2011 (1) TMI 840 - HC - Income Tax

Rectification of mistake - It is clear from the order of the Assessing Officer that depreciation was allowed overlooking Section 80VVA of the Act. Overlooking of a statutory provision is clearly a mistake apparent on record and on that basis, rectification under Section 154 of the Act was clearly admissible. Impermissibility of deduction is not debatable if Section 80VVA is applied. This being so, the CIT(A) as well as the Tribunal erred in law in holding that rectification was beyond the scope of Section 154 of the Act. - Decided in favor of revenue.

Summary

Issues:
1. Interpretation of Section 154 of the Income Tax Act regarding rectification of mistakes of law.
2. Applicability of Section 80VVA in the assessment year 1985-86.
3. Whether the rectification under Section 154 was permissible in the present case.

Analysis:

Issue 1: Interpretation of Section 154 of the Income Tax Act regarding rectification of mistakes of law
The case involved a reference made by the Income Tax Appellate Tribunal regarding the application of Section 154 of the Income Tax Act. The main question was whether the Tribunal was correct in holding that Section 154 was not applicable to rectify the mistake of law. The Tribunal had allowed rectification under Section 154 to claim depreciation, but the Assessing Officer later noticed that the deduction allowed exceeded the limit stipulated in Section 80VVA. The Assessing Officer rejected the objection raised by the assessee, stating that the rectification was within the statutory limit. However, the CIT(A) and the Tribunal held that the rectification did not relate to a mistake apparent on record and was on a debatable issue, thus not permissible under Section 154. The High Court, in its analysis, emphasized that overlooking a statutory provision like Section 80VVA constituted a mistake apparent on record, making rectification under Section 154 admissible.

Issue 2: Applicability of Section 80VVA in the assessment year 1985-86
The Assessing Officer, CIT(A), and the Tribunal had differing views on the applicability of Section 80VVA in the assessment year 1985-86. The Assessing Officer noted that the provision of Section 80VVA was not applied at the time of giving benefits to the assessee, leading to an excess deduction. The CIT(A) emphasized that a decision on a debatable point of law is not a mistake apparent on record, citing the T.S. Balaram case. However, the Tribunal recognized the mistake in not applying Section 80VVA and highlighted that the provision had to be considered even for carry forward or set off from earlier years. Ultimately, the High Court found that the statutory provision should have been applied for the assessment year 1984-85 and thereafter, even if it related back to an earlier year.

Issue 3: Whether the rectification under Section 154 was permissible in the present case
The High Court concluded that the rectification under Section 154 was permissible in the present case. It reiterated that the overlooking of Section 80VVA constituted a mistake apparent on record, making the rectification within the scope of Section 154. The Court held that the statutory provision should have been applied for the relevant assessment year, and the rectification was valid. The judgment was delivered in favor of the revenue and against the assessee, disposing of the reference made by the Income Tax Appellate Tribunal.

This detailed analysis of the judgment highlights the key legal issues involved, the arguments presented by the parties, and the High Court's decision on each issue, providing a comprehensive understanding of the case.