TMI Blog2012 (6) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... This appeal filed on 03.10.2011 by the Revenue against an order dated 22.07.2011 of the CIT(A)-III, New Delhi, raises the following grounds:- 1. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the disallowance of Rs.163.96 lacs made by Assessing Officer out of the profit declared by the assessee u/s 115JB on account of debenture redemption reserve. 2. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the disallowance of Rs.47.72 lacs made by the Assessing Officer out of the book profit declared by the assessee u/s 115JB on account of short provision of expenses of earlier years. 3. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the disallowance of debenture redemption reserve and short provision of expenses of earlier years do not fall within the ambit of section 154 r.w.s. 143(1) of the Incometax Act, 1961. 4. The order of the learned CIT(A) is erroneous and is not tenable on facts and in law. 5. The appellant craves the leave to add, amend or alter all or any of the grounds of appeal. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome u/s 143(1) and while rectifying any intimation sent u/s 143(1), an incorrect claim, if such incorrect claim is apparent from any information in the return, is required to be adjusted. Whether such adjustment is required or not is to be decided on the basis of apparent information in the return and not on the basis of elaborately drawn out conclusions. The objections put forth on behalf of the assessee are based upon such elaborately drawn out conclusions. On the other hand, the amount involved was mentioned by the assessee itself as reserve and, therefore, requires to be adjusted and added back to the book profit in view of Explanation 1(b) to section 115JB. 3.1 Against the proposed rectification of Rs.47.72 lacs on account of short provision of expenses for earlier years, the following important contentions have been made:- i) That for computing book profit u/s 115JB, one has to start with the net profit as per P L account and then make the specific adjustments to it. It has further been contended that nowhere the amount debited to the P L account towards short provisions of earlier years expenses is mentioned. ii) That the Assessing Officer does not have the juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the observation of Assessing Officer and the submissions and judicial pronouncements relied upon by the appellant. As per the Assessing Officer the debenture redemption reserve is to be added back in the book profit determined u/s 115JB as it is covered within Explanation 1(b) to Section 115JB(2) of the Act. The Assessing Officer has also held that the expenditure debited to P L account for 47.72 lacs as short provision of expenses for earlier years are to be added back as there is no such provision in section 115JB to reduce this amount. It has also been observed by the Assessing Officer that the profit for determination of book profit u/s 115JB is to be taken before debiting any provision for taxation or expenses of earlier years. It is observed that section 115JB(1) talks of comparison between total income as computed under the Income-tax Act with book profit and mandates that in a case where the tax on total income is less than 7.5% of book profit of the assessee shall pay tax on book profit . Sub section (2) to Section 115JB states that every assessee being a company shall for the purpose of this section prepare its P L account for the relevant previous year in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (c) of the Explanation to section 115J. In view of the above said two direct decisions of ITAT and further relying upon the judgment of Hon ble Supreme Court in the case of National Rayon Corpn. Ltd. (supra), it is held that the debenture redemption reserve is not liable to be added back in the book profit of the appellant. Coming to the other addition of Rs. 47.72 lacs being short provisions of expenses of earlier years debited to the P L account of the appellant in the year under consideration, it is seen that this expenditure though pertaining to earlier years have been debited to P L account in the year under consideration. Whether such prior period expenses are allowable or not may be a subject matter of computation of income under the normal provisions of the Incometax Act (the allowability there of depends on the fact whether these have become crystallized liability during the previous year). However under Explanation 1 to Sub Section (2) of Section 115JB as there is no such Clause, under which such expenses can be added back to the book profit therefore such prior period expenses cannot be added back for determining book profit. In this connection it may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by both the sides. The AO noticed on perusal of P L account that there was net profit of Rs. 7141.54 lacs. After making provision for tax and appropriations, the balance profit amounted to Rs.2234.91 lacs. While computing book profit u/s 115JB of the Act, the assessee adopted profit of Rs. 2234.91 lacs and after certain adjustments, arrived at the book profit of Rs. 57,00,60,389/- .However, according to the AO, the assessee should have adopted net profit of Rs. 7141.54 lacs and thereafter ,should have made necessary adjustments. The AO completed assessment u/s 143(1) of the Act and accepted the returned income. Indisputably, the AO, having recourse to provisions sec. 154 of the Act, added the amount of debenture redemption reserve of 163.96 lacs and prior period expenses of Rs. 47.72 lacs while determining book profits u/s 115JB of the Act. On appeal, the ld. CIT(A) deleted the additions on the ground that the amounts being debatable, could not be added ,having recourse to provisions of sec. 154 of the Act. The ld. CIT(A) while referring to the decisions in IOL Ltd. Vs. DCIT (2003) 81 TTJ 525(Kol.); Hindalco Industries Ltd. Vs. ACIT and National Rayon Corporation (supra) conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of section 210A. This sub-section carries a proviso which stipulates that the standards of accounting specified by ICAI shall be deemed to be the Accounting Standards until the accounting standards are prescribed by the Central Government under this sub-section. Accounting Standard- AS-5 (hereinafter referred to as AS-5 ) prescribed by ICAI envisages that it should be applied by an enterprise in presenting profit or loss from ordinary activities, extraordinary items and prior period items in the statement of the profit and loss, in accounting for changes in accounting estimates, and in disclosure of changes in accounting policies. The said AS-5 defines prior period items as under :- "Prior period items are income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods." Under the head "Net Profit or Loss for the Period", paragraphs 5 to 7 of AS-5 read as under :- "5. All items of income and expense which are recognised in a period should be included in the determinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their impact on the current net profit or loss could be perceived. 5.2 In view of the foregoing, we are of the opinion that such disputed issues as to whether or not debenture redemption reserve is for ascertained liability and whether or not such reserve is deductible while determining book profits u/s 115JB of the Act as also as to whether or not liability for prior period expenses crystallized in the year under consideration, can not be adjudicated in proceedings u/s 154 of the Act. The true scope of such issues cannot be determined in proceedings u/s 154 of the Act. It is settled law that a mistake apparent from the record is one that is patent, manifest and self-evident and which does not require elaborate discussion of evidence or argument to establish it. A perusal of section 154 shows that the intervention or assumption of jurisdiction under section 154 can be made only to correct an error or a mistake, which was apparent and not where a debatable issue could be considered. In other words, a look at the record must show that there has been an error and that error may be rectified. Section 154 of the Act provides for rectification of mistakes, which are apparent from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear and patent. It must not be a mistake, to establish which a long and elaborate reasoning and arguments is required on points on which there may conceivably be two opinions. It must not be a debatable point of law. It must be a patent and apparent mistake in the assessment. It must not be a question with regard to which two different views may be possible or with regard to which two different opinions can be formed. It must be a glaring, obvious or self-evident mistake of fact or a mistake of law, in respect of which there cannot be any two opinions and it should not be one in order to establish which a long-drawn process of argument or reasoning is to be advanced.' 5.4. In the light of aforesaid decisions, it is apparent that if the issue requires debate and discussion, it cannot become a subject-matter of rectification under section 154 of the Act because under this section only patent and obvious mistakes of law and facts can be rectified. In view of decision of the Hon ble Supreme Court in the case of Volkart Brothers Others(supra), it is not open to the AO to go into the true scope of the relevant provisions of the Act in proceedings under section 154 of the Act. It is ..... 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