2018 (4) TMI 1947 - AT - Income Tax

Rectification of mistake u/s 154 - deduction u/s 88E in respect of security transaction tax paid - debatable issue - HELD THAT - We find merit in the contention of the Ld. A.R. that the provision of section 154 of the Act should be resorted in order to rectify an apparent mistake but not the issues which are debatable one. We find from the records before us that during the year assessee has paid STT of Rs.Rs.45, 18, 667/- whereas the rebate was claimed only to the extent of Rs.35, 68, 713/- on its own. In our opinion there is no mistake apparent on the face of the order passed by CIT(A) on the basis of which the AO concluded that the rebate under section 88E is wrongly allowed in respect of 4 items of income as have been stated above. In our opinion the issue sought to be rectified under section 154 was debatable and not apparently wrong. We are of the view that the order passed by Ld. CIT(A) upholding the order passed by AO under section 154 of the Act is wrong and can not be sustained.

Summary

Issues:
Validity of order under section 154 of the Income Tax Act - Disallowance of rebate u/s 88E - Rectification of order by AO - Appeal before CIT(A) - Debatability of the issue

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the validity of the order passed under section 154 of the Income Tax Act for the assessment year 2006-07. The appellant raised various grounds challenging the validity of the order under section 154, including issues such as lack of signature on the order, notice served after the order date, absence of remand report copy, and denial of reasonable opportunity to be heard. The appellant also disputed the disallowance of rebate u/s 88E on certain items. The main contention was that the disallowance of rebate u/s 88E is a debatable issue and not suitable for rectification under section 154.

The assessee, engaged in share trading and brokerage business, declared income in the return of Rs.1,18,95,712/-. The assessment was completed under section 143(3) assessing income at Rs.1,25,79,870/-. Subsequently, the AO issued a rectification order under section 154, withdrawing rebate under section 88E on certain incomes totaling Rs.15,75,740. The CIT(A) upheld the AO's decision, stating that the appellant did not fulfill conditions under section 88E and wrongly claimed the rebate. The appellant argued that the issue was debatable as the rebate was restricted to Rs.35,68,713, not the full STT paid of Rs.45,18,667. The Tribunal found that the issue was indeed debatable, and rectification under section 154 was not appropriate. The order passed by the CIT(A) and AO was set aside, holding that the issue was not a clear mistake but a debatable one.

The Tribunal emphasized that section 154 should rectify apparent mistakes, not debatable issues. As the appellant had restricted the rebate claim to a lower amount than the STT paid, the issue was not a clear error. Therefore, the order confirming the rectification under section 154 was deemed incorrect and unsustainable. The Tribunal partially allowed the appeal, quashing the order under section 154 and emphasizing that the technical issue favored the assessee. The decision was made on the basis of the debatability of the issue rather than the merits of the case.

In conclusion, the Tribunal's decision highlighted the importance of rectification under section 154 for apparent mistakes and not debatable issues. The judgment favored the assessee by setting aside the order under section 154, emphasizing the need for clarity in rectification proceedings and the inappropriateness of rectifying debatable issues through such means.