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TMI Blog2012 (8) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 40(b)(v) and explanation 3 thereto, book profit comprises the entire net profit as shown in the profit and loss account or only profit and gains of business assessed under Chapter IV-D ? The short fact of this case leading to preferring the instant appeal is as follows:- The assessee-appellant is a partnership firm within the meaning of Indian Partnership Act, 1932 and is regularly assessed to tax under the Income Tax Act, 1961 (hereinafter referred to as the said Act). The appellant-assessee had filed the returns for the previous years relevant to assessment years 1995-96 to 1998- 99. The returns filed for the assessment year 1995-96 was accepted as such under Section 143(1)(a) of the Act by issue of intimation dated September 24, 1996. The said intimation was rectified on January 27, 1997 by granting interest under Section 244A. The returns filed for the assessment years 1996-97 was also similarly accepted by issuing a notice under Section 143(1)(a) of the Act on January 14, 1998 with a marginal increase of the returned income by making a prima facie adjustment with reference to provisions of Section 43B. The returns filed by the appellant-assessee for the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment year 1995-96 to 1998-99 which arose out of rectification of intimation issued under Section 143(1)(a) could be allowed in the appellants favour and as such he did not make any submission. As far as the appeal in relation to assessment year 1994-95 with reference to assessment made under Section 143(3) was adjourned till 24th March, 2003. Subsequently it was discovered instead of allowing appeal of the petitioners the same was dismissed by impugned order dated 28th February, 2003. Thus without giving any reasonable opportunity of being heard the said appeal was dismissed. Mr. Khaitan, learned Senior Counsel appearing for the appellants submits that since it is an old appeal this Court instead of remanding the matter for fresh hearing by the learned Tribunal on the ground of not giving opportunity of hearing should be decided by this Court on its merit. He submits that for the purpose of Explanation 3 to Section 40(b)(v) the appellant took into consideration its net profit as shown in the profit and loss account which included granting consultancy fees, interest on bank and company deposit, profit on disposal of cars used in the business and interest on advance tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that as to which item of income should be taken into account for computing the quantum of deduction depends upon the statutory provision allowing the deduction. He submits further that the appellants in making its computation proceeded on the basis of Explanation 3 to Section 40(b)(v) which view, was correct one to take. He contends assuming another view is possible the Assessing Officer lacked the jurisdiction to act under Section 143(1)(a) or under Section 154 interpretation of Explanation 3 to Section 40(b)(v) requires decision on a debatable question of law which cannot be dealt with as a prima facie adjustment under Section 143(1)(a) or as mistake apparent from the records under Section 154. He further submits that the procedure under Section 143(1)(a) as was in force during the material period, conferred a very limited power to an Assessing Officer to make an adjustment only in respect of what was obvious or deducible from the return as filed without doubt or debate. For making a prima facie adjustment under Section 143A(a), the deduction claimed had to be inadmissible on the face of the return and documents and accounts accompanying it. He while placing reliance on the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 makes it abundantly clear that the net profit has to be computed in the manner laid down in Chapter IV-D and does not include profit referred to in Chapter IV-F of the Act. He urges that Section 154(1)(b) provides that with view to rectify any mistake apparent from the record an income-tax authority referred to under Section 110 may amend any intimation or deemed intimation under which of subsequent of Section 143 of Act, therefore, Section 154(1)(b) of the Act specifically includes amendment of any intimation under Section 143(1) of the Act. According to him, the action of the Assessing Officer is not at all a debatable issue which is capable of two interpretations since the provisions of Section 40(b)(v) Explanation 3 of the Act is very clear and unambiguous and the only inescapable conclusion as that income falling under the head income from other sources under Chapter IV-F cannot be included under the term book profits the mistake in calculation by the appellant is a mistake apparent from the records and the Assessing Officer has rightly invoked the provisions of Section 154 of the Act and rectified the mistake. Hence there is no illegality and infirmity of the judgment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rces. Thus, it clearly appears on earlier occasion it was decided that income from other sources could be taken into consideration for ascertaining book profit for the purpose of computation of allowable remuneration to partners not the income from business alone. Undoubtedly this is a debatable issue and such debatable issue cannot be a ground for rectification under Section 154 of the said Act. This has been well settled by plethora of decisions of the Supreme Court and also High Courts we, therefore, quote few decisions of the Supreme Court on this point. In the case of CIT v. Hero Cycles Pvt. Ltd. reported in (1997) 228 ITR 463 at page 467-468 it is ruled as follows- "Rectification under Section 154 can only be made when a glaring mistake of fact or law committed by the officer passing the order becomes apparent from the record. Rectification is not possible if the question is debatable. Moreover, the point which was not examined on fact or in law cannot be dealt with as a mistake apparent on the record. This dispute raised a mixed question of fact and law." In the case of Deva Metal Powders (P) Ltd. v. Commissioner, Trade Tax Uttar Pradesh reported in (2008) 2 SCC 439 whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid authoritative pronouncement of the Supreme Court and the observation recorded as above by us, it is not within the purview of Section 154 rather it could have been an action either by way of revision or by appeal not by a authority of having concurrent jurisdiction exercising power under Section 154 of the said Act. We are unable to accept the contention of the learned counsel for the Revenue that it is sheer computation mistake based on law. This submission has no force at all in view of the legal position of the Income Tax Act. Clause (v) of Section 40 at that point of time provided as follows:- " (v) any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder:- (1) in case of a firm carrying on a profession referred to in section 44AA or which is notified for the purpose of that section - (a) on the first Rs.1,00,000 of Rs.50,000 or at the rate of the book-profit or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness or profession should be computed and this has to be done as provided under Section 30 to 43D. By virtue of Section 5 of the said Act that total incomes of any previous years includes all income from whatever source derived. Thus for the purpose of Section 40(b)(v) read with Explanation there cannot be separate method of accounting for ascertaining net profit and/or book-profit. The said section nowhere provides as rightly pointed by Mr. Khaitan, learned Senior Advocate that the net profit as shown in the profit and loss account not the profit computed under the head profit and gains of business or profession. The decision of the Supreme Court in the case of Apollo Tyres Ltd. v. Commissioner of Income Tax reported in (2002) 255 ITR 273 (SC) is an appropriate guidance of this point as to what should be done in order to ascertain the net profit in case of this nature. At page 280 in the first paragraph of the report the Supreme Court observed as follows:- "Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, manda ..... 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