January 09, 2026 : The Pune Bench of the Income Tax Appellate Tribunal has set aside a ₹40.68 crore tax demand raised against Fiat India Automobiles Private Limited, holding that adjustments relating to brought-forward losses and unabsorbed depreciation under the Minimum Alternate Tax regime involve debatable questions of law and cannot be made through rectification proceedings under Section 154 of the Income-tax Act, 1961.
The Division Bench comprising Vinay Bhamore (Judicial Member) and Manish Borad (Accountant Member) ruled that neither the Income-tax Act nor the Rules prescribe any specific method for adjusting capital reduction against accumulated book losses while computing book profits under Section 115JB. In such circumstances, whether the adjustment should follow a FIFO method or be made on a proportionate basis is open to more than one interpretation, making the issue debatable and therefore outside the limited scope of Section 154.
Fiat India, engaged in the manufacture and sale of passenger cars, engines, and gearboxes, had filed its return for Assessment Year 2014–15 declaring nil income after setting off brought-forward losses. The assessment was completed under Section 143(3) read with Section 144C, with the Assessing Officer accepting the computation of book profits under Section 115JB and raising no tax demand.
The dispute arose later when the Assessing Officer issued a notice under Section 154, alleging a mistake apparent on record in allowing the set-off of brought-forward business losses while computing MAT. The officer relied on a ₹300 crore capital reduction scheme approved by the Bombay High Court in Financial Year 2012–13 and took the view that the entire reduction should be adjusted against earlier business losses on a FIFO basis. A rectification order dated 31 March 2022 recomputed the book profits and raised a demand of ₹40.68 crore along with interest.
The Tribunal noted that the capital reduction scheme did not specify how the reduction was to be adjusted against accumulated book losses, which included both business losses and unabsorbed depreciation. The assessee had apportioned the reduction proportionately between the two and carried forward the balances, a method that was accepted by the Department during scrutiny assessment for Assessment Year 2013–14. Having accepted that position, the Assessing Officer could not indirectly disturb those figures through rectification proceedings in a subsequent year.
Relying on the Calcutta High Court’s ruling in PCIT v. Lanshree Products & Services Ltd. and the Supreme Court’s landmark judgment in T.S. Balaram, ITO v. Volkart Brothers, the Tribunal reiterated that a “mistake apparent from the record” must be obvious and patent. Issues that require interpretation of law, or where two views are reasonably possible, cannot be corrected under Section 154.
The Bench held that the Assessing Officer had effectively attempted to reinterpret Section 115JB through rectification proceedings, which is impermissible. Once the method of adjustment pursuant to the capital reduction had attained finality in earlier assessment proceedings, it could not be unsettled by invoking Section 154.
Accordingly, the Tribunal quashed the rectification order as illegal and bad in law, set aside the entire tax demand of ₹40.68 crore along with consequential interest, allowed Fiat India’s appeal, and dismissed the Revenue’s cross-appeal as infructuous.
Case Title: M/s. Fiat India Automobiles Private Limited v. ACIT
Case No.: ITA No.1027/PUN/2025
Bench: Pune Bench, Income Tax Appellate Tribunal
Coram: Vinay Bhamore (JM) and Manish Borad (AM)
