2020 (7) TMI 642 - AT - Income Tax

Rectification u/s 154 - appellant had sold a fixed asset on which a profit had arisen on account of sale of the show-room AND as explained that as per the provisions of the Act, the block of asset of the office premises had not ceased to exist and accordingly the provisions of section 50 were not applicable in terms of tax liability on STCG - profit on sale of show-room remained to be reduced while computing the profits u/s 115JB - HELD THAT - The power of rectification u/s 154 of the Act can be exercised only if there is a mistake apparent from the record of the assessment of the assessee. In the instant case, the mistake as pointed out by the Ld. counsel is not apparent on the record; not obvious and patent mistake. In the instant case, the mistakes can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. In the instant case, the mistakes pointed out by the Ld counsel are rather debatable. Thus the ratio laid down by the Hon ble Supreme Court in Volkart Bros 1971 (8) TMI 3 - SUPREME COURT is squarely applicable here. In view of the above factual scenario and position of law, we uphold the order of the Ld. CIT(A).

Summary

Issues:
1. Rectification of order u/s 154 disallowing deduction of profit on sale of fixed asset.
2. Rectification of order u/s 154 disallowing depreciation on software expenses.

Issue 1: Rectification of order u/s 154 disallowing deduction of profit on sale of fixed asset:

The assessee appealed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of profit on the sale of a fixed asset under section 154 of the Income Tax Act, 1961. The assessee contended that the profit on the sale of the asset should be treated as a capital receipt not chargeable to tax and should have been reduced from the computation of business profits. However, the AO rejected the rectification application stating that there was no apparent mistake in the record. The Ld. CIT(A) upheld the AO's decision based on the judgment of the Supreme Court in Volkart Brothers 82 ITR 50 (SC), emphasizing that the mistake was not apparent on the record. The Tribunal agreed with the CIT(A) that the mistake was not obvious and patent but rather debatable, hence not rectifiable under section 154.

Issue 2: Rectification of order u/s 154 disallowing depreciation on software expenses:

The second issue revolved around the disallowance of depreciation on software expenses by the AO under section 154. The assessee claimed that the AO should have allowed depreciation at 60% on the opening WDV of the software expenses, which was initially disallowed and allowed at 30% in the previous assessment year. The AO rejected the rectification application citing that the issue was pending before the Ld. CIT(A). The assessee argued that the mistakes were apparent from the record and should be rectified under section 154. However, the Ld. Departmental Representative contended that the disputed issues were not rectifiable under section 154, citing case law. The Tribunal held that the mistakes were not apparent on the record and were debatable, following the principles laid down by the Supreme Court in Volkart Bros (supra). Therefore, the order of the Ld. CIT(A) was upheld, dismissing the appeal.

In conclusion, the Tribunal dismissed the appeal, upholding the orders of the AO and Ld. CIT(A) regarding the rectification of deductions for profit on the sale of a fixed asset and depreciation on software expenses. The Tribunal emphasized that for rectification under section 154, mistakes must be obvious and patent, not debatable points of law or fact. The procedural delay in pronouncing the order was justified due to the unprecedented disruption in judicial work caused by the Covid-19 pandemic, as recognized by the Hon'ble Supreme Court and Bombay High Court.