(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Leave to amend the prayer clause.
2. The petitioner has challenged a notice dated 01.08.2012 issued by the Deputy Commissioner of Income Tax, the Assessing Officer seeking to rectify his earlier order dated 29.12.2009 in case of the petitioner-assessee. The petition was filed at a stage when pursuant to such notice, final order of rectification though passed, was not yet communicated to the petitioner. Since the respondents have produced on record an order dated 12.09.2012 passed by the Assessing Officer under section 154 of the Income Tax Act, 1961 (“the Act” for short) pursuant to the impugned notice dated 01.08.2012, the petitioner has, with our leave, also challenged such order.
3. Few facts necessary to decide the issue may be noted at this stage. The petitioner is a Company registered under the Companies Act. For the assessment year 2001-02, the petitioner had filed a return of income which was taken under scrutiny. The Assessing Officer framed a scrutiny assessment under section 143(3) of the Act and computed total income of the assessee at Rs.7,13,38,558/-. The Assessing Officer noted that the book profit as per section 115JB of the Act would be at Rs.2,82,64,03,423/-. He noted that since the tax as per book profits would be higher than the tax as computed as per regular provisions, the tax and interest is chargeable and payable on the book profits only. It may be noted that in such order of assessment, the provision of adding the bad debts was not at issue.
4. Such order of assessment dated 5.2.2003 was carried in appeal by the assessee before the Commissioner (Appeals). The Commissioner (Appeals) allowed the assessee's appeal on a limited issue of netting of interest income against the interest expenses for the purpose of disallowance under section 80-IA of the Act.
5. Such order of Commissioner (Appeals) was carried by the revenue before the Tribunal. The Tribunal by its order dated 13.5.2008, allowed the revenue's appeal and for a limited purpose of computation of disallowance of interest for the purpose of section 80-IA of the Act, remitted the matter to the Assessing Officer. The Tribunal's directions and observations contained in such order read as under:
“6. We have heard the rival submissions and perused the orders of the lower authorities and the material available on record. We find that in the instant case, the assessee had shown net interest debit in the profit & loss account after deducting interest income earned from the deposit with the banks etc. which were claimed to have been kept in order to receive the working capital loan and long term loan. The AO has reduced the gross amount of interest receipt from the eligible profits of the assessee while computing the deduction allowable to the assessee u/s 80-IA. This issue had come up before the Tribunal in the assessment year 1998-99 in the assessee's own case in ITA No.706/Ahd/2002 wherein vide order dated 06.10.2006, the Tribunal has restored the matter to the file of the AO to examine the netting off of the interest income with the interest expenditure where it is shown that they are intricately connected with the running of the industrial undertaking for generation of electricity.
This order of the Tribunal was confirmed by the Hon'ble Gujarat High Court which held that where income earned is from borrowed funds, interest is paid from borrowed funds then netting off is to be given. Respectfully following this decision of the Hon'ble Gujarat High Court, we restore the matter back to the file of the AO to reconsider the issue in the light of the decision of the Hon'ble Gujarat High Court and to allow netting off of interest income if the interest income is earned from the borrowed funds and interest is paid from borrowed funds. Accordingly, the grounds of appeal of the Revenue are allowed for statistical purpose.”
6. The Assessing Officer thereupon passed his order dated 29.12.2009 giving effect to the above mentioned order of the Tribunal and provided as under :
“In view of above discussion, the netting of interest income is not allowed and assessment is completed as under:
Income as per order u/s 250 dated 29.01.2004 Rs. Nil Add : Disallowance of netting of interest Rs.71338558 ======== Total income Rs.71338558 The assessee has paid taxes under MAT on the book profit of Rs.2876403423/-. As the tax liability under section 115JB is higher than the amount of tax payable under section 115JB, assessment is completed at book profit of Rs.2876403423/-.
Assessed at book profit of Rs.2876403423/-, issue demand notice and challan. Charge interest as per law. Give credit for prepaid taxes.”
7. In the meantime, the Assessing Officer had issued notice for reopening of the assessment under section 148 of the Act and in fact, passed fresh order of assessment upon such reopened proceedings. In such assessment order dated 29.3.2004, the Assessing Officer touched upon the question of provision of doubtful debts for the purpose of book profit under section 115JB of the Act. He added a sum of Rs.21,80,58,244/- under the head of provision for doubtful debts for computation of book profit under section 115JB of the Act.
8. The assessee carried such fresh order of the Assessing Officer before the Commissioner (Appeals). The Commissioner (Appeals), in its order dated 31.1.2005, with respect to the issue of adding back of the provision for doubtful debts, held as under :
“2.8 To summarise, out of Rs.21,80,58,244/- the additions in respect of the following amounts are upheld while working out income u/s 115JB.
(i) Rs.48,12,701/- & (ii) Rs.1,16,25,712/- totalling to Rs.1,64,30,413/- and the appellant company gets relief of Rs.20,16,19,831/- accordingly out of the additions made of Rs.21,80,58,244/-.”
9. We are informed that against such order of the Commissioner (Appeals), revenue as well as the assessee are before the Tribunal and such appeals are pending.
