The main legal point established in the judgment is that an original assessment made without taking into account the mandatory requirements of the relevant statutory provisions can be rectified under Section 154 of the Income Tax Act. Additionally, the judgment emphasizes that the Assessee is not entitled to deduction under Clause (b) of Explanation (iii) of Section 115JA if there is no brought forward business loss or unabsorbed depreciation available at the end of the previous year.

C.N. Ramachandran Nair, J.

1. This is an appeal filed by the revenue against the order of the Tribunal reversing a rectification order passed u/s 154 by the Assessing Officer confirmed in first appeal against the Respondent Assessee. We heard standing counsel for the Appellant and senior counsel Sri Joseph Kodianthara for the Respondent Assessee.

2. The assessment is for the year 1997-98. The Assessing Officer noticed that the income computed based on return filed is below 30 per cent of the book profit and, therefore, assessment was proposed on 30 per cent of the book profit u/s 115JA of the income tax Act. The Assessee claimed deduction of Rs. 1,43,11,514/- as carry forward depreciation, which was originally allowed by the Assessing Officer while completing regular assessment. However, later the Assessing Officer noticed that, by virtue of Clause (b) of Explanation (iii) of Section 115JA, deduction is admissible only if Assessee has brought forward business loss as well as depreciation for the previous year. It was noticed that the carry forward business loss at the end of the year 1994-95 was Rs. 1,07,74,451/- and the carry forward depreciation was Rs. 5,78,04,819/-. However, for the assessment year 1995-96, the profit was Rs. 1,17,61,492/-. When the brought forward business loss was set off from the profit for the year 1995-96, the balance loss was nil. So far as depreciation is concerned, during the year 1994-95, the Assessee changed the pattern of depreciation claim and decided to write back an amount of Rs. 5,32,63,877/-, which led to the reduced carry forward depreciation of Rs. 5,78,04,819/- stated above. Since the result of setting off of carry forward business loss against the profit for the year 1995-96 was nil, there was only a brought forward unabsorbed depreciation of Rs. 4,83,87,788/-and so much so, the Assessing Officer noticed that the claim originally allowed was in violation of Clause (b) of Explanation (iii) of Section 115JA because, the said section require availability of brought forward business loss as well as depreciation. In view of this mistake, in the original computation, the Assessing Officer rectified the assessment u/s 154 of the Act. Against the rectification carried out, the Assessee filed first appeal before the CIT(Appeals), who dismissed the case, both on the jurisdictional aspect as well as on merits. However, Assessee succeeded in second appeal before the Tribunal and against the order of the Tribunal, the Department has filed this appeal.

3. After hearing both sides and after going through the records, we notice that there is no controversy on the facts of this case, which are stated in detail in the order issued u/s 154. The Tribunal however, held that the eligibility for deduction under Clause (b) of Explanation (iii) is a debatable issue and therefore, rectification is not called for. The contention raised by the counsel for the revenue is that the original assessment was made by the Assessing Officer without taking into account the mandatory requirement of Clause (b) of Explanation (iii), which provides for deduction of brought forward business loss or unabsorbed depreciation in the following words:

(b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil.

4. Even though Counsel appearing for the Respondent contended that the figures were available with the Assessing Officer during the original assessment and therefore, rectification is only an afterthought and oh account of the new interpretation placed by him on Clause (b) of Explanation (iii), we find that the provision which is introduced by the Finance Act, 2002 with effect from 1-4-1997 was to get over the decision of a Supreme Court and it makes it mandatory that, in order to allow deduction of brought forward business loss or unabsorbed depreciation in the computation of book profit, both should be available as per the accounts of the Assessee. When origin