Vildirect: IncomeTax-caselaws-1993-VIL-173-ITAT-AHM

1993-VIL-173-ITAT-AHM

Equivalent Citation: ITD 047, 193, TTJ 047, 673,

Income Tax Appellate Tribunal AHMEDABAD

Date: 24.06.1993

FAG PRECISION BEARING LIMITED.

DEPUTY COMMISSIONER OF INCOME-TAX.

BENCH

Member(s) : B. M. KOTHARI., K. P. T. THANGAL.

JUDGMENT

Per Shri B. M. Kothari, Accountant Member.---These two appeals are directed against the orders of the CIT (Appeals), confirming the orders passed by the Dy. CIT (Asstt.), Special Range 2, Baroda under section 154 for assessment years 1990-91 and 1991-92.

2. The assessee filed return of income for assessment year 1990-91 on 28th December, 1990, declaring total income of Rs. 4,06,30,724 excluding unabsorbed investment allowance of the year under consideration as well as of various preceding years from assessment years 1982-83 to 1989-90. The total amount of such investment allowance, according to the assessee's working given in the return, was Rs. 5,04,08,655. Since the provisions of section 115J were applicable in the case of the assessee, 30 per cent of the book profits, worked out in accordance with section 115J, came to Rs. 1,67,85,300. The assessee, therefore, claimed deduction in respect of the unabsorbed investment allowance during this year only to the extent of Rs. 2,38,45,424, leaving the total income at Rs. 1,67,85,300, which was equivalent to 30 per cent of the book profits. In the statement annexed with the said return, the assessee claimed that unabsorbed investment allowance, which could not be absorbed in this year, comes to Rs. 2,65,63,231 (5,04,08,655 minus 2,38,45,424), which was eligible to be carried forward and set off against the income for the next year i.e., assessment year 1991-92.

2.1 The Assessing Officer issued intimation under section 143(1)(a) on 8-12-1991, accepting the declared income at Rs. 1,67,85,300 vide intimation dated 25-10-1991. The Adjustment Explanatory sheet dated 25-10-1991, annexed with the said intimation, clearly showed that such total income was adopted by invoking the provisions of section 115J of the Income-tax Act and no prima facie adjustment under section 143(1)(a) was made.

3. For the assessment year 1991-92, the assessee submitted a return of income on 30-12-1991, declaring an income of Rs. 4,14,45,282. The Assessing Officer issued intimation under section 143(1)(a) dated 23rd July, 1992 after making some prima facie adjustments of Rs. 21,60,245 and determined the assessee's income in the said intimation at Rs. 4,36,05,527. The prima facie adjustments made in the said intimation are not the subject-matter of dispute.

4. The Assessing Officer passed orders under section 154 on 31st August, 1992 for both the aforesaid years. In the order for assessment year 1990-91, he observed that section 115J(2) of the Income-tax Act clearly lays down that nothing contained in sub-section (1) of that section shall affect the determination of amount in relation to previous year to be carried forward to the subsequent year or years under sections 32(2), 32A(3), 72, 73 etc. etc. of the Income-tax Act. He also placed reliance on CBDT Circular No. 495 and came to the conclusion that application of section 115J of the Income-tax Act shall not affect carry forward of the unabsorbed investment allowance, unabsorbed depreciation or business losses to the extent not set off as computed under the provisions of the Income-tax Act. He also observed that unabsorbed investment allowance of assessment year 1982-83 claimed at Rs. 65,09,621 in the return for assessment year 1990-91 was wrong as while passing under section 154 dated 27-3-1991 for assessment years 1986-87 and 1987-88, the assessee had already been allowed the benefit of carry forward and set off of investment allowance of Rs. 2,41,094 and Rs. 52,26,416 i.e., of a total sum of Rs. 54,67,910. Likewise the assessee's claim for investment allowance for assessment year 1989-90 to the extent of Rs. 16,01,150 was disallowed by the Assessing Officer vide assessment order dated 25th February 1992 in view of the judgment of Hon'ble Supreme Court in the case of CIT v. Arvind Mills Ltd. [1992] 193 ITR 255. The Assessing Officer, therefore, made prima facie adjustments in respect of these three items and revised the original intimation by passing an order under section 154 dated 31st August, 1992 for assessment year 1990-91. As a result of the said order, the income was determined at the same figure of Rs. 1,67,85,300 being 30 per cent of the book profits and there was no difference in the tax liability for this year as a result of the prima facie adjustments made in the said order revising the earlier intimation. However, the unabsorbed investment allowance for assessment year 1990-91 and of the prior years, eligible to be carried forward and set off against income for assessment year 1991-92, was determined at Rs. 27,09,306 as against Rs. 2,65,63,231 declared by the assessee in the return of income, in relation to which no prima facie adjustment was made in the original intimation dated 25-10-1991.

