2008 (2) TMI 305 - HC - Income Tax

AO made application u/s 154 for excluding the interest on deferred payment on purchase of machinery for the purposes of calculating the actual cost for computing allowable depreciation and investment allowable - Explanation 8 to Section 43(1) was inserted with retrospective effect to withdraw the depreciation and investment allowance ITAT is right in holding the decision of CIT that issue was debatable in nature so rectification was not permissible u/s 154

Summary

Issues:
1. Interpretation of Section 154 of the Income-Tax Act, 1961 regarding exclusion of interest on deferred payment for purchase of machineries under Explanation 8 to Section 43(1).
2. Applicability of rectification proceedings under Section 154 in cases where the issue is debatable.
3. Consideration of conflicting views on the same provision for rectification proceedings.

Issue 1: Interpretation of Section 154 and Explanation 8 to Section 43(1)
The judgment addressed the question of whether the Assessing Officer could exclude interest on deferred payment for the purchase of machineries under Explanation 8 to Section 43(1) of the Income-Tax Act, 1961. The controversy arose from proceedings for the assessment years 1982-83 and 1983-84. The Assessing Officer invoked Section 154 to rectify an order regarding the exclusion of interest on deferred payment. The Tribunal considered whether such exclusion was permissible under the law.

Issue 2: Applicability of Section 154 in Debatable Matters
The Commissioner (Appeals) and the Tribunal examined whether rectification under Section 154 was justified when the issue was debatable. The Assessing Officer relied on Explanation 8 to Section 43(1) inserted with retrospective effect, but the assessee argued that the matter was debatable. The Commissioner (Appeals) held that rectification was not permissible in debatable matters, a decision upheld by the Tribunal based on a Supreme Court precedent.

Issue 3: Conflicting Views on Rectification
The Tribunal considered conflicting views on the interpretation of the provision in question. The Assessing Officer's rectification proceedings were based on a different view from that of the Madras Bench of the Tribunal. The Tribunal, aligning with the Commissioner (Appeals), concluded that since there were two conceivably different opinions on the interpretation of the provision, rectification could not be pursued. The Tribunal upheld the decision rejecting the application for excluding interest on deferred payment for calculating depreciation and investment allowance.

In conclusion, the High Court of Gujarat, in response to the reference from the Income-Tax Appellate Tribunal, held in favor of the assessee and against the Revenue. The Court affirmed that when there are conceivably two opinions on the interpretation of a provision, rectification under Section 154 cannot be pursued. The judgment emphasized the importance of settled legal positions and the consideration of debatable issues in determining the applicability of rectification proceedings. The reference was disposed of with no order as to costs.