2021 (1) TMI 469 - AT - Income Tax

Rectification u/s 154 - deduction u/s 80IA has been allowed before computing gross total income - assessee filed objection to the notice issued u/s 154 stating that rectification proceedings initiated is time barred - As argued the issue sought to be rectified is a debatable issue and not amenable to proceedings u/s 154 - HELD THAT - We hold that since computation of deduction u/s 80IA of the I.T.Act was never the subject matter of issue / dispute in any proceeding u/s 263 of the I.T.Act, u/s 254 of the I.T.Act or in A.O. s order u/s 143(3) r.w.s. 254 of the I.T.Act, limitation u/s 154(7) of the I.T.Act, would have to be reckoned from the date of original assessment order dated 10.02.2005 passed u/s 143(3) of the I.T.Act. Therefore, rectification order dated 28.03.2012 would be barred by limitation u/s 154(7) of the I.T.Act. It is ordered accordingly.

Summary

Issues Involved:
1. Whether the order of rectification passed by the A.O. under section 154 of the I.T.Act is beyond the period of limitation as per the provisions of section 154(7) of the I.T. Act or not?
2. Whether the rectification proceedings initiated under section 154 of the I.T.Act is a debatable issue and is amenable for rectification under section 154 of the I.T.Act or not?

Issue-wise Detailed Analysis:

1. Limitation Period for Rectification under Section 154:
The primary issue was whether the rectification order passed by the Assessing Officer (A.O.) on 28.03.2012 under section 154 of the Income Tax Act was barred by limitation. The A.O. had issued a rectification notice under section 154 to rectify the order dated 20.10.2011, which was passed under section 143(3) read with section 254 of the Act. The rectification was regarding the deduction under section 80IA of the I.T.Act, which the A.O. claimed was allowed before computing gross total income, contrary to the provisions of the Act. The assessee argued that the rectification was time-barred and that the issue was debatable and not amenable to rectification under section 154.

The Tribunal examined the chronological order of events and noted that the issue of deduction under section 80IA was not a subject matter of dispute in the original assessment order dated 10.02.2005, the revisionary proceedings under section 263, or the consequential order passed by the A.O. on 20.10.2011. The Tribunal referred to section 154(7) of the I.T.Act, which states that no amendment under this section shall be made after the expiry of four years from the end of the financial year in which the order sought to be amended was passed.

The Tribunal relied on the doctrine of merger, which states that the order of assessment merges with the order of the appellate authority only in respect of items considered and decided by the appellate authority. The Tribunal cited the judgment of the Hon’ble Supreme Court in the case of CIT v. Alagendran Finance Ltd. and concluded that since the issue of deduction under section 80IA was not a subject matter of any proceedings, the period of limitation for rectification should be reckoned from the date of the original assessment order dated 10.02.2005. Consequently, the rectification order dated 28.03.2012 was held to be barred by limitation under section 154(7) of the I.T.Act.

2. Debatable Issue and Amenability for Rectification:
The second issue was whether the rectification proceedings initiated under section 154 of the I.T.Act were a debatable issue and thus not amenable to rectification. The assessee contended that the issue sought to be rectified involved a long-drawn process of reasoning and was highly debatable. The A.O. and the CIT(A) rejected this contention, stating that the matter was not debatable as there was a clear declaration of law by the Hon’ble Supreme Court in the case of Synco Industries Ltd. v. AO & Other, which held that the deduction under Chapter VIA has to be given out of the gross total income after application of provisions relating to set off of losses.

However, since the Tribunal held that the rectification order was barred by limitation, it did not adjudicate on the merits of whether the issue was debatable and amenable for rectification under section 154.

Conclusion:
The appeal filed by the assessee was partly allowed. The Tribunal held that the rectification order dated 28.03.2012 was barred by limitation under section 154(7) of the I.T.Act, and thus, the rectification proceedings were not valid. The other grounds raised by the assessee were not adjudicated due to the decision on the limitation issue. The order was pronounced on 11th January 2021.