5. In the order under section 154 for assessment year 1991-92, the benefit in respect of carry forward and set off of unabsorbed investment allowance for assessment year 1990-91 and earlier years was taken as per order under section 154 of even date passed for assessment year 1990-91 at Rs. 27,09,306 as against the claim made in the original return at Rs. 2,65,63,231 based on the return for preceding assessment year 1990-91. In the original intimation for assessment year 1991-92 this disallowance was not made and such variations/prima facie adjustments have been made by passing the order under section 154 on 21st September, 1992.

6. The CIT (Appeals) confirmed the view taken by the Assessing Officer and upheld the orders under section 154 passed by the Assessing Officer for both these years.

7. Before us, the learned counsel for the assessee vehemently argued that the orders under section 154 passed by the Assessing Officer are clearly beyond the scope of section 154 as well as beyond the meaning and scope of " prima facie adjustments " which can be made in an intimation under section 143(1)(a). In the present case, it is an admitted fact that no such disallowances or additions were made by the Assessing Officer in the original intimation prepared for both the years. The disallowances were sought to be made at a later point of time by resort to passing of the orders under section 154. The various additions and disallowances made in the orders under section 154 relates to highly debatable points of law and are clearly beyond the scope of prima facie adjustments which can be made under section 143(1)(a). In any case such items can by no stretch of imagination be added as income by passing an order under section 154 for revising the original intimation for these two years.

7. 1. The learned counsel submitted that variation in the income for assessment year 1991-92 made as a result of passing of the orders under section 154 on 21 st September, 1992 for assessment years 1990-91 and 1991-92 consists of the following three items :

(a) Rs. 1,67,85,300 due to interpretation of section

115J for assessment years

1990-91 and 1991-92.

(b) Rs. 54,67,510 reduction in the claim for assess--

ment year 1982-83 :

Rs. 2,41,094 absorbed in

assessment

year 1986-87

Rs. 52,26,416 absorbed in

assessment

year 1987-88.

-----------------

Rs. 54,67,510

-----------------

year 1989-90.

---------------------

Rs. 2,38,53,925

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7.2. The first addition of Rs. 1,67,85,300 has been made by adopting a different interpretation of section 115J for assessment years 1990-91 and 1991-92. He invited our attention towards Circular No. 549 dated 31st October, 1989 containing explanatory notes on the provisions of the Direct Tax Laws (Amendment) Act, 1987. He laid emphasis on para 5.7 of the said circular to show the object of providing for levy of additional tax where the return of income is increased as a result of adjustment made under section 143(1)(a). Such scheme of assessment was liable to be misused by unscrupulous tax payers who might return lesser income by making obvious mistakes or by claiming obviously incorrect deduction and taking a chance that if the same are detected by the department, they would have to pay the correct tax only. He pointed out that this provision was introduced with a view to levy additional tax on such unscrupulous tax payers. In the present case a perusal of the statements annexed with the return of income clearly shows that the assessee gave complete details in relation to unabsorbed investment allowance pertaining to assessment years 1982-83 to 1990-91. It was also clearly pointed out in the return that the income declared at Rs. 1,67,85,300 is adopted in view of section 115J at 30 per cent of the book profit. The assessee further clearly stated that the unabsorbed investment allowance is accordingly absorbed only to the extent of available income, which will leave the total income at 30 per cent of the book profit. Thus there was no attempt to conceal any fact in the return of income.

7.3. He invited our attention towards Instruction No. 1814 dated 4th April, 1989 in which certain clarifications regarding adjustments permissible under the proviso to section 143(1)(a) have been given. The said circular, inter alia, clarifies that for determining whether there is a prima facie error for purposes of making an adjustment under the aforesaid proviso, it will be correct and proper to apply the same test as has been laid down by the Supreme Court for the purposes of rectification of mistakes under section 154 of the Act. A mistake can be rectified under section 154 only if it is an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions vide T. S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 (SC). The learned counsel further invited our attention towards para 6 of the said circular to show that for the purposes of making the adjustments under the aforesaid proviso it will not be permissible to refer to the record of past assessments in the case of the assessee. He also relied on the illustrations given in the said instructions issued by the Board in para 6 to support his contention.

7.4. The learned counsel, on the strength of aforesaid circulars issued by the Board submitted that if more than two views are possible in relation to the items of additions made by the Assessing Officer, it would be clearly beyond the scope of prima facie adjustments which can be made under section 143(1)(a). He submitted that in relation to the interpretation of section 115J there were in fact three different opinions. To corroborate his contention the learned counsel invited our attention to the opinion given by two eminent jurists --- one by Hon'ble Mr. P. N. Bhagwati and other by Shri N. A. Palkhiwala. Copies of these opinions were also placed in the compilation. The question which arises for ascertainment or determination is what amount of past losses or unabsorbed investment allowance etc. should be carried forward from the years in which section 115J of the Act is applied. The first interpretation is that only such amount as would have been carried forward if the total income had been computed under the provisions of the Income-tax Act, 1961 can be carried forward to the subsequent year or years. This, according to the learned counsel, is the view taken by the department, which is totally unjustified and such interpretation suffers from the fallacy that it proceeds upon an unjustified and erroneous assumption that no part of the allowable unabsorbed deductions under the various sections referred to in section 115J(2) is in fact allowed in the computation of the total income of the assessee, since the total income chargeable to tax has been arrived at on the basis of section 115J(1). Section 115J(1) does not contemplate that such allowances shall be deemed to have been made and only the balance has to be carried forward.

7.5. The other possible view is that since no allowance of the amount has been made in computing the total income based on book profits under section 115J(1), the amount of allowances in their entirety should be carried forward to the subsequent year or years. The learned counsel submitted that this is one view which is extremely favourable to the assessee.

7.6. The third view is just a balanced view which has been adopted by the assessee while submitting its return of income and which is also supported by the opinion of the eminent jurist Shri Palkhiwala, which is as under :

" In the first instance the total income of the relevant year is arrived at after charging only the current year depreciation. After arriving at the said figure, it must be verified in a separate exercise, whether the taxable income after deductions referred to in sub-section (2) is ' nil ' or whether it is less than 30 per cent of the book profit as defined. If so, section 115J will come into operation and in such operation, deductions of brought forward losses, depreciation, investment allowance (carried forward as well as current year) etc. must be deemed to have been allowed to the extent to which it is necessary to reduce the total income to a figure which is equivalent to 30 per cent of the book profit of the relevant accounting year. "

The learned counsel thereafter invited our attention towards the different workings based on the above referred three different opinions in relation to interpretation of section 115J placed at page 77 of the paper book. He submitted that opinions of the jurists are not binding but they strongly support the assessee's contention that the point in issue is surely capable of more than one view. In fact both the jurists whose opinions have also been placed in the compilation have categorically stated that the view which has been adopted by the department in the order under section 154 is incorrect and the view which the assessee has adopted in the returns of income is the balanced and correct view. He submitted that in the present proceedings the matter need not be decided on merits but the only point which is required to be seen is as to whether the point in issue is a debatable one or not. If it is found to be a debatable one the prima facie adjustment made in the intimation by resort to an order under section 154 would be invalid and unjustified.

7.7. He also invited our attention towards a writ petition submitted by Apar Ltd. and others, No. 846/90 before the Hon'ble Bombay High Court in which similar point was involved for consideration. The Hon'ble High Court vide interim order dated 13th March, 1990 granted interim stay and has further passed a clarificatory order on 23rd March, 1990 that no proceedings for penalty or penal interest will be taken pending disposal of the said writ petition. The learned counsel submitted that the very fact that the interim stay has been granted after hearing respondent clearly proves that the matter is at least capable of two different views and the assessee prima facie has a good case. He further relied on the judgment of Hon'ble Bombay High Court in the case of Khatau Junkar Ltd. v. K. S. Pathania [1992] 196 ITR 55 and in the case of Bank of America N. T. and S. A. v. Dy. CIT [1993] 200 ITR 739 (Bom.) to corroborate his contention that the prima facie adjustments which can be made under the proviso to section 143(1)(a) can be made only in respect of apparent mistakes which are discovered in the return or in the accounts or documents annexed with the return. Nothing else can be validly referred at the stage of making the prima facie adjustments. Such prima facie adjustment can be made only in respect of obvious and apparent mistakes.

7.8. He further submitted that the reliance placed by the CIT (Appeals) on the decision of the Tribunal in V. V. Trans-Investments (P.) Ltd. v. ITO [1992] 42 ITD 242 (Hyd.) will not help the revenue as the said decision has been over-ruled by the Special Bench in a subsequent decision in the case of Surana Steels (P.) Ltd. v. Dy. CIT [1993] 201 ITR 1 (Hyd.)(SB)(AT).

7.9. The learned counsel was fair enough to further state that there is a decision of one of the Benches of the Tribunal directly against the view adopted by the assessee and the view of the department is supported by that decision in relation to interpretation of carry forward of unabsorbed deductions in a case where section 115J has been applied. That decision has been in Asstt. CIT v. Lallacherra Tea Co. (P.) Ltd. [1992] 42 ITD 446 (Gauhati) (SMC). However, that is a case which deals with the decision on merits and not in relation to prima facie adjustments made under section 143(1)(a), as in the present case. Hence that is a case which is clearly distinguishable as in the present case the point in issue is what is the true meaning and scope of prima facie adjustments which can be made in an intimation under section 143(1)(a) and that too by passing an order under section 154 subsequent to the original intimation.

7.10. The learned counsel, therefore, vehemently submitted that the Assessing Officer was absolutely wrong in making an addition of Rs. 1,67,85,300 due to such different interpretation of section 115J read with interpretation of the relevant provisions of section 143(1)(a). The same should, therefore, be cancelled.

