2006 (1) TMI 159 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the withdrawal of deduction under section 154 by the Assessing Officer.
2. Applicability of VDIS, 1997 to the assessee.
3. Competence of the Assessing Officer to question the Certificate issued under VDIS by the CIT.
4. Applicability of section 158BD to the assessee.
5. Whether the issue was debatable and thus outside the purview of section 154.

Detailed Analysis:

1. Validity of the Withdrawal of Deduction under Section 154:
The appeal was filed against the order of the Assessing Officer (AO) passed under section 154 of the Income-tax Act, 1961, which withdrew a deduction of Rs. 1.5 crores that had been previously allowed to the assessee in an assessment order passed under section 158BD read with section 158BC. The AO held that the deduction was wrongly allowed as the sum was subject to search under section 132 of the Act.

2. Applicability of VDIS, 1997 to the Assessee:
The assessee had made a disclosure under section 65 of the VDIS, 1997, which was accepted by the CIT, and a certificate was issued. The AO initially excluded the disclosed amount from the total undisclosed income. However, the AO later rectified the order under section 154, stating that the deduction was wrongly allowed because the sum was subject to search under section 132. The assessee argued that there was no search in its case, only a survey under section 133A, and thus the disclosure under VDIS was valid as per CBDT's Circular No. 755 and the clarification made to ASSOCHAM.

3. Competence of the Assessing Officer to Question the Certificate Issued under VDIS by the CIT:
The assessee contended that the AO did not have the jurisdiction to question the validity of the Certificate issued by the CIT under VDIS. The Certificate was still effective, and the AO could not disturb it through an order under section 154. The Tribunal agreed, citing the decision of the Hon'ble Gujarat High Court in the case of Nitin P. Shah v. Dy. CIT, which held that the AO cannot ignore or question a Certificate issued by the CIT accepting a declaration under VDIS.

4. Applicability of Section 158BD to the Assessee:
The Tribunal noted that section 158BD applies to cases where no direct search is initiated under section 132, but undisclosed income belonging to another person is found during a search. The Tribunal found that there was no search and seizure in the case of the assessee, only in the case of its Directors. Therefore, the provisions of section 158BD were applicable, and the AO's assumption that the order under section 158BD amounted to a search under section 132 was incorrect.

5. Whether the Issue was Debatable and Thus Outside the Purview of Section 154:
The Tribunal held that the issue of whether the assessee was entitled to the deduction of income disclosed under VDIS while determining undisclosed income under Chapter XIV-B was debatable. Since the law was not settled in favor of the Revenue and there could be multiple views, the matter was not a mistake apparent on record. Thus, it could not be rectified under section 154.

Conