2017 (4) TMI 65 - HC - Income Tax

Rectification of mistake - Held that - Scope of Section 154 is very limited. If there was any erroneous order passed by any Assessing Authority which has caused prejudice to Revenue, the proper course would have been to take recourse to the remedy available elsewhere, for example Section 263 but in clandestine manner the power of rectification cannot be exercised. We, therefore, answer question in favour of Assessee and against Revenue.

Summary

Issues:
Validity of exercising power under Section 154 of the Income Tax Act, 1961.

Analysis:
The appeals arose from a common judgment by the Income Tax Appellate Tribunal regarding Assessment Years 2007-08 and 2008-09. The main question of law was whether the Assessing Authority validly exercised power under Section 154 of the Act or if it was a case of change of opinion. The Assessing Authority initially allowed deductions under Section 80 IA but later claimed the returns were of Nil income, thus disallowing the deduction. The Commissioner of Income Tax (Appeals) ruled in favor of the Assessee, but the Tribunal reversed the decision, leading to the appeals.

In the assessment orders for both years, it was shown that the income was not Nil, thus justifying the deduction under Section 80 IA. The Revenue argued that such deduction is not admissible when the assessment is of Nil income. However, it was established that the assessment orders did not reflect Nil income, making the deduction valid.

The court referred to judgments by the Supreme Court and High Courts, emphasizing that if the gross total income is determined as Nil, no deductions can be allowed. In this case, since the assessment orders did not show Nil income, the deduction under Section 80 IA was deemed admissible. The scope of Section 154 was highlighted as limited, and rectification should be sought through other remedies if there was an erroneous order causing prejudice to the Revenue.

Ultimately, the court ruled in favor of the Assessee, setting aside the impugned judgment and allowing the appeals. The decision clarified the validity of exercising power under Section 154 and the admissibility of deductions under Section 80 IA based on the assessment outcomes.