2019 (2) TMI 1591 - HC - Income Tax

Rectification of mistake u/s 154 - mistake being apparent from the record as per provisions of section 71 (2) - according to the A.O, during the period relevant to the A.Y. in question, the assessee had declared low tax capital gain - HELD THAT - In the case of Commissioner of Income Tax Vs British Insulated Calender s Ltd. Reported 1993 (1) TMI 43 - BOMBAY HIGH COURT in which it was held that under sub-section (1) of Section 71 of the Act the assessee has no option in setting off the business loss against the heads of other income as long as there was no capital gain during the year under consideration. The case of the assessee does not fall under sub-section (1) of Section 71 of the Act since the assessee had declared capital gain. Such a situation would be covered by subsection (2) of Section 71 Provision of Sub-Section 2 of Section 71 was somewhat different and the expression or, if the assessee so desires, shall be set off only against his income, if any, assessable under any head of income other than capital gains has since been deleted. Nevertheless, the question that would arise is, whether even in the unamended form sub-section (2) of Section 71 of the Act mandates the assessee to set off its business loss against the capital gains of the same year when this provision used an expression may as compared to the expression shall used in subsection (1). In the present case, we are not called upon to judge the correctness of interpretation of either the revenue or the assessee. Sufficient for us to come to the conclusion that the question was far from being clear. It was clearly debatable. In this position, the A.O., as per the settled law, could not have exercised the rectification powers.

Summary

Issues Involved:
1. Appeal against the cancellation of order u/s 154 of the Income Tax Act by the Income Tax Appellate Tribunal.

Analysis:
The High Court of Bombay heard an appeal by the Revenue against the cancellation of an order under section 154 of the Income Tax Act by the Income Tax Appellate Tribunal. The primary issue was whether the Tribunal erred in canceling the order despite the Assessing Officer rectifying an apparent error in the assessment. The case revolved around the treatment of business loss and capital gains for the Assessment Year 2005-06. The Assessing Officer noticed an error in the assessment related to long-term capital gains and rectified the order, reducing the carry forward of business loss. The Tribunal accepted the assessee's contention that the issue was not free from doubt, and the rectification power should not have been exercised. The High Court analyzed Section 71 of the Income Tax Act, which deals with setting off losses against income. Sub-section (2) of Section 71 allows setting off losses against capital gains. The Court referred to a previous case to highlight that the assessee declaring capital gains had the option to set off business losses. However, the Court noted that the provision was debatable, and the Assessing Officer could not have exercised rectification powers in such a situation. The Court upheld the Tribunal's decision, dismissing the Income Tax Appeal.

In conclusion, the High Court of Bombay analyzed the provisions of the Income Tax Act regarding setting off losses against income, specifically focusing on business losses and capital gains. The Court emphasized the debatable nature of the provision in question and concluded that the Assessing Officer should not have exercised rectification powers in this case. The appeal was dismissed, affirming the Tribunal's decision.