2006 (7) TMI 109 - HC - Income Tax

It was observed by AO that assessee s claim of deduction u/s 80-IA had been allowed before setting off the earlier years losses Order sought to be rectified by assessing officer is held to be justified as there is mistake apparent on the face of the record.

Summary

Issues:
1. Rectification of deduction under section 80 IA based on unabsorbed losses.
2. Interpretation of provisions of section 80 IA regarding computation.

Issue 1: Rectification of deduction under section 80 IA based on unabsorbed losses:
The case involved the assessment year 1997-98 where the assessee claimed a deduction under Section 80 IA of the Income Tax Act. The Assessing Officer issued a notice under Section 154 of the Act, proposing to restrict the deduction under Section 80 IA after considering unabsorbed losses. The assessee objected to this proposal, arguing it was a debatable issue and not an apparent mistake. The Assessing Officer proceeded to complete the assessment under Section 154, maintaining the restriction on the deduction under Section 80 IA. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld the decision, citing relevant case laws. The Supreme Court judgment in C.I.T. Vs. Kotagiri Industrial Cooperative Tea Factory Ltd. clarified that deductions under Section 80 IA should be considered after setting off carried forward losses, thus supporting the lower authorities' decisions. The High Court concluded that the rectification order under Section 154 was justified as it corrected a mistake apparent on the face of the record, aligning with the Supreme Court's interpretation.

Issue 2: Interpretation of provisions of section 80 IA regarding computation:
The counsel for the assessee argued that the issue was debatable and not subject to rectification under Section 154, citing relevant case laws. However, the High Court emphasized that only a mistake apparent on the record, not a debatable legal point, could be rectified under Section 154. Referring to the Supreme Court's decision in T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers and Others, the High Court reiterated that rectification is limited to obvious and patent mistakes, not debatable legal points. The High Court justified the Assessing Officer's rectification order under Section 154, as it aligned with the Supreme Court's interpretation in C.I.T. Vs. Kotagiri Industrial Cooperative Tea Factory Ltd. and other relevant judgments. Ultimately, the High Court upheld the Tribunal's decision, finding no error or infirmity in the order, and dismissed the appeal, stating no substantial questions of law arose for consideration.

This detailed analysis of the judgment highlights the issues of rectification under Section 154 regarding deduction under section 80 IA based on unabsorbed losses and the interpretation of provisions of section 80 IA concerning computation. The High Court's decision was based on the alignment of the rectification with the law declared by the Supreme Court and the limitation of rectification to apparent mistakes, not debatable legal points.