2001 Page 2 of 7 assessment made by the Assessing Officer under section 143(3)/147 was set aside by the ld. CIT vide his order passed under section 263 and while disposing of the appeal filed by the assessee against the order passed by the ld. CIT under section 263, the directions given by the ld. CIT to the Assessing Officer for the purpose of making the assessment de novo were modified by the Tribunal. Keeping in view this development, the appeal filed by the assessee against the order passed by the Assessing Officer under section 143(3)/147 was dismissed by the ld. CIT(Appeals) holding the same to be infructuous vide an order dated 12.01.2007 on the ground that the said assessment had already been set aside. Thereafter the Assessing Officer completed a fresh assessment vide an order dated 28.12.2007 in pursuance of the order passed by the ld. CIT under section 263 as modified by the Tribunal. In the assessment so completed, he computed the income of the assessee as per the normal provisions of the Act, but did not compute the book profit under section 115JA, although certain observations were made by him as regards the computation of book profit under section 115JA in the body of the fresh assessment order. In the appeal filed against the order dated 28.12.2007 passed by the Assessing Officer under section 143(3)/147, specific grounds were raised by the assessee challenging the said observations made by the Assessing Officer. However, keeping in view that there was no computation of book profit made by the Assessing Officer in order dated 28.12.2007 passed under section 143(3)/263, the ld. CIT(Appeals) dismissed the said ground treating the same to be premature. While giving effect to the order of the ld. CIT(Appeals) dated 09.04.2008, vide an order dated 19.11.2008 the Assessing Officer computed the book profit of the assessee-company under section 115JA at the same figure as was computed earlier in the assessment made under section 143(3)/147 vide an order dated 27.12.2005. Against the said order dated 19.11.2008 passed by the Assessing Officer, an appeal was preferred by the assessee before the ld. CIT(Appeals) and while disposing of the said appeal vide an order dated 27.03.2009, the ld. CIT(Appeals) held that the computation of book profit made by the Assessing Officer under section 115JA was beyond the scope of the order passed by him while giving effect to the order of the ld. CIT(A) on 09.04.2008 as there was no such direction given by the ld. CIT(Appeals) in his order dated 09.04.2008 to the Assessing Officer to compute the book profit. The ld. CIT(Appeals) in his order dated 27.03.2009, however, recorded certain observations/findings on the issues raised by the assessee in its appeal relating to the computation of book profit under section 115JA. The Assessing ./2012 Assessment year: 2000-2001 Page 3 of 7 Officer at this stage apparently realized that there was perhaps a mistake in not computing book profit under section 115JA in the fresh assessment made vide an order dated 28.12.2007 passed under section 143(3)/263 and since the said mistake, according to him, was apparent from record, a notice under section 154 was issued by him to the assessee on 11.09.2009 in order to rectify the same. In reply to the notice issued by the Assessing Officer under section 154, it was submitted by the assessee that there being no mistake apparent from record in the order dated 28.12.2007 passed under section 143(3)/263 as well as in any of the subsequent orders passed by the Assessing Officer, rectification proposed by the Assessing Officer was beyond the scope of section 154. It was also submitted by the assessee that the computation of book profit as made by the Assessing Officer vide an order dated 19.11.2008 while giving effect to the order of the ld. CIT(Appeals) dated 09.04.2008 having been cancelled by the ld. CIT(Appeals) vide an order dated 27.03.2009 and the said order of the ld. CIT(Appeals) being in force having not been disturbed by the Tribunal, proceedings initiated by the Assessing Officer under section 154 were untenable. It was also contended on behalf of the assessee that the issue relating to the computation of book profit under section 115JA, in the facts and circumstances of this case, was a debatable issue and the same, therefore, was beyond the scope of rectification permissible under section 154. The Assessing Officer did not find merit in these contentions raised on behalf of the assessee. According to him, there was a mistake in the order dated 28.12.2007 passed by him under section 143(3)/263 in not computing the book profit under section 115JA and the same being apparent from record, was rectifiable under section 154. He accordingly passed an order dated 17.11.2009 under section 154 computing the book profit of the assessee-company under section 115JA for the year under consideration at Rs.2,42,22,069/-.

