2021 (6) TMI 593 - HC - Income Tax

Rectification u/s 154 - Provision for bad and doubtful debts is under Section 36 (1) (viia) - HELD THAT - As rightly pointed out by the learned counsel for the petitioner, by invoking Section 154 of the Income Tax Act, the authority cannot re-adjudicate the facts on merits. Disputable facts and circumstances cannot be adjudicated under Section 154 of the Income Tax Act. The learned counsel has pointed out that such an adjudication would cause prejudice to the interest of the assessee. This Court is of the considered opinion that Section 154 cannot be converted as an appeal for entertaining a ground for adjudication of merits or disputable issues. Thus, the scope of Section 154 is undoubtedly limited with reference to the circumstances narrated under the provision itself. This Court is of the considered opinion that even in respect of the grounds raised, if at all the petitioner is of an opinion that the Authorities may venture into the adjudication of disputed issues, it is for them to place all the judgments and facts with reference to Section 154 of the Income Tax Act. Contrarily, this Court cannot go into those facts and circumstances regarding the mistake apparent from record. The respondent is clear in their terms that they are not intended to go beyond the scope of Section 154 and the notice was issued specifically stating that the mistake apparent from record alone is to be created. Even impugned notice reveals that the nature of mistake proposed to be rectified is clear that the respondent has not taken any steps to adjudicate the disputable issues. In TS BALARAM, INCOME-TAX OFFICER, COMPANY CIRCLE IV, BOMBAY 1971 (8) TMI 3 - SUPREME COURT held that the authorities competent cannot go beyond the scope of Section 154 of the Income Tax Act in the said case. The issue adjudicated was considered as disputable by Apex Court. However, the precedent laid down is that the Authorities Competent are empowered to invoke Section 154 of the Income Tax Act only if they find any mistake apparent on record and such a mistake is sought to be rectified. In the present writ petition, the respondent has established that they have not gone beyond the scope of Section 154 and they have taken steps to rectify the mistake apparent from record and the nature of mistake apparent from record is also furnished in the impugned notice issued under Section 154 of the Act. Thus the petitioner is at liberty to participate in the Section 154 proceedings and defend his case by availing opportunities provided by the Authorities. MP closed.

Issues Involved:
1. Jurisdiction under Section 154 of the Income Tax Act, 1961.
2. Mistake apparent from the record.
3. Scope of rectification under Section 154.
4. Maintainability of the writ petition against a show-cause notice.

Detailed Analysis:

1. Jurisdiction under Section 154 of the Income Tax Act, 1961:
The petitioner challenged the notice issued under Section 154 of the Income Tax Act, 1961, arguing that the case did not fall within the scope of Section 154 and thus the respondent had no jurisdiction to issue the notice. The petitioner contended that the entire exercise was beyond the scope of Section 154 and was therefore unsustainable.

2. Mistake Apparent from the Record:
The petitioner argued that the case involved disputable issues rather than a mistake apparent from the record. The learned counsel for the petitioner cited several judgments, including the Supreme Court's decision in T.S. Balaram, Income Tax Officer vs. Volkart Brothers, which held that "a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions." The petitioner asserted that the issues at hand required interpretation and investigation, making them unsuitable for rectification under Section 154.

3. Scope of Rectification under Section 154:
The court elaborated on the scope of Section 154, stating that it cannot be used to re-adjudicate facts on merits or address disputable issues. Section 154 is limited to rectifying mistakes apparent from the record, and the authority must be able to identify such a mistake clearly. The court noted that the respondent had specified the nature of the mistake in the impugned notice, which related to the provision for bad and doubtful debts under Section 36 (1) (viia).

4. Maintainability of the Writ Petition Against a Show-Cause Notice:
The court emphasized that a writ petition against a show-cause notice is maintainable only if the notice is issued by an incompetent authority or on malafide grounds. The court cannot venture into the merits of the case at the stage of a show-cause notice. The power of judicial review under Article 226 of the Constitution of India is limited to scrutinizing the process through which a decision is taken, not the decision itself.

Conclusion:
The court concluded that the respondent had not gone beyond the scope of Section 154 and had taken steps to rectify a mistake apparent from the record. The petitioner was given the liberty to participate in the Section 154 proceedings and defend the case. If aggrieved by the final order, the petitioner could prefer an appeal under the provisions of the Act. Consequently, the writ petition was dismissed with no costs, and the connected miscellaneous petition was closed.

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