7.11. The next item of addition is of Rs. 54,67,510. This relates to investment allowance pertaining to assessment year 1982-83. The learned counsel was fair enough to admit that in the return for assessment year 1990-91, the unabsorbed investment allowance taken by the assessee was Rs. 65,09,621. Subsequent to the filing of the return for assessment year 1990-91, the Assessing Officer, vide order under section 154 dated 27th March, 1991 for assessment years 1986-87 and 1987-88 had allowed Rs. 2,41,094 and Rs. 52,26,416 i.e. a total sum of Rs. 54,67,510 out of investment allowance for assessment year 1982-83. The revised figure taken by the Assessing Officer in the order under section 154 for assessment year 1990-91 in relation to unabsorbed investment allowance of assessment year 1982-83 is Rs. 10,42,111 as against Rs. 65,09,621 claimed by the assessee. He submitted that the assessee has submitted appeals against those orders for assessment years 1986-87 and 1987-88 which are pending before the Tribunal. The learned counsel once again placed heavy reliance on the instruction No. 1814 dated 4th April, 1989 in which it has been mentioned that it is not permissible to refer to records of the past assessments in the case of the assessee for making the prima facie adjustments under the proviso to section 143(1)(a). The learned counsel submitted that it is true that the return for assessment year 1991-92 was furnished after passing of above referred orders under section 154 for assessment years 1986-87 and 1987-88 and the assessee claimed the unabsorbed investment allowance at the same figure as shown in the chart submitted along with the return for assessment year 1990-91 without taking into consideration the said subsequent orders under section 154 for assessment years 1986-87 and 1987-88. But this factor cannot be taken into consideration for making a prima facie adjustment of the said sum of Rs. 54,67,510. In the said circular one of the instances given in para 6 is that if interest on cash credits added as unexplained cash credits in earlier years is claimed as a deduction in the subsequent year, such amount of interest cannot be added by way of prima facie adjustment under section 143(1)(a). He stated that such illustration given in the said instruction clearly supports the assessee's contention in relation to this item also. He once again relied on the decisions in Bank of America N. T. and S. A's case and 45 ITR 302 (sic). He submitted that the scope of proviso to section 143(1)(a) authorising the Assessing Officer to make the prima facie adjustments is very narrow and such adjustments can be made only on the basis of information in the return of income and in the statements accompanying the return. The amount in question cannot be added on the basis of any information except the one contained in the return of income for assessment year 1991-92. No such addition was made in the original intimation. Such addition could not have been made at a later point of time by invoking the provisions of section 154.

7.12. As regards the third item of addition of Rs. 16,01,115 the learned counsel invited our attention towards the assessment order for assessment year 1989-90 passed on 25th February, 1992 in which the assessee's claim for investment allowance on additions to plant and machinery due to exchange rate fluctuations was denied in view of the judgment of Hon'ble Supreme Court in the case of Arvind Mills Ltd. He submitted that at the time when the return for assessment year 1991-92 was submitted, the claim made by the assessee was supported by the judgment of Hon'ble Gujarat High Court. The judgment of the Gujarat High Court has been reversed by the Supreme Court on a date subsequent to the furnishing of the return. It cannot, therefore, be validly contended that this was an apparent mistake in the return submitted by assessee. Relying on the same set of instructions or circulars issued by the Board as well as the judgments referred to herein before, the learned counsel submitted that the Assessing Officer has wrongly made adjustment in respect of this item also. He urged that the orders passed by the CIT (Appeals) as well as the Assessing Officer under section 154 should be cancelled.

