Judgment:
1. This appeal is filed by the assessee. Relevant assessment year is 1989-90. This appeal is filed against the order of the CIT(A)-IV, Hyderabad, dt. 29th July, 1995. Assessee has raised the following grounds in this appeal : "The Dy. CIT, assessments Special Range-4, Hyderabad, and the CIT(A)-IV, Hyderabad, erred in setting aside the arguments that the method of calculation of book profits under Section 115J, being a debatable issue cannot be brought to tax in the proceedings under Section 154.
Without prejudice to the above contention it is submitted that method of calculation of book profit under Section 115J is incorrect as the previous year losses have been ignored. Considering the above and any other submissions that may be urged at the time of hearing the appeal may be allowed." 2. Assessment in this case was originally completed by the AO under Section 143(3) of the Act, by his order dt. 30th Dec., 1991. Income computed under that order was Rs. 50,43,630. Income has been thus determined after making various additions by the AO. In the said assessment order, the AO has also worked out the income taxable under Section 115J of the Act, with reference to the book profits of the assessee, Section 115J income was worked out at Rs. 5,45,765. Since the income computed under the regular provisions was more than the income computable under Section 115J of the Act, the AO ignored the income computed under Section 115J and determined the income on the basis of regular computation for assessment. This assessment was taken up in first appeal before the CIT(A). The CIT(A) granted reliefs in the context of various grounds raised by the assessee and directed the AO to modify the assessment in terms of his appellate order.
3. The AO thereupon, passed the relevant modified assessment order, dt.
8th Oct., 1992, for giving effect to the order of the CIT(A). As per that modification order dt. 8th Oct., 1992, after giving effect to the order of the CIT(A), the revised income of the assessee, subject to assessment came to Rs. 2,50,630. While doing the modified assessment, and determining the income at revised figure of Rs. 2,50,630, the AO has overlooked the income computed under Section 115J at Rs. 5,43,765 in the original assessment order.
4. He later found that with the modifications ordered by the CIT(A), the recomputed income assessed to tax by the modification order, dt.
8th Oct., 1992, of Rs. 2,50,630, was less than the income computed under Section 115J in the course of original assessment of Rs. 5,43,765, and as such the income computed in terms of Section 115J should have been considered for assessment. Treating this as a mistake apparent from record, the AO after issuing notice to the assessee, modified the order dt. 8th Oct., 1992, by his subsequent order, dt. 5th Oct., 1994, and adopted the income computed under Section 115J of Rs. 5,43,765 for assessment. He thus, ultimately completed the assessment on the income computed under Section 115J of Rs. 5,43,765, by the order, dt. 5th Oct., 1994. 5. Aggrieved by the second modification order, dt. 5th Oct., 1994, assessee preferred appeal before the CIT(A).
After hearing the assessee in detail, the CIT(A) dismissed the appeal of the assessee on the basis- "1.5, From the above it can be seen that the contention of the appellant that the action under Section 154 cannot be taken to bring to tax 115J profits which is debatable cannot be sustained, as what the AO is rectifying is not to bring to tax under Section 115J profits which were earlier not brought to tax at all, but the AO is only bringing to tax book profits that were calculated by his order, dt. 30th Dec., 1991 which he failed to bring to tax while passing Modification Order dt. 8th Oct., 1992 and in the light of the above, the appellant's ground is dismissed." It is against the said dismissal order of the CIT(A), that the assessee has come in second appeal before the Tribunal.
6. The learned chartered accountant for the assessee, Shri Subbaraoji, contended that the computation of book profits for the purposes of Section 115J being a debatable issue, should not have been considered by the AO, in his proceedings under Section 154 of the Act. He submitted that even though the AO was guided by the decision of the Andhra Pradesh High Court in the case of Dy. CIT v. Surana Steels (P) Ltd. (1994) 207 ITR 508 (AP) at the relevant time, the said judgment of the Andhra Pradesh High Court has been reversed by the Hon'ble Supreme Court in Surana Steels (P) Ltd. v. Dy. CIT (1999) 237 ITR 777 (SC), whereby the assessee is entitled to set off of unabsorbed depreciation carried forward from the earlier assessment years, while computing the book profits under Section 115J of the Act. In this view of the matter, he submitted that the taxable income computed under Section 115J would be less than the regular income, as modified by the AO at the instance of the order of the CIT(A) in the context of the original assessment.
