2013 (9) TMI 612 - AT - Income Tax

Rectification of mistake u/s 154 - Simultaneous taxability of addition on account of non-allowability of deduction u/s 32AB and lease rental Held that - Assessee claim of deduction u/s 32AB made in the original return with consequential lease rental income - Machineries, subject matter of the lease transactions were not purchased by the lessees and the claim of deduction u/s 32AB was surrendered by the assessee by a revised return along with reduction on non- accrued rental income - Withdrawal of deduction u/s 32AB has a direct consequence on the non- earning of lease rental Thus, withdrawal of deduction u/s 32AB and taxation of lease rental cannot be taxed together Decided against the Revenue.

Summary

Issues Involved:
1. Whether the Assessing Officer (AO) overlooked and ignored the directions of the CIT(A) and ITAT.
2. Whether there was a failure to dispose of the directions of the Tribunal order dated 17.02.2006 regarding modification of assessed income.
3. The challenge on charging interest under sections 234B and 234C of the Income Tax Act.
4. The error in confirming the AO's order under section 154 and allowing the claim of the assessee under section 32AB.
5. The issue of double taxation due to the disallowance of deduction under section 32AB and taxation of lease rental income.

Detailed Analysis:

1. Overlooking and Ignoring Directions of CIT(A) and ITAT:
The assessee contended that the AO's order under sections 254/143(3) was passed overlooking and ignoring the binding directions of the CIT(A) and ITAT. The ITAT had directed the AO to make appropriate modifications to the assessed income, which the AO failed to do. The AO's failure to address the issue of double taxation and not making the necessary modifications as directed by the ITAT was a significant point of contention.

2. Failure to Dispose of Directions of Tribunal Order Dated 17.02.2006:
The Tribunal had directed the AO to make appropriate modifications to the assessed income related to the surrender of withdrawal from IDBI for an amount of Rs. 94.95 lakhs. The AO, however, did not address this issue appropriately during the set-aside assessment proceedings. The AO's inaction led to the assessee moving applications under section 154 for rectification, which were subsequently rejected by the AO.

3. Charging Interest Under Sections 234B and 234C of the Income Tax Act:
The assessee challenged the action of the AO in charging interest under sections 234B and 234C. However, this issue was not pressed by the assessee during the appeals, and thus, the assessee's appeals were dismissed on this ground.

4. Error in Confirming AO's Order Under Section 154 and Allowing Claim Under Section 32AB:
The Revenue contended that the CIT(A) erred in not confirming the AO's order under section 154 and allowing the claim of the assessee under section 32AB. The AO had rejected the rectification applications on the grounds that there was no apparent mistake from the record and that the issue involved differences of opinion. The CIT(A), however, found that the AO's rejection was not based on valid reasons and that the amount of Rs. 94.25 lakhs was taxed twice, thus allowing the assessee's appeals.

5. Issue of Double Taxation:
The core issue was the double taxation due to the disallowance of the deduction under section 32AB and the taxation of lease rental income. The assessee had entered into lease agreements, but the transactions did not fructify as the lessees did not purchase the machinery. Consequently, the lease rental income neither accrued nor was earned. The ITAT had directed the AO to consider this and make appropriate modifications to the assessed income. The AO, however, failed to address this, leading to double taxation. The CIT(A) rectified this by reducing the taxable income for the relevant assessment years, acknowledging that the mistake was apparent from the record and did not require a complicated process of investigation.

Conclusion:
The ITAT upheld the CIT(A)'s order, finding no infirmity in the decision to rectify the double taxation issue. The appeals of both the assessee and the Revenue were dismissed, and the AO was directed to make appropriate modifications to the assessed income as per the ITAT's earlier directions. The order was pronounced in open court on 13-09-2013.