2009 (10) TMI 827 - AT - Income Tax

Summary

Issues:
1. Jurisdiction of the AO to pass the order u/s 154 of the IT Act.
2. Bar on limitation for rectification proceedings.
3. Disallowance of 90% of miscellaneous income and its impact on deduction u/s 80HHC.

Analysis:

1. Jurisdiction of the AO:
The appeal was filed by the revenue against the order of CIT(A) opposing the order passed u/s 154 of the IT Act. The AO issued a notice u/s 154 seeking rectification of the order giving effect to the CIT(A) passed on 12-07-2001. The AO proposed to exclude 90% of certain receipts from business profits while working out relief u/s 80HHC. The assessee objected to the proposed rectification, and after a delay, the AO passed the order u/s 154. The assessee argued that the AO erred in assuming jurisdiction u/s 154 to disallow 90% of miscellaneous income and disturb the deduction allowed u/s 80HHC. The Tribunal held that the rectification sought by the AO was barred by limitation, as the original assessment order was passed on 24-03-1998, and the notice for rectification was issued on 18-08-2003. Citing legal precedents, the Tribunal concluded that the rectification proceedings should have been initiated within four years from the date of the original order, thus quashing the proceedings.

2. Bar on Limitation for Rectification:
The Tribunal referred to legal precedents, including judgments by the Hon'ble Karnataka High Court and the Hon'ble Allahabad High Court, establishing that the period of limitation for rectification proceedings is calculated from the date of the original order. As the notice for rectification was issued beyond the four-year limit from the original assessment order, the Tribunal held that the rectification sought by the AO was barred by limitation. Consequently, the proceedings arising from the rectification notice were deemed liable to be quashed.

3. Disallowance of 90% of Miscellaneous Income and Impact on Deduction u/s 80HHC:
The Tribunal's decision to allow the appeal filed by the assessee was primarily based on the finding that the rectification sought by the AO was barred by limitation. As a result, the Tribunal did not delve into the merits of other arguments raised by the parties, rendering them academic. The issue of disallowance of 90% of miscellaneous income and its impact on the deduction u/s 80HHC was not further discussed due to the primary finding on the jurisdiction and limitation aspects of the case.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the bar on limitation for rectification proceedings and holding that the AO's attempt to rectify the order u/s 154 was beyond the permissible time limit, thereby quashing the proceedings initiated by the AO.