2014 (1) TMI 1717 - AT - Income Tax

Rectification of mistake - Disallowance u/s 14A for the purpose of computing the book profits u/s 115JB - Held that - It is a settled proposition of the Law that AO can only rectify u/s 154 the mistakes apparent / patent from the records. Therefore, the issues of debatable nature are outside the scope of section 154 of the Act. Whether the disallowances u/s 14A can be made and added to the book profits computed/s 115JB of the Act is a debatable one. The issue, being debatable in nature and the same is supported by the existence of divergent decisions cited by the Ld Counsel cannot be rectified as done by the Revenue in this case. - Decided in favour of assessee.

Summary

Issues:
Disallowance u/s 14A for computing book profits u/s 115JB - Debatable nature of the issue - Scope of rectification u/s 154 of the Act.

Analysis:
The appeal was filed against the order of the CIT (A)-17, Mumbai for the assessment year 2006-2007, concerning the disallowance u/s 14A for the purpose of computing the book profits u/s 115JB. The assessee argued that the issue is debatable, citing relevant case law where it was held that the disallowance u/s 14A should be computed as per Rule-8D and added to the book profits for the purpose of section 115JB. The assessee also highlighted previous Tribunal decisions supporting their stance that 14A disallowances are irrelevant for computing book profits u/s 115JB. The Counsel contended that the issue being debatable, the provisions of section 154 should not be invoked, making the rectification order passed by the AO unsustainable in law.

On the contrary, the Ld DR relied on the AO's order, emphasizing the debatability of the issue. The Tribunal noted that the AO can rectify only mistakes apparent from the records under section 154, and issues of debatable nature fall outside its scope. The question of whether disallowances u/s 14A can be added to book profits u/s 115JB is indeed debatable, supported by divergent decisions cited by the assessee. Therefore, the rectification done by the Revenue in this case was deemed inappropriate.

Considering the legal proposition and the nature of the issue, the Tribunal decided in favor of the assessee without delving into other aspects of the argument. Consequently, the grounds raised by the assessee were allowed, and the appeal was allowed in favor of the assessee. The order was pronounced in the open court on 17th January 2014.