2015 (7) TMI 1401 - AT - Income Tax

Rectification u/s 154 - scope of debatable issue - disallowance under section 14A read with Rule 8D computed into the book profits under section 115JB - HELD THAT - The issue is quite debatable which has yet to be settled by the High Courts/Supreme Court. There are contrary decisions of the Tribunal in favour of both the parties. Under such circumstances, in our view, it was beyond the powers of the AO exercisable under section 154 to make an addition on a debatable issue, the original assessment in this case had been completed under section 143(3) of the Act. Merely because, the other view is possible that itself cannot be a ground to rectify the order under section 154 of the Act as the same cannot be said to be a mistake apparent on record. Similarly, the addition made on account of provision for doubtful debts whether to be added while computing book profits under section 115JB has been a quite debatable issue. Under such circumstances, the invoking of provisions of section 154 by the AO on debatable issue was beyond his jurisdiction. It is not a case of any mistake apparent on the record. The AO passed the assessment order u/s 143(3) of the Act on the basis of material available before him. It has been time and again held by the higher courts that if the alleged mistakes require investigation into facts or determination of law or discussion of debatable points are involved or two opinions are possible on the issue then such pointed mistakes cannot be said to be mistakes apparent on record which can be rectified under section 154 of the Income Tax Act. Hence, the order passed by the AO under section 154 is not sustainable - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 14A for computation of book profits under section 115JB.
2. Addition on account of diminution in value of current investment.
3. Provision for doubtful debts to be added while computing book profits under section 115JB.
4. Jurisdiction of AO to make additions under section 154 on debatable issues.

Analysis:

Issue 1: Disallowance under section 14A for computation of book profits under section 115JB:
The Assessing Officer (AO) made additions under section 154 for disallowance under section 14A, diminution in value of current investment, and provision for doubtful debts. The assessee contested the addition under section 14A, arguing that it was a debatable issue. The AO's jurisdiction under section 154 was questioned, citing limited scope. The contention was supported by a Supreme Court decision in favor of the assessee. The Tribunal had conflicting decisions on whether disallowance under section 14A should be added while computing book profits under section 115JB. The Tribunal ruled that as the issue was debatable and not a mistake apparent on record, the AO's addition was unsustainable. The appeal was allowed.

Issue 2: Addition on account of diminution in value of current investment:
The AO added amounts for diminution in value of current investment and provision for doubtful debts to the book profits under section 115JB. The assessee's contention that these were debatable issues was supported by a Supreme Court decision. The Tribunal had conflicting decisions on whether such additions should be made. The Tribunal held that as these issues were debatable and required investigation into facts or determination of law, they were not mistakes apparent on record. Therefore, the AO's additions were set aside, and the appeal was allowed.

Issue 3: Provision for doubtful debts to be added while computing book profits under section 115JB:
The AO added provision for doubtful debts to the book profits under section 115JB. The assessee argued that this was a debatable issue, citing a Supreme Court decision in their favor. The Tribunal had conflicting decisions on whether such provisions should be added. The Tribunal held that as the issue was debatable and required discussion of debatable points, it was not a mistake apparent on record. Therefore, the AO's addition was deemed unsustainable, and the appeal was allowed.

Issue 4: Jurisdiction of AO to make additions under section 154 on debatable issues:
The AO invoked section 154 to make additions on debatable issues, including disallowance under section 14A and provision for doubtful debts. The Tribunal ruled that as the issues were debatable and not mistakes apparent on record, the AO's additions were beyond his jurisdiction. The original assessment under section 143(3) was completed based on available material, and rectification under section 154 was not warranted. The AO's order under section 154 was set aside, and the appeal was allowed.