8. The learned Departmental Representative strongly supported the order of the CIT (Appeals). He argued that proviso to section 143(1)(a) permits three types of prima facie adjustments. The first is that the Assessing Officer may rectify any arithmetical errors in the return, accounts or documents accompanying the return. The second type of adjustment which can be made is in case the assessee has not claimed any loss carried forward, deduction, allowance or relief, which, on the basis of the information available in such return, accounts or documents, is prima facie admissible. The last category of adjustment is in the case of any loss carried forward, deduction, allowance or relief has been claimed in the return, which, on the basis of information available in such return, accounts or documents is prima facie inadmissible. The provisions of section 115J(2) read with section 72(1) lead to only one conclusion that in cases where the provisions of section 115J has been applied in a particular year, that would not in any way affect the determination of the amount in relation to the relevant previous year to be carried forward to the subsequent year or years. This necessarily implies that taxable income will have to be computed in accordance with the relevant provisions of law in the normal course for the purpose of ascertaining the amount of unabsorbed losses and unabsorbed deductions like investment allowance etc. The unabsorbed losses and deductions of past years would go to reduce the relevant accounting year's profits to nil and only the balance of the unabsorbed losses, investment allowance and depreciation would be carried forward to subsequent years. The order passed by the Assessing Officer under section 154 is based on this clear interpretation of the relevant provisions. The interpretation so adopted by the Assessing Officer is in conformity with the Circular No. 495, dated 22nd September, 1987 issued by the CBDT to explain the intention and substance of the various provisions inserted by the Finance Act, 1987. The learned D. R. submitted that so far as assessment year 1990-91 is concerned, the assessee's pocket has not been adversely affected as the total income determined in the order under section 154 remained the same at 30 per cent of the book profit and the tax liability also remained the same as shown by the assessee in the return of income. The only variation made by the order under section 154 is the amount of unabsorbed investment allowance eligible to be carried forward and set off against profits of future years, namely, assessment year 1991-92 and onwards. The tax and the consequent levy of additional tax has been levied in assessment year 1991-92. We will, therefore, have to examine the issue from the angle as to whether there was any debate possible in relation to carry forward of unabsorbed investment allowance in assessment year 1991-92. Once the order under section 154 for assessment year 1990-91 was passed, the deduction of unabsorbed investment allowance in assessment year 1991-92 had to be allowed only on the basis of the revised intimation passed for assessment year 1990-91. The order passed by the Assessing Officer for assessment year 1991-92 is, therefore, perfectly valid and justified. The learned D. R. submitted that a point can be said to be debatable only when there is an ambiguity in the Act or in a case where there are conflicting judicial pronouncements. In the present case, the learned counsel has not been able to point out any decision which directly supports the interpretation of section 115J as adopted by the assessee while furnishing the return of income. On the other hand, there is a direct decision of the Tribunal in Lallacherra Tea Co. (P.) Ltd.'s case in which the interpretation of the relevant provisions of section 115J, as clarified in Circular No. 495, dated 22-9-1987 and as adopted by the Assessing Officer in the orders under section 154 have been upheld. This also shows that the Assessing Officer was fully justified in making prima facie adjustments by revising the original intimation through an order under section 154. He strongly relied upon the reasons recorded in the orders of the CIT (Appeals) and the Assessing Officer and urged that no interference would be justified.

8.1. The learned D. R. submitted that as far as the second item of Rs. 54,67,510 is concerned, it is an admitted position that the return for assessment year 1991-92 was furnished on 30th December, 1991 i.e., much after the orders under section 154 passed for assessment years 1986-87 and 1987-88 on 27th March, 1991 in which the unabsorbed investment allowance of assessment year 1982-83 aggregating to Rs. 54,67,510 had already been granted. Claiming the deduction in respect of unabsorbed investment allowance of assessment year 1982-83, which had already been so allowed prior to furnishing of the return for assessment year 1991-92 is an apparent mistake in claiming such carry forward and such a mistake is obviously an apparent mistake which could be rectified while preparing the original intimation. If through inadvertence that was not done at the time of preparing the original intimation, the same could be rectified by passing an order under section 154, as has been validly done in the present case. The assessee's contention that the Assessing Officer cannot look to the past record or any other document for making prima facie adjustments under the proviso to section 143(1)(a) is wholly incorrect. In case the Assessing Officer is not entitled to look to the past record, he would never be able to grant deduction in respect of past assessed amount of carry forward losses or unabsorbed deductions which have not been inadvertently claimed by the assessee. It is clear from the language used in section 143(1)(a) that for the purposes of ascertaining the correctness of the carry forward losses, it would be necessary and permissible for the Assessing Officer to refer to past records on the basis of which he will be able to either grant deduction for such carry forward if not claimed by the assessee or to cancel the amount of carried forward claim if it is found to be incorrect. The reliance placed on instruction No. 1814 by the learned counsel is not correct and the same has been read out of context. The clarification with regard to prima facie adjustments permitted under clauses (ii) & (iii) have been given in para 7 and not in para 6 of the said instruction. Para 7 of the said instruction only says that debatable points would be outside the scope of prima facie adjustments to be made under this section. The other contention of the learned counsel for the assessee that since the assessee had preferred appeals for assessment years 1986-87 and 1987-88 including the question relating to investment allowance of assessment year 1982-83 considered in assessment years 1986-87 and 1987-88 is not sustainable as the figure of carry forward will have to be taken as per the assessment orders for the preceding years until the same is modified or reversed in further appeals. He submitted that this item was also rightly rectified by the Assessing Officer.

8.2. As regards the third item of addition, the learned D. R. submitted that it is true that disallowance in assessment year 1989-90 was made on the basis of judgment of Hon'ble Supreme Court and such assessment order was passed after the furnishing of the return for assessment year 1991-92 but the Hon'ble Supreme Court does not create any law but it only clarifies as to what the law always was. Since the claim was apparently not allowable, the same has rightly been rectified by the Assessing Officer by passing the order under section 154. The learned D. R. strongly supported the order of the CIT (Appeals) and urged that the same should be confirmed.

