2023 (12) TMI 760 - AT - Income Tax

Rectification of mistake u/s 154 - deduction u/s. 10A denied on the component of refund of service tax received by the assessee - scope of debatable issue - as contended that the issue whether service tax refund would be considered as profits/gains derived from the eligible undertaking is a subject matter of debate, in respect of which two views are possible, therefore, refund of service tax could not be a subject matter of rectification u/s 154 for the purpose of disallowing claim u/s. 10A - whether there is a mistake apparent from record in respect of refund of service tax? - HELD THAT - From the perusal of the assessment order passed u/s. 143(3) and the queries raised by the Ld. AO and submissions made by the assessee thereon vis- -vis refund of service tax forming part of claim u/s. 10A, we note that Ld. AO had passed the original assessment order after examining the details furnished by the assessee. He did not dispute the computation made by the assessee which included refund of service tax in the claim made u/s. 10A. From the perusal of the impugned order passed u/s. 154 read with sec. 143(3) of the Act, we note that Ld. AO has formed a view after a long drawn process of reasoning passed on the decision of Hon ble Supreme Court in the case of Liberty India 2009 (8) TMI 63 - SUPREME COURT and Sterling Foods 1999 (4) TMI 1 - SUPREME COURT to dislodge the claim of the assessee in respect of refund of service tax. View taken by the Ld. AO in the proceedings initiated u/s. 154 tantamount to a change in view resulting into review of his own order which is not permissible under the provisions of section 154 of the Act. When the Ld. AO has consciously taken a view to frame the original assessment by making certain additions/disallowances, he is not empowered to take contrary view by adopting a review process for the assessment already completed. We are in agreement with the submissions made on the restricted powers available u/s. 154 to rectify a mistake which is apparent from record, which cannot be otherwise resorted to under the garb of review or reconsideration of the order already passed. It is well settled law that a power to rectify a mistake does not include a power to review which can be exercised only where the statute itself grant such power. In the absence of grant of such power of review under the said section, it is not possible for the Ld. AO to review his own order. Thus, AO is not justified in adopting provisions of section 154 which deals with rectification of a mistake apparent from record which in the present case is on a technical issue i.e. allowability of exemption u/s. 10A in respect of receipt of refund of service tax. To buttress our decision, we find force from the decision of Saurashtra Kutch Stock Exchange Ltd. 2003 (3) TMI 70 - GUJARAT HIGH COURT We hold that Ld. AO is not justified in resorting to rectification u/s. 154 on a debatable issue. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the rectification proceedings under section 154 of the Income-tax Act, 1961, were justified.
2. Whether the refund of service tax qualifies for deduction under section 10A of the Act.

Summary:

Issue 1: Justification of Rectification Proceedings under Section 154

The revenue appealed against the order of CIT(A) which favored the assessee, stating that the Assessing Officer (AO) erred in initiating rectification proceedings on a debatable issue. The AO had denied the deduction under section 10A on the refund of service tax, considering it not derived from the export of articles or software. The CIT(A) held that rectification under section 154 is not warranted for debatable issues, citing the Supreme Court's decision in T.S. Balaram, ITO vs. Volkart Brothers and the Gujarat High Court in ACIT vs. Saurashtra Kutch Stock Exchange Limited.

The ITAT upheld the CIT(A)'s decision, emphasizing that section 154 is meant for rectifying self-evident errors, not for issues requiring detailed reasoning or where two opinions are possible. The ITAT referenced the Supreme Court's explanation that a mistake apparent from the record must be obvious and not require extensive argumentation. The ITAT concluded that the AO's action amounted to a change in view, which is not permissible under section 154.

Issue 2: Eligibility of Refund of Service Tax for Deduction under Section 10A

The AO argued that the refund of service tax does not qualify as profits derived from the export of articles or software, citing Supreme Court decisions in CIT Vs. Liberty India Ltd. and CIT Vs. Sterling Foods. The AO viewed the refund as not directly linked to the eligible business operations.

The assessee contended that the refund of service tax is directly linked to the operation of the eligible business and should be included in the deduction under section 10A. The ITAT agreed with the assessee, noting that the refund of service tax is an operational receipt and not an incentive like those in the cited Supreme Court cases. The ITAT held that the AO's view required a long-drawn process of reasoning, making it a debatable issue unsuitable for rectification under section 154.

Conclusion:

The ITAT dismissed the revenue's appeal, affirming that the AO was not justified in using section 154 for a debatable issue and that the refund of service tax should be included in the deduction under section 10A. The decision emphasized the restricted scope of section 154 and supported the assessee's claim based on the direct operational link of the refund to the eligible business.