Aggrieved by the order of the Assessing Officer under section 154, an appeal was preferred by the assessee before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), invocation of the provisions of section 154 by the Assessing Officer was challenged by the assessee, inter alia, on the ground that non- computation of book profit under section 115JA by the Assessing Officer in the order dated 28.12.2007 passed under section 143(3)/263 was not a mistake apparent from record and the issue relating to computation of book profit being a highly debatable ./2012 Assessment year: 2000-2001 Page 4 of 7 issue was beyond the scope of section 154. The ld. CIT(Appeals) did not find merit in the case of the assessee on this issue. According to him, non-computation of book profit by the Assessing Officer in the order dated 28.12.2007, despite some observations made by him on merit relating to the said computation in the main body of order was a mistake apparent from the record and the Assessing Officer was fully justified in correcting the said mistake by invoking the provisions of section 154. The ld. CIT(Appeals), however, allowed the other claim of the assessee and directed the Assessing Officer to exclude 60% of the profit as agricultural profit while computing the book profit under Clause (ii) of section 115JA of the Act. He also directed the Assessing Officer to allow similar relief to the assessee in respect of interest income. Aggrieved by the order of the ld. CIT(Appeals), the Revenue has preferred this appeal before the Tribunal on the following grounds:-

At the time of hearing before the Tribunal, the ld. counsel for the assessee has sought to invoke Rule 27 of the Appellate Tribunal Rules, 1963 to raise the preliminary issue challenging the invocation of provisions of section 154 by the Assessing Officer, which has been decided against the assessee by the ld. CIT(Appeals) in order to support the impugned order of the ld. CIT(Appeals) on the issues decided by the ld. CIT(Appeals) in favour of the assessee, which have been raised by the Revenue in this appeal. To support the assessee’s case on this preliminary issue, he contended that the issue relating to computation of book profit in the facts and circumstances of the case of the assessee, which is engaged in the business of manufacturing of tea, is highly debatable and the rectification on the said issue is, therefore, beyond the scope of section 154. He contended that the fact that at three different stages, three different ./2012 Assessment year: 2000-2001 Page 5 of 7 figures of book profit have been worked out by the Assessing Officer himself, clearly shows that the said issue is highly debatable on which no rectification is permissible under section 154. He contended that even the CBDT has to issue a Circular in this context clarifying that only 40% of the profit is to be taken as book profit in the case of tea manufacturing company by treating the balance 60% as agricultural income. He also contended that there was another issue involved in the year under consideration in the case of the assessee relating to slump sale and the same made the computation of book profit more debatable.

The ld. D.R., on the other hand, contended that the book profit under section 115JA was required to be computed in the case of the assessee for the year under consideration and there cannot be any doubt about it. He submitted that the Assessing Officer, in fact, had raised query during the course of relevant assessment proceedings about computation of book profit and this issue was very much under consideration going by the observations made by him in the main body of the assessment order. He submitted that the Assessing Officer, however, finally omitted to compute the book profit due to oversight and this omission being a clear mistake apparent from record, the same was rightly rectified by the Assessing Officer vide an order passed under section 154. He contended that the computation of book profit may be a debatable issue as sought to be contended by the ld. counsel for the assessee, but the assessee has a right to dispute the same by filing an appeal.

In the rejoinder, the ld. counsel for the assessee contended that the issue of book profit under section 115JA involves charging and computation of book profit and since the same are inseparable parts, even if one part is debatable, the entire issue becomes debatable and goes out of the rectification permissible under section 154.

We have considered the rival submissions and perused the relevant material available on record. As regards the preliminary issue raised by the ld. counsel for the assessee by relying on Rule 27 of the Appellate Tribunal Rules, 1963 challenging the invocation of the provisions of section 154 by the Assessing Officer, it is observed that the book profit of the assessee-company under section 115JA was not computed by the Assessing Officer in the order dated 28.12.2007 passed under section 143(3)/263 and by treating such non-computation as the mistake apparent from record, the same was ./2012 Assessment year: 2000-2001 Page 6 of 7 rectified by the Assessing Officer under section 154 by computing the book profit of the assessee under section 115JA. As rightly contended by the ld. counsel for the assessee in this regard, the issue of book profit under section 115JA involves charging as well as computation and these two parts being inseparable, they cannot be seen in isolation. Even if one of these two parts is debatable, the entire issue relating to book profit under section 115JA becomes debatable. In so far as the first part is concerned, we agree with the contention raised by the ld. D.R. that going by the facts and circumstances of the case as well as the observations made by the Assessing Officer in the main body of his order, the income of the assessee on the basis of book profit as per the provisions of section 115JA was required to be computed alternatively and the failure or omission on the part of the Assessing Officer to do so was a mistake apparent from record. However, the computation of such book profit in the facts and circumstances of the case of the assessee-company, which is engaged in the business of manufacturing of tea was a debatable issue as rightly contended by the ld. counsel for the assessee keeping in view the applicability of Rule 8 of the Income Tax Rules, 1962 as well as the involvement of slump sale and this position is clearly evident from the fact that the book profit of the assessee-company at three different stages was worked out by the Assessing Officer at three different figures. The computation part of book profit under section 115JA in so far as the assessee’s case for the year under consideration is concerned thus was highly debatable issue, rectification on which was beyond the scope of section 154. We, therefore, find merit in the preliminary issue raised by the ld. counsel for the assessee and uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on the basis of the said preliminary issue.

In the result, the appeal of the Revenue is dismissed.