9. We have carefully considered the rival submissions made by the learned representatives and have also carefully gone through the orders of the departmental authorities. We have also carefully examined the relevant provisions of law, the contents of various circulars /instructions issued by the Board as well as the principles of law laid down in the various judgments relied upon by the learned representatives of the parties before us.

9. 1. A plain reading of the relevant provisions contained in section 143(1)(a) clearly leads to an inevitable conclusion that prima facie adjustments can be made by the Assessing Officer at the time of preparing intimation under section 143(1)(a) only in respect of obvious and patent mistakes. Clause (i) of the proviso to section 143(1)(a) permits adjustments relating to the rectification of any arithmetical errors in the return, accounts or documents accompanying the return. Such arithmetical errors can be rectified under clause (i). Clauses (ii) & (iii) of the said proviso relate to any error in either not claiming any loss carried forward, deduction or relief which on the face of it is admissible or relates to an error in claiming any loss carried forward, deduction, allowance or relief which, on the face of it, is not admissible. It is, therefore, clear that the error in either case in relation to such carry forward of past loss or unabsorbed deductions like investment allowance, depreciation etc. should be patent, obvious or apparent. If a matter is capable of more than one interpretation, it will be beyond the scope of permissible adjustments which can be made under the aforesaid proviso to section 143(1)(a). If there was an obvious and apparent mistake in the claim of such carry forward and if through inadvertence that was not disallowed in the original intimation, such apparent mistake could be validly rectified at a later point of time also by passing an order under section 154 as the nature and scope of both the proviso to section 143(1)(a) and section 154 is, to some extent, similar and both these sections permit rectification of an apparent mistake. The vital difference between the two provisions is that the proviso to section 143(1)(a) permits prima facie adjustments or rectification in relation to mistakes apparent in the return of income or in the statement or documents accompanying the return while section 154 provides for rectification of mistakes apparent from " records ". In the light of the aforesaid legal principles, let us now examine the rival contentions made by the learned representatives with regard to all the three items of additions made by the Assessing Officer under section 154 by revising the original intimation issued under section 143(1)(a).

9.2. The first item of addition relates to disallowance of deduction in respect of unabsorbed investment allowance to the extent of Rs. 1,67,85,300 which has been added by the Assessing Officer by adopting the interpretation of section 115J as clarified by the Board in Circular No. 495, dated 22nd September, 1987. In the said circular it has been clarified that in cases where section 115J is applicable it will involve two processes of determination of income. Firstly, an assessing authority has to determine the income of the assessee under the provisions of the Income-tax Act. Secondly, the book profit is to be worked out in accordance with section 115J and it is to be seen whether income determined under the first process is less than 30 per cent of the book profit. Section 115J is invoked if the income determined under the first process is less than 30 per cent of the book profit. Sub-section (2) of section 115J provides that the application of this provision would not affect the carry forward of unabsorbed depreciation, unabsorbed investment allowance, or business loss to the extent not set off because of invoking of section 115J(1). In the illustration given in the said circular the working of eligible carry forward in respect of unabsorbed business loss, unabsorbed depreciation etc. has been given. According to this circular, the amount of carry forward of unabsorbed investment allowance, depreciation and losses actually set off against the total income of the previous year to reduce the total income to nil will be lost to the extent of deemed income under section 115J. This view is the one which has been adopted by the ITO.

9.3. The other view is that profits of the relevant accounting year before setting off the carry forward loss and depreciation are to be determined as per the provisions of the Act. From the profits so computed, only that portion of the unabsorbed loss and depreciation should be deducted as would be sufficient to reduce the profits to a figure equivalent to 1/3rd of the book profits. This is the view which has been adopted by the assessee while furnishing the returns of income for assessment years 1990-91 and 1991-92. Such a view is also supported by the elaborate opinions given by the two eminent jurists. In the said opinions, both the eminent jurists have opined that the interpretation adopted by the income-tax department is not sustainable.

9.4. In the present proceedings it is neither proper nor necessary for us to express any opinion on the question as to which of the two competing views is acceptable. We have only to see whether more than one interpretation of the said provision is possible or not. If this matter is capable of more than one interpretation, the disallowance or prima facie adjustments made in respect of this item would be beyond the scope of the provisions of section 143(1)(a) as well as section 154 and would, therefore, be invalid. The Hon'ble Bombay High Court in the interim stay granted to the assessee in that case, after hearing the representative of the department, observed that the assessee shall furnish a bank guarantee for 50 per cent of the differential advance tax calculated on the basis of difference between the interpretation of section 115J as per Circular No. 495, dated 22nd September, 1987 and the third interpretation (as adopted by the assessee in the present case) mentioned in the writ petition. The provisions of section 115J(1) & (2) are reproduced hereunder :

" 115J (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit.