He further submitted that the findings and observations of the lower authorities that the assessee has not objected to the computation of book profits under Section 115J made in the course of original assessment is not proper, because the regular income assessed by the AO in the original assessment was higher than the income computed under Section 115J, and therefore, the assessee had no occasion to contest the computation of income determinable under Section 115J. As far as the assessee is concerned, the first occasion to object to the computation of income under Section 115J by the AO, has arisen, only when the AO passed the second modification order under Section 154 of the Act. In the course of those proceedings under Section 154, assessee has filed detailed objections to the computation of the AO, incorporating therein the relevant provisions of the Companies Act. The AO, however, in the course of his proceedings under Section 154, did not look into the objections of the assessee on the merits of the issue, but simply adopted the figure computed by him as book profits under Section 115J at the time of original assessment, on the ground that that computation has become final and he is merely replanting that income into the modified assessment order. The learned Chartered Accountant submitted that the AO never considered the merits of the issue in his order passed under Section 154. Same was the position even before the learned CIT(A). Therefore, the learned chartered accountant for the assessee submitted that it is not correct to say that the assessee has never agitated against the computation of book profits under Section 115J. On the other hand, during the original assessment proceedings, the assessee had no occasion to agitate against the computation made under Section 115J by the AO, as the said computation was not actually acted upon while framing the assessment, and on the very first occasion, when the AO sought to invoke the provisions of Section 154 to modify the order 8th Oct., 1992, assessee put up its objections to the computation done under Section 115J of the Act. 7.
Shri Perisetty, the learned Departmental Representative for the Revenue contended that the issue raised by the assessee in this appeal before the Tribunal, was not an issue before the lower authorities, and it was raised for the first time before the Tribunal. He submitted that computation of book profit under Section 115J in this case was done by the AO as early as in his original assessment order in 1991. Though the assessee has challenged various additions and disallowances made by the AO in that assessment order, the assessee has not challenged the quantification of book profits computed in that order in terms of Section 115J of the Act. Therefore, that matter stood concluded there.
When the AO modified the original assessment order, as a result of the directions given by the CIT(A), the AO has made an inadvertent omission and failed to consider the book profit under Section 115J computed in the original assessment order. Therefore, he initiated proceedings under Section 154, to rectify the modified assessment. In the modified order, dt. 5th Oct., 1994, ultimately the AO has merely replanted the income computed in terms of Section 115J, for assessment, as it was higher than the income as per regular provisions of the Act. Since the computation of income in terms of Section 115J was already available on record, omission of the AO to take note of the same, while passing the first modification order to give effect to the directions of the CIT(A) was a mistake apparent from record, and as such, he was very much justified in invoking the provisions of Section 154 and passing the second modification order, dt. 5th Oct., 1994. At the same time, since the assessee has not questioned the computation of income in terms of Section 115J in the original proceedings, that computation stood concluded and he cannot agitate that issue now. In any event, the learned Departmental Representative submitted that even on merit, the issue of computation of book profits under Section 115J at the relevant point of time, when the lower authorities were passing the impugned orders, was governed by the decision of the Andhra Pradesh High Court in Surana Steels (P) Ltd.'s case (supra) which was against the assessee, and as the matter was not originally challenged by the assessee, same cannot be challenged now to take benefit of the recent decision of the Supreme Court in Surana Steels (P) Ltd.'s case (supra), which is in favour of the assessee on the merits of the issue. The learned Departmental Representative submitted that the assessee is making an attempt to make an issue live before the Tribunal, though it was not at all agitated before the lower authorities at any stage earlier, just to take benefit of the recent decision of the Supreme Court, which is in its favour. In the circumstances, he submitted that the orders of the lower authorities should be confirmed and the appeal of the assessee is liable to be dismissed.