10. At that stage, the Assessing Officer issued impugned notice dated 1.8.2012 and conveyed to the petitioner that he would like to exercise powers under section 154 of the Act to rectify his own order dated 29.12.2009. The petitioner replied to such notice under communication dated 11.9.2012 and opposed the proposal for rectification. The Assessing Officer, as noted above, however, proceeded to pass the order dated 12.9.2012 and recomputed the book profit of the assessee for the purpose of section 115JB of the Act by adding provision for bad and doubtful debts to the extent of Rs.21,80,58,244/-. Relevant portion of his order reads as under :
“On perusal of the assessee's reply, it is seen that the assessee has contended that Hon'ble ITAT set aside the issue relating to netting of interest to file of the AO to re-examine the assessee's claim, therefore, the AO has no jurisdiction to make addition to the book profit, as the assessment was set aside for limited purpose only.
The above contention of the assessee has been considered very carefully. It is seen that the addition to the book profit at Rs.21,58,80,244/- was made on account of provision for bad doubtful debts and book profit was determined at Rs.3,09,44,61,667/- in the reassessment order dated 29/03/2004, which the AO ought to have taken being the last assessed book profit in the order u/s. 143(3) r.w.s. 254 dated 29/12/2009. Therefore, it is clear that there is an apparent and glaring mistake to be rectified which is within the jurisdiction of the AO. Therefore, the contention of the assessee is not accepted and addition to the book profit at Rs.21,58,80,244/- is made on account of provision for bad doubtful debts. Income and book profit is determined as under :
Total income as per order u/s 143(3) r.w.s. 254 Rs. 7,13,38,558/-
Book profit as shown Rs.2,87,64,03,423/-
Add: provision for bad and doubtful debts Rs. 21,80,58,244/-
============ Revised book profit Rs.3,09,44,61,667/-
Since, tax liability u/s 115JB is higher than the tax on total income, therefore, tax and interest shall be charged on book profit.”
11. Having heard the learned counsel for the parties and having perused the documents on record, it clearly emerges that the Assessing Officer had no authority or jurisdiction to issue the impugned notice dated 1.8.2012 for rectification of his earlier order dated 29.12.2009 or to pass consequential order thereon, which he did on 12.9.2012. This we say for the following reasons.
12. As already noted, the original assessment culminated into the Assessing Officer passing a scrutiny assessment order on 5.2.2003 in which the question of adding back the provision for doubt debts was not in picture. The appeal that the assessee filed against such an order before the Commissioner obviously did not contain any such issue. Revenue approached the Tribunal against the appellate order of the Commissioner when the Commissioner granted full benefit of netting of interest for the purpose of disallowance under section 80-IA of the Act. The Tribunal, in such appeal, partially accepted the revenue's contention and by its order dated 31.2.2008, remanded this particular issue of netting of interest to the Assessing Officer to be recomputed in view of the judgement of this Court. Therefore, the only issue before the Assessing Officer in such remand proceedings was to what extent the disallowance of interest for the purpose of section 80-IA of the Act should be computed. The Assessing Officer having carried out such exercise and having passed his order on 29.12.2009 pursuant to the order of the Tribunal, had completed such exercise. Thereafter, nothing further was required to be done or left or omitted to be done in pursuance of the Tribunal's order. The question of adding back of the doubtful debts for the purpose of book profit under section 115JB of the Act was at that stage not before him. It was only in the reopening proceedings that the Assessing Officer touched on such aspect. Whether such reopening is valid or not, or whether the additions made on such basis are sustainable or not, are not the questions which we are required to go into. Suffice it to note that the Assessing Officer having given full effect to the Tribunal's order of remand and having re-worked out the assessee's disallowance under section 80-IA of the Act towards interest income, could not have thereafter issued the impugned notice. In the guise of rectification power, the Assessing Officer was seeking to add certain income which did not flow from the Tribunal's order of remand. In the exercise of giving effect of the Tribunal's order, the Assessing Officer had carried out the entire computation of disallowance under section 80-IA of the Act. Even then if there was some error apparent on the face of record in such computation, it was perhaps open for the Assessing Officer to rectify in exercise of powers under section 154 of the Act. However, not adding back the provision for doubtful debts for the purpose of section 115JB of the Act was not part of the remand order of the Tribunal. Not being so in the order giving effect to such a remand order, cannot be stated to be an error committed by the Assessing Officer which could be rectified under section 154 of the Act.
13. We may recall that such issue of adding back of the doubtful debts for the purpose of book profit under section 115JB of the Act was the subject matter of the reopening of assessment and is presently pending before before the Tribunal in cross appeals filed by the assessee as well as the revenue. We, therefore, would make it abundantly clear that on such issues on merits, we have expressed no opinion.
14. We, however, cannot refrain from concluding that the Assessing Officer committed grave error in issuing the impugned notice seeking to make additions in the guise of rectification power when such controversial additions were not part of the remand order passed by the Tribunal. In the result, the impugned notice being invalid, is hereby set aside. When the notice itself is rendered invalid, the order of rectification dated 12.9.2012 passed by the Assessing Officer pursuant to such notice also cannot stand. Additionally, we also notice that in the order itself, the Assessing Officer had confused between the original assessment proceedings which, at one stage, reached the Tribunal and came to be remanded for a limited purpose of re-computation of disallowance under section 80-IA of the Act and the reopened assessment proceedings in which certain issues are still pending before the Tribunal.
15. For all above reasons, the petition succeeds and is allowed. The impugned notice dated 01.08.2012 issued by the Deputy Commissioner of Income Tax and the consequential order dated 12.09.2012 passed by the Assessing Officer under section 154 of the Income Tax Act, 1961, are hereby set aside.
[AKIL KURESHI, J.] [HARSHA DEVANI, J.] parmar*