(2) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A or sub-section (3) of section 80J. "

On the basis of the above provisions, one view which can be taken is that which has been adopted by the Assessing Officer based on the Board's Circular No. 495, dated 22nd September, 1987. The other view is that which has been adopted by the assessee in the returns of income. Let us examine the real effect of these two different interpretations of section 115J by reproducing the exact figures of unabsorbed investment allowance claimed by the assessee and the one which has been allowed by the ITO in the orders under section 154 passed for revising the intimation :

Total income as computed as per provisions of Income-tax

Act, 1961 after set off of current depreciation &

unabsorbed depreciation in the return of income Rs. 4,06,30,724

Income under section 115J being 30 per cent of book

profit of Rs. 5,59,51,000 Rs. 1,67,85,300

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Past unabsorbed investment allowance can be set off

only to the extent the total income is equal to 30 per cent

of book profits Rs. 2,38,45,424

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Details of investment allowance absorbed during the year :

Asstt. years Amount Absorbed Balance

82-83 6509621 6509621 0

83-84 4355443 4355443 0

84-85 3614865 3614865 0

85-86 3545476 3545476 0

86-87 3972925 3972925 0

87-88 2249962 1847094 402868

88-89 14717189 0 14717189

89-90 1601115 0 1601115

90-91 9842059 0 9842059

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50408655 23845424 26563231

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According to ITO out of aggregate of Rs. 5,04,08,655 the

investment allowance should be deemed to have

been allowed to the extent of available income i.e. Rs. 4,06,30,724 (50408655 -- 40630724) Rs. 97,77,931

Less : Unabsorbed Investment allowance of Assess-

ment year 1982-83 already absorbed in Assessment

years 1986-87 & 1987-88 vide order under section 154

dated 27-3-1991 :

Assessment year 1986-87 Rs. 241094

Assessment year 1987-88 Rs. 5226416

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Rs. 5467510

Investment allowance of

Assessment year 1989-90

disallowed in Assessment

year 1989-90 Rs. 1601115 Rs. 70,68,625

-------------------- ----------------------

Set off allowed in order

under section 154 for

Assessment year 1991-92 Rs. 27,09,306

The assessee claimed that unabsorbed investment allowance of past years have been absorbed only to the extent of Rs. 2,38,45,424 as a result of which the total income has been determined at 30 per cent of the book profit which comes to Rs. 1,67,85,300. The ITO says that investment allowance of prior years should be treated as having been absorbed to the extent of available profits for assessment year 1990-91 to the extent of Rs. 4,06,30,724. Section 115J says that in the event of loss or inadequacy of taxable income, total income of the company shall be deemed to be an amount equal to 30 per cent of such book profits. Thus by a fiction of law, the section substitutes one figure of total income i.e., 30 per cent of book profits in substitution of nil income as computed in accordance with the provisions of the Act. If we deem 30 per cent of the book profits as the total income and that is taken as the starting point, it would be clear that the balance of Rs. 2,38,45,424 would be the actual amount to the extent of which past unabsorbed investment allowance has really been set off. This could perhaps be one of the harmonious construction of the two sub-sections of section 115J. We would like to make it clear that we are not expressing any opinion that the view adopted by the assessee is correct but we are of the considered opinion that the provisions of section 115J(1) & (2) so far as it relates to the quantum eligible to be carried forward out of unabsorbed loss, unabsorbed investment allowance and depreciation, are surely capable of more than one interpretation. If the view taken by the Assessing Officer is considered, it would mean that the amount of carry forward of unabsorbed investment allowance to the extent of 30 per cent of book profits i.e., Rs. 1,67,85,300 would be completely lost and to that extent the assessee would not be entitled to carry forward that amount once the income has been determined at 30 per cent of the book profits according to section 115J in assessment year 1990-91. Such an interpretation is also not free from doubt as the provisions of section 115J(2) does not anywhere specifically provide that benefit of carry forward of past losses to the extent of determination of 30 per cent of book profits as total income will be presumed to have been allowed and no benefit of carry forward in respect of that amount would be allowed. Such a view is also open to debate and a different interpretation may be possible. The point in issue will arise for determination in the appeals against the regular assessment orders for assessment years 1990-91 and 1991-92. None of the observations made by us in this order should in any way influence the decision on merits of such a contention. However, since the point in issue is debatable, we are of the considered opinion that the addition of Rs. 1,67,85,300 made by the Assessing Officer and confirmed by the CIT (Appeals) as a permissible prima facie adjustment under the proviso to section 143(1)(a) is not valid and justified. To this extent the orders under section 154 passed by the ITO for assessment years 1990-91 and 1991- 92 are directed to be modified.

