1995 (3) TMI 65 - HC - Income Tax

Business Expenditure, Income Tax Act, Mistake Apparent From Record, New Industrial Undertaking, Rectification Of Mistakes, Rectification Proceedings

Summary

Issues Involved:
1. Application of Section 154 to disallow a sum under Section 37(3) and withdraw relief under Section 80-I.
2. Assessment of profits under Section 41(1) in proceedings under Section 154.
3. Modification of disallowance under Section 40(c)(iii) in rectification proceedings under Section 154.
4. Modification of disallowance under Section 40(a)(v) in rectification proceedings under Section 154.

Detailed Analysis:

1. Application of Section 154 to Disallow a Sum Under Section 37(3) and Withdraw Relief Under Section 80-I:
The Tribunal held that the Income-tax Officer was not justified in invoking the provisions of Section 154 to disallow the sum under Section 37(3) and to withdraw the relief under Section 80-I. The Tribunal's reasoning was based on the fact that the issues were debatable and not mistakes apparent from the record. This was consistent with the principle that a mistake apparent on the record must be an obvious and patent mistake, not something that can be established by a long-drawn process of reasoning on points where there may be two opinions.

2. Assessment of Profits Under Section 41(1) in Proceedings Under Section 154:
The Tribunal agreed with the Commissioner of Income-tax (Appeals) that the Income-tax Officer was not correct in invoking the provisions of Section 41(1) in the rectification proceedings under Section 154. The Tribunal found that since the assessee was not allowed deduction under Section 41(1) in previous years, there was no scope for making any addition under Section 41(1) of the Act. The Commissioner had directed the Income-tax Officer to retain a sum of Rs. 42,341 and delete the disallowance of Rs. 1,08,550, which the Tribunal upheld.

3. Modification of Disallowance Under Section 40(c)(iii) in Rectification Proceedings Under Section 154:
The Tribunal held that the Income-tax Officer was not justified in modifying the disallowance under Section 40(c)(iii) in the rectification proceedings under Section 154. The Commissioner of Income-tax (Appeals) had earlier held that the Income-tax Officer was competent to correct only manifest and perceivable mistakes and could not reframe the order under the guise of remedying an error. The Tribunal agreed that the provisions of Section 154 could not be invoked for such rectification.

4. Modification of Disallowance Under Section 40(a)(v) in Rectification Proceedings Under Section 154:
The Tribunal held that the Income-tax Officer was not justified in modifying the disallowance under Section 40(a)(v) in the rectification proceedings under Section 154. The Tribunal's reasoning was consistent with its stance on the other issues, emphasizing that Section 154 could not be used to rectify issues that were debatable and not apparent mistakes from the record.

Conclusion:
The Tribunal dismissed the Departmental appeals and allowed the assessee's appeal, holding that the Income-tax Officer was not justified in invoking Section 154 for the disallowances and modifications under Sections 37(3), 80-I, 40(c)(iii), and 40(a)(v). The Tribunal emphasized that the mistakes alleged by the Income-tax Officer were not apparent from the record and were debatable issues, thus falling outside the scope of Section 154. The matter relating to the disallowance under Section 37(3) was remanded to the Tribunal for reconsideration in accordance with the law.