8. We considered the matter in detail. As seen from the original assessment order, dt. 30th Dec., 1991, the AO has no doubt computed the income alternatively, both under the regular provisions of the Act, and under Section 115J of the Act. As the former is higher than the deemed income under Section 115J, the AO correctly treated the regular income of the assessee as income assessable to tax and completed the assessment. At that point of time, since the AO chose to complete the assessment on the basis of income computed under regular provisions of the Act, the exercise of alternative computation done by him in terms of Section 115J was merely an academic one. As such, since that alternative computation in terms of Section 115J was not acted upon by the AO, assessee cannot be expected to question the correctness of such academic exercise. When the assessee took up the assessment originally made in first appeal. therefore, he confined the points of his dispute to various additions and disallowances and did not question the profit computed under Section 115J. As the income computed in terms of Section 115J was never acted upon, till the AO invoked the provisions of Section 154 for rectifying the first modification order passed on 8th Oct., 1992, assessee never had opportunity to question the correctness of the computation made in terms of Section 115J in the original assessment order. It is only on account of the reliefs granted by the CIT(A) in the appellate proceedings against the order of assessment originally made, the ultimate income assessable under the regular provisions of the Act fell below the profit computed originally under Section 115J of the Act. As such, in the normal course, while passing the modification order, dt. 8th Oct., 1992 to give effect to the order of the CIT(A), the AO should have considered the applicability of the profit in terms of Section 115J and income in relation thereto for assessment. But, at this stage, there was omission on the part of the AO to consider the applicability of income in terms of Section 115J.The first modification order, dt. 8th Oct., 1992 was silent on that aspect. It was only when that omission came to light, that the AO invoked the provisions of Section 154 to recomplete the assessment going by the alternative computation of income in terms of Section 115J. It was only when the AO embarks upon the completion of the assessment on the basis of the profits in terms of Section 116J, that the assessee gets an effective opportunity to contest the computation of profits in terms of Section 115J. In the instant case, such effective opportunity for the assessee to agitate against the applicability of provisions of Section 115J arose, only when the AO initiated proceedings under Section 154 and went on to pass the second modification order dt. 5th Oct., 1994. In the circumstances, assessee has every right to question the alternative computation made by the AO in terms of Section 115J, albeit in the original assessment order itself, when the AO invokes the provisions of Section 154 to recomplete the assessment in accordance with that computation of profits under Section 115J made in the original assessment stage. As such, the AO was not justified in overlooking the contentions of the assessee against the computation of profits under Section 115J in the proceedings under Section 154, on the ground that he was merely adopting the figure arrived at in the proceedings of original assessment which stood final and concluded. The CIT(A), on appeal against the said order of the AO under Section 154, has endorsed the view of the AO, and has not gone into the contentions of the assessee on the merits of the computation under Section 115J. The learned CIT(A) has failed to appreciate that the issue of adopting profits in terms of Section 115J for purposes of assessment was never put to the assessee, before initiating the proceedings under Section 154, and as such the assessee had no opportunity at all to put forth his point on this issue prior to initiation of proceedings under Section 154. Therefore, we do not agree with the learned Departmental Representative for the Revenue that this appeal arising out of the proceedings under Section 154 of the AO, does not call for examining the issue of computation of profits under Section 115J on its merits, as it stood concluded in the original assessment proceedings. There is no technical or legal hitch in this case, which could prevent the assessee from agitating the computation of profits under Section 115J on its merits.
9. But, even if the lower authorities would have gone into the objections of the assessee with regard to the merits of the computation of book profits in terms of Section 115J, their decision would have gone against the assessee only, as at the relevant points of time, the issue relating to the method of computation of book profits in terms of Section 115J was covered by the jurisdictional High Court in the case of Surana Steels (P) Ltd. (supra), which was against the assessee. The latest decision of the Supreme Court in Surana Steels (P) Ltd.'s case (supra), was rendered only in 1999, long after the passing of second modification order under Section 154 by the AO and the impugned appellate order by the CIT(A). But, as of now, the decision of the Hon'ble Supreme Court in Surana Steels (P) Ltd.'s case (supra), which is in favour of the assessee is governing the point at dispute. Since there is no hitch in the way of the assessee, in seeking redressal of its grievance against the computation of book profits in terms of Section 115J before this Tribunal, the assessee has a right to pursue this appeal on the merits of computation under Section 115J made by the AO, and this Tribunal has a duty to examine the issue in the light of the latest decision of the Hon'ble Supreme Court. Hence, we hold that as the issue regarding set off of unabsorbed depreciation brought forward from earlier years, while computing the deemed profit under Section 115J, is covered in favour of the assessee by the latest decision of the Hon'ble Supreme Court in the case of Surana Steels (P) Ltd.'s (supra), assessee is entitled for setting off of unabsorbed depreciation of earlier years. In this view of the matter, we direct the AO to recompute the profits under Section 115J in the light of the decision of the Hon'ble Supreme Court in Surana Steels (P) Ltd.'s case (supra), and compare the same with the modified income, as per the modification order, dt. 8th Oct., 1992 and reframe the assessment on the higher of these two amounts, viz., profit in terms of Section 115J or the modified income as per order, dt. 8th Oct., 1992. To this extent, appeal of the assessee is allowed.