9.5. As regards the second item representing addition of Rs. 54,64,510, the contention of the learned counsel that the Assessing Officer cannot look to the past records for making such a disallowance by way of prima facie adjustment or by way of a rectification order under section 154 for rectifying the original intimation cannot be accepted in relation to this item. The reliance placed by the learned counsel on the instruction No. 1814, dated 4th April, 1989 is incorrect as the clarifications issued by the Board and the words used in para 6 of the said instructions have to be read in the context in which those have been used. It has been clarifled in the circular that it would not be permissible to refer to the record of the past assessments in the case of the assessee. For instance, it will not be permissible for the Assessing Officer to make an addition to the profits by applying a higher rate of Gross Profit than that shown in the books of accounts. The emphasis is laid by the learned counsel on the illustration given in the circular that it will not be permissible for the Assessing Officer to disallow any claim in respect of interest on loans even though the amount on which interest is claimed had been added to the assessee's income as unexplained cash credits in the assessment for an earlier year. These instances given in the circular do not in any manner help the assessee. The claim of interest on such cash credits can be supported by the assessee in the subsequent year by producing clinching and convincing evidence in support of the cash credit and in such an event interest expenditure would be an admissible deduction. However, in order to ensure the correctness of the claim for carry forward in the return of income, it would be necessary to make a reference to the past assessment records. The carry forward of unabsorbed loss, unabsorbed investment allowance and unabsorbed depreciation is allowable under the provisions of law only in respect of the assessed amount of such losses and unabsorbed deductions. If the contention of the learned counsel for the assessee is accepted it may lead to absurd results. For instance, if the assessee claims in a return of income that he is entitled to deduction in respect of carry forward of Rs. 50 lakhs representing unabsorbed loss of earlier years out of the current year's income of Rs. 60 lakhs, and he declares an income of Rs. 10 lakhs on the basis of such a claim. If on perusal of the assessment records of the earlier years it is discovered that in the preceding year there was no claim for carry forward of losses or no such losses were assessed or accepted in earlier years, it does not stand to reason that the Assessing Officer in such a case will not be entitled to look to the past records of the assessee for ascertaining the correctness of the claim for grant of deduction in respect of carry forward of past losses, which are necessarily required to be allowed only to the extent of assessed figures. The other contention of the learned counsel that further appeals have been filed for assessment years 1986-87 and 1987-88 which are subject-matter of pending appeals and, therefore, the assessee could claim the unabsorbed amount of investment allowance of assessment year 1982-83 to the full extent without deducting the amount already allowed in assessment years 1986-87 and 1987-88 is also not acceptable for the simple reason that the order already passed by the Assessing Officer for assessment years 1986-87 and 1987-88, resulting in reduction of the unabsorbed investment allowance of assessment year 1982-83, will be fully effective and operative until that order is modified, varied, cancelled or in any manner altered by any appellate order. The return of income for assessment year 1991-92 was furnished on 30th December, 1991 in which the deduction in respect of unabsorbed investment allowance was claimed inter alia by taking the figure of unabsorbed investment allowance for assessment year 1982-83 at Rs. 65,09,621. Much before furnishing of this return the investment allowance of assessment year 1982-83 as per order under section 154 for assessment year 1987-88 dated 27-3-1991 was reduced to Rs.10,42,111 as a sum of Rs. 54,67,510 had already been absorbed in assessment years 1986-87 and 1987-88. This was an apparent, patent and obvious mistake on the part of the assessee, which could be validly rectified in the intimation under section 143(1)(a). If inadvertently, the Assessing Officer forgot to make such prima facie adjustment in the original intimation he could validly rectify that mistake by passing the order under section 154 as the item in question represent a glaring, apparent and obvious mistake in the figure of carry forward of loss mentioned in the return. The addition made by the Assessing Officer and confirmed by the CIT (Appeals) in relation to the aforesaid sum of Rs. 54,67,510 is, therefore, confirmed.

9.6. The last item relates to the addition of Rs. 16,01,115. A perusal of the assessment order for assessment year 1989-90 dated 25th February, 1992 reveals that the assessee's claim for investment allowance of Rs. 16,01,115 claimed in respect of addition to plant and machinery due to exchange rate fluctuations was disallowed in view of judgment of the Hon'ble Supreme Court in the case of Arvind Mills Ltd. The said judgment was delivered by the Hon'ble Supreme Court on 10th December, 1991 but that has been reported in the law journals such as in ITR in the year 1992. At the time when the return of income was furnished for assessment year 1991-92 on 30-12-1991, the assessee's claim was in consonance with the judgment of the Hon'ble Gujarat High Court in the case of Arvind Mills Ltd. which has subsequently been reversed by the above mentioned judgment of Hon'ble Supreme Court. The claim made by the assessee in the return of income cannot, therefore, be treated as a patent, obvious or apparent mistake at the time of filing of the return. The addition in respect of that item could not, therefore, be made by way of prima facie adjustment contemplated in the proviso to section 143(1)(a). This addition is also, therefore, directed to be cancelled.

10. The ITO is directed to modify the orders under section 154 for assessment years 1990-91 and 1991-92 in the light of the directions given herein before.

11. In the result, both the appeals are partly allowed

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