2007 (6) TMI 194 - HC - Income Tax

AO sought rectification of order as sec. 115J replaced by 115JA - Rectification application rejected by tribunal on ground that deduction granted by taking the correct figure from the audit certificate produced by the assessee is a debatable issue - mistake apparent on the record must be an obvious mistake - A debatable issue could be considered only under regular assessment - no rectification proceedings can be initiated u/s 154 in case of debatable issue - no error in Tribunal s order

Summary

Issues:
1. Whether rectification of deduction granted by taking the correct figure from the audit certificate produced by the assessee is a debatable issue, not permissible under Section 154 of the Income Tax Act, 1961?
2. Whether the issue, decided in the Revenue's favor on merits, can be allowed on the ground that rectification was beyond the scope of Section 154?

Analysis:

Issue 1:
The case involved an appeal by the Revenue against the order of the Income Tax Appellate Tribunal regarding the rectification of a deduction claimed by the assessee under Section 80HHC of the Income Tax Act. The Assessing Officer rectified the assessment order under Section 154, leading to an appeal by the assessee. The Commissioner of Income-tax (Appeals) upheld the rectification, but the Tribunal set aside this decision. The Tribunal found the issue to be debatable, citing diverse opinions among different Tribunals and High Courts. It concluded that the Assessing Officer had exceeded jurisdiction under Section 154, as the issue was not a clear mistake apparent on the record but rather a debatable one. The Tribunal's decision was based on the principle that rectification cannot be initiated for debatable issues and must be reserved for glaring, obvious mistakes. The High Court upheld the Tribunal's decision, stating that no error or legal infirmity was found in the Tribunal's order.

Issue 2:
The second issue revolved around whether the rectification of the deduction was permissible under Section 154. The Tribunal's decision was based on the understanding that rectification proceedings cannot be initiated for debatable issues. The High Court concurred with this view, citing the Supreme Court's judgment in T.S. Balaram v. Volkart Brothers and Others, which emphasized that rectification under Section 154 is reserved for glaring, obvious mistakes, not debatable issues. As the issue in question was deemed debatable with diverse opinions, the High Court dismissed the tax case, stating that no substantial questions of law arose for consideration. The judgment highlighted the importance of distinguishing between clear errors and debatable issues when applying Section 154 of the Income Tax Act.

In conclusion, the High Court dismissed the tax case, upholding the Tribunal's decision that rectification under Section 154 is not permissible for debatable issues, emphasizing the need for clear, obvious mistakes for such rectifications.