2010 (5) TMI 706 - AT - Income Tax

Summary

Issues Involved:
1. Rectification u/s 154 on debatable issues.
2. Inclusion of foreign exchange fluctuation in export turnover.
3. Reduction of indirect cost by 10% of export incentives and interest.
4. Adjustment of trading loss against export incentives.
5. Authority of Commissioner of Income-tax (Appeals) regarding export incentives value.

Summary:

Issue 1: Rectification u/s 154 on debatable issues
The assessee challenged the rectification u/s 154 by the Assessing Officer (AO) on the grounds that debatable issues cannot be rectified under this section. The Tribunal agreed, stating that rectification u/s 154 is only permissible for glaring and apparent mistakes, not for issues requiring detailed investigation or multiple interpretations. The Tribunal set aside the AO's rectification order, holding it as a review rather than a rectification.

Issue 2: Inclusion of foreign exchange fluctuation in export turnover
The Commissioner of Income-tax (Appeals) rejected the inclusion of Rs. 30,01,318 as part of export turnover, stating that it was a debatable issue requiring further investigation. The Tribunal upheld this view, noting that the assessee did not raise this issue in the original return or assessment proceedings, making it inappropriate for rectification u/s 154.

Issue 3: Reduction of indirect cost by 10% of export incentives and interest
The assessee's claim to reduce indirect costs by Rs. 37,03,362 was denied by the Commissioner of Income-tax (Appeals), who deemed it a debatable issue. The Tribunal concurred, emphasizing that such claims require detailed examination and cannot be addressed under rectification proceedings.

Issue 4: Adjustment of trading loss against export incentives
The Commissioner of Income-tax (Appeals) upheld the AO's adjustment of trading loss of Rs. 68,37,193 against 90% of export incentives, citing clear legal provisions and apex court decisions. The Tribunal did not address the merits of this issue, having already set aside the rectification order.

Issue 5: Authority of Commissioner of Income-tax (Appeals) regarding export incentives value
The Commissioner of Income-tax (Appeals) directed the AO to recompute the deduction u/s 80HHC, questioning the figure of Rs. 3,56,16,653 used for export incentives. The Tribunal noted that the AO should adopt only the profit element from the transfer of import entitlements, not the entire value, and directed a fresh computation.

Conclusion:
The Tribunal allowed the assessee's appeal, setting aside the rectification order u/s 154 as it did not conform to the provisions for rectifying mistakes. The Tribunal emphasized that rectification u/s 154 is not a tool for reviewing or revising orders on debatable issues.