COMMISSIONER OF INCOME TAX AP 11 HYD V. AP STATE IRRIGATION DEVELOPMENT CORPORA

RC/30/2000

AI Insights

The case revolves around the adjustments made by the Assessing Officer (A.O.) under Section 115J of the Income Tax Act, 1961, during the assessment year 1989-1990 for a State Government undertaking. The A.O. made certain adjustments while determining the book profit, which the assessee contested, leading to a rectification application under Section 154, subsequently rejected by the A.O. The Commissioner of Income Tax (Appeals) reversed the A.O.'s decision, stating that the adjustments were debatable and should not have been applied under Section 143(1)(a). The Revenue's appeal to the ITAT was unsuccessful, affirming the CIT (A)'s decision. The case was referred to the High Court to resolve the legal questions on the applicability of the A.P. High Court's decision in V.V. Trans Investments (P) Ltd., which was deemed not applicable to the assessee's case as it was rendered after the order under Section 143(1)(a).

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 728066 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 28-12-2011
• Assessment Year: misc
• Other Referred Cases: V.V. Trans Investments (P) Ltd. v. C.I.T., Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd., Kvaverner John Brown Engg. (I) P. Ltd. v. Asst. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Adjustment; Assessment Year; Book profit; Debatable Issue; Income Tax; Rectification
• Section: 154; 143(1)(a); 115J; 256(2)

Judgement Text

" THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N. RAO NALLA REFERRED CASE No.30 OF 2000 ORDER:(Per Hon’ble Sri Justice V.V.S. Rao) In this reference under Section 256 (2) of the Income Tax Act,1961 (the Act) made by the Income Tax Appellate Tribunal, Hyderabad Bench ’A’, in obedience to the orders of this Court in I.T.C. No.61 of 1998 dated 21.9.1998, we require to give our opinion in the following two questions. Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that the adjustment made by the A.O. in determining the income of the assessee u/s.115J is a debatable one as the issue is no more a debatable issue in view of the A.P. High Court’s decision in the case of V.V. Trans Investments (P)Ltd., 207 ITR 508? Whether on the facts and in the circumstances of the case the ITAT was correct in law in holding that the decision of the A.P. High Court referred to above was not applicable to the assessee’s case as the decision rendered was subsequent to the order passed under sec.143(1)(a)? After perusing the material on record, and hearing the junior Counsel for Income Tax, we reframed question No.1 as under. Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that the A.O. could not have made adjustments in determining the income of the assessee u/s. 115J as it is debatable issue in view of the decision of the A.P. High Court in the case of V.V. Trans Investments (P) Ltd., 207 ITR 508? The assessee is a State Government undertaking. For the assessment year 1989-1990 corresponding to transitional previous year from 01-7-1987 to 31.3.1989, they filed their return of income. Though there was profit of Rs.3,00,32,149/- before depreciation, after adjusting the depreciation and bonus paid, they declared a loss of Rs.1,99,78,630/-. The Assessing Officer processed the return under Section 143(1)(a) of the Act and determined the book profit under Section 115J of the Act. While doing so, he made certain adjustments. The assessee then filed application under Section 154 of the Act for rectification which was rejected. The appeal was however allowed by the Commissioner of Income Tax (Appeals), Hyderabad (CIT (A)). The appellate authority held that while sending intimation under Section 143(1)(a) of the Act, the Assessing Officer is expected not to apply the provisions of Section 115J of the Act especially when the issues were debatable. The Revenue went in appeal before the Appellate Tribunal which affirmed the order of CIT (A) observing that the decision in V.V. Trans-Investments P. Ltd. v. C.I.T. [1] being subsequent to the intimation under Section 143 (1) (a) of the Act has no application and that the adjustment made under clause (iv) of explanation to sub section (1) of Section 115J of the Act was debatable one. As noticed supra, the Revenue sought the reference of the questions to this Court. It is now well settled that while processing the return of income under Section 143(1)(a) of the Act, the Assessing Officer cannot make adjustments which are debatable. We may refer to two decisions of the Supreme Court directly on the point in Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd.[2] and Kvaverner John Brown Engg. (I) P. Ltd. v. Asst. CIT[3]. Accordingly, question No.1, as framed by us, is answered in the affirmative in favour of the assessee and against the Revenue. As question No.2 depends on the answer to question No.1, we decline to answer the same. The referred case shall stand disposed of accordingly. There shall be no order as to costs. _______________ (V.V.S. RAO,J) ____​_________________ (B.N. RAO NALLA, J) Date: 28-12-2011 Stp [1] (1994) 207 ITR 508 (A.P.) [2] (2007) 291 ITR 500 (SC) [3] (2008) 305 ITR 103 (SC) "