2017 (1) TMI 885 - AT - Income Tax

Scope of rectification of mistake - whether AO empowered to reduce the deduction claimed by the assessee u/s 80-IC @ 30% accepted u/s 143 invoking the provisions contained u/s 154 - Held that - Undisputedly, the AO has passed order dated 29.03.2012 u/s 154 summarily without perusing and discussing the record to find out if the assessee is actually entitled for deduction u/s 80-IC @ 100% as claimed or 30% as held by the AO. It is settled principle of law that when there exists a debatable issue that two views are possible, it is not open to the authority u/s 154 of the Act to revise the opinion by invoking the provisions contained u/s 154 of the Act and only mistake apparent on record can be rectified. In the instant case, this is not a mistake apparent on record rather the issue was debatable and required to be decided on merit. So, we are of the considered view that the impugned issue decided by the AO u/s 154 is not rectification rather it amounts to reframing of the assessment without giving any reason. However, the revenue is at liberty to reopen the assessment in accordance with law. Even otherwise, the assessee has already been granted 100% deduction u/s 80-IC for AY 2010-11 vide order dated 15.07.2014 passed by CIT (A) which is not stated to have been challenged by the revenue. So, when the assessee has already been allowed 100% deduction u/s 80-IC till 10th year of its operation, the disallowance u/s 80-IC for the intervening year AY 2006-07 does not fit into the scheme of rule of consistency which the revenue is required to follow. - Decided in favour of assessee

Issues Involved:
1. Rectification of assessment order under section 154 of the Income Tax Act, 1961.
2. Entitlement of deduction under section 80-IC of the Act.
3. Jurisdiction of the Assessing Officer to reduce claimed deduction under section 154 of the Act.
4. Scope of rectification proceedings under section 154 of the Act.
5. Principle of consistency in granting deductions under section 80-IC.

Issue 1: Rectification of assessment order under section 154 of the Income Tax Act, 1961:
The appeal and cross objection raised common questions of facts and law, leading to a consolidated order to prevent repetitive discussions. The Assistant Commissioner of Income-tax filed an appeal to challenge the order passed by the Commissioner of Income-tax (Appeals) concerning the assessment year 2006-07. The issues raised included errors in annulling the order passed under section 154 of the IT Act, non-consideration of statutory requirements for investment in Plant and Machinery, and the eligibility of deductions claimed under section 80 I(e). The objector, in the cross objection, argued against new grounds taken by the Assessing Officer, stating that the rectification proceedings were not based on the records. The objection highlighted that the rectification process should not involve reframing the assessment with additional reasons, as it was beyond the scope of section 154.

Issue 2: Entitlement of deduction under section 80-IC of the Act:
The original assessment for the assessment year 2006-07 accepted the income and book profit of the assessee. However, a subsequent application under section 154 revealed an incorrect deduction claimed by the assessee under section 80-IC. The Assessing Officer reduced the deduction to 30% from 100%, as the assessee had already availed 100% deduction for five consecutive years. The Commissioner of Income-tax (Appeals) allowed the appeal, stating that the addition made was beyond the scope of section 154. The Tribunal examined whether the AO had the authority to reduce the claimed deduction under section 80-IC to 30% without proper assessment.

Issue 3: Jurisdiction of the Assessing Officer to reduce claimed deduction under section 154 of the Act:
The Tribunal found that the AO's order under section 154 was summary and did not thoroughly examine the records to determine the correct entitlement of the deduction. It emphasized that when an issue is debatable with multiple viewpoints, rectification under section 154 is not appropriate. The Tribunal concluded that the AO's decision was not rectification but a reframing of the assessment without proper reasoning. It suggested that the revenue could reopen the assessment following due process.

Issue 4: Scope of rectification proceedings under section 154 of the Act:
The Tribunal clarified that rectification under section 154 should address mistakes apparent on record and not debatable issues requiring a substantive decision. It highlighted that the AO's action in this case was not rectification but a reevaluation of the deduction without adequate justification. The Tribunal maintained that the revenue could initiate a fresh assessment if necessary.

Issue 5: Principle of consistency in granting deductions under section 80-IC:
The Tribunal noted that the assessee had already been granted 100% deduction under section 80-IC for a subsequent assessment year, which was not challenged by the revenue. Considering the principle of consistency, the disallowance of the deduction for the current assessment year did not align with the past practice. The Tribunal dismissed the appeal, allowing the cross objection filed by the assessee, and upheld the order passed by the Commissioner of Income-tax (Appeals).

This detailed analysis of the judgment covers all the relevant issues comprehensively, providing insights into the legal aspects and decisions made by the Tribunal.

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