2009 (10) TMI 579 - HC - Income Tax

Rectification of mistakes AO disallow the capital loss which was set off against the capital gains for the block period in this case was April 1, 1985 to November 9, 1995 - The Tribunal, following that the issue of set off of losses cannot be dealt with in rectification proceedings under section 154 which has been taken note of by the Commissioner of Income-tax (Appeals) has dismissed the appeal - The provision of section 154 can be invoked only in order to rectify the inadvertent mistake, which is apparent on the face of the record and not in a debatable issue - In similar circumstances, in a decision reported in CIT v. Nonmag Wires P. Ltd. (2007 -TMI - 13502 - MADRAS High Court) to which one of us is a party (Mrs. Chitra Venkataraman J.) this court held that a debatable issue on a point of law is not a mistake apparent from the record - Useful reference can be had to the judgment of the Supreme Court in the case of T. S. Balaram, ITO v. Volkart Brothers (1971 -TMI - 6255 - SUPREME Court) wherein it is held that a debatable issue could not be made a subject-matter for taking recourse to section 154 - Appeal is dismissed

Summary

Issues:
1. Whether losses of the assessment year 1995-96 claimed in the belated return can be set off against undisclosed income for the block assessment period April 1, 1985, to November 9, 1995?
2. Whether losses not permitted to be carried forward due to delayed filing of return can be treated as undisclosed and set off against undisclosed income under Chapter XIV-B of the Act?
3. Whether wrong allowance of set off of losses can be rectified under section 154 of the Income-tax Act, 1961?

Analysis:

Issue 1:
The Tribunal's order questioned the set off of capital losses against capital gains and whether it could be rectified under section 154. The Tribunal, Commissioner of Income-tax (Appeals), and the High Court referred to previous decisions, indicating that section 154 can rectify only apparent mistakes, not debatable issues. They relied on the decision in N. Venkatesan's case and held in favor of the assessee. The High Court dismissed the appeal, stating that the first two questions did not arise for consideration.

Issue 2:
The Assessing Officer disallowed long-term and short-term capital losses set off against capital gains for the block period. The Commissioner of Income-tax (Appeals) allowed the appeal, following a previous decision, emphasizing that set off of losses cannot be rectified under section 154. The Tribunal also dismissed the appeal based on the same reasoning. The High Court upheld this stance, emphasizing that section 154 cannot rectify debatable issues or those requiring extensive reasoning.

Issue 3:
The High Court referred to a previous decision in CIT v. Palani Andavar Cotton and Synthetic Spinners Ltd., highlighting that a mistake apparent on the record must be glaring and obvious for section 154 to apply. They reiterated that debatable issues cannot be rectified under section 154, citing the Supreme Court's decision in T. S. Balaram, ITO v. Volkart Brothers. Consequently, the High Court held against the Revenue, stating that section 154 can rectify only mistakes apparent on the face of the record, not debatable issues.

In conclusion, the High Court dismissed the appeal, maintaining that section 154 of the Income-tax Act, 1961, can rectify only mistakes that are apparent on the face of the record, not debatable issues or those requiring extensive reasoning. The judgments in previous cases were crucial in determining that set off of losses cannot be rectified under section 154, leading to the dismissal of the appeal.