2020 (7) TMI 214 - AT - Income Tax

Rectification of mistake u/s 154 - denying deduction claimed by the assessee u/s 54B - mistake which is apparent from the record - whether issue of allowance of benefit under section 54B was investigated by the Ld. Assessing Officer during the course of original assessment proceedings and has wrongly held that it is a mistake apparent form the record? - HELD THAT - As per the provisions of the Income Tax Act, the assessee inter alia can be an individual or an 'HUF' also. As per amended provisions deduction is available to the assessee if the land is used for agricultural purposes by the assessee himself or by his parent or an 'HUF'. What is noted is that amendment has been carried out in respect of user of the land not in respect of the claimant / assessee whose income is assessed. In the land record maintained by the Land Revenue Department, ownership of property is entered in the name of an individual and not in the name of 'HUF' and that the 'HUF' claim of ownership over such a property by virtue of the property being ancestral and put into the common hotchpotch of the family. Under the circumstances, the issue being highly debatable and requires lengthy arguments. It is a settled law that powers of the AO to rectify an order u/s 154 are very limited and can be exercised only in a case where the AO finds that a mistake apparent on record had occurred - in the case of a debatable issue or where the lengthy arguments are needed to decide the issue, powers u/s 154 of the Act can not be exercised to amend an already passed order - powers u/s 154 of the Act cannot be exercised on change of opinion by the Assessing Officer on an issue relating to any admissibility of a claim. AO thus, in our view was, not justified in passing the impugned order u/s 154 of the Act with limited jurisdiction of rectification of order in the case of a mistake apparent on record in the order. Rectification order cannot be held to be justified. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of deduction claimed under Section 54B of the Income Tax Act, 1961 by Assessing Officer.
2. Rectification order passed by Assessing Officer withdrawing the deduction u/s 54B of the Act.
3. Interpretation of provisions of section 54B of the Act regarding eligibility of 'HUF' for deduction.
4. Justifiability of rectification order under section 154 of the Act on a debatable issue.

Analysis:

1. The assessee appealed against the order disallowing the deduction claimed under Section 54B of the Income Tax Act, 1961. The Assessing Officer initially allowed the deduction but later, through a rectification order, withdrew it based on the eligibility of the 'HUF' to claim the deduction for the assessment year 2012-13. The issue revolved around the retrospective application of the amendment made to the Act by the Finance Act 2012, which added 'HUF' as eligible for the deduction from the assessment year 2013-14 onwards.

2. The Assessing Officer's decision to withdraw the deduction through a rectification order was challenged by the assessee before the CIT(A) and subsequently before the Tribunal. The assessee argued that the rectification order was beyond the limited powers granted to the Assessing Officer under section 154 of the Act and that the issue was debatable, requiring detailed arguments for resolution. The Tribunal found that the rectification order was not justified as the eligibility criteria for the deduction were subject to interpretation and not a clear-cut mistake apparent on record.

3. The interpretation of the provisions of section 54B of the Act was crucial in determining the eligibility of the 'HUF' for the deduction. The Tribunal observed that the wording of the section prior to the amendment was vague regarding whether 'assessee' included 'HUF'. The amendment explicitly included 'HUF' as eligible for the deduction, but the Tribunal noted that the issue was debatable and required extensive arguments to reach a conclusion. The Tribunal emphasized that the Assessing Officer's powers under section 154 could not be used to decide debatable issues or change opinions on claim admissibility.

4. The Tribunal referred to legal precedents to establish that rectification orders under section 154 of the Act could only be passed in cases of clear and obvious mistakes apparent on record, not in cases requiring lengthy arguments or where multiple opinions could exist. The Tribunal held that the Assessing Officer's rectification order, upheld by the CIT(A), was not justified in this case. Consequently, the original order allowing the deduction u/s 54B of the Act was reinstated, and the appeal of the assessee was allowed.

In conclusion, the Tribunal set aside the rectification order and restored the original order passed by the Assessing Officer, emphasizing the limited scope of rectification powers under section 154 of the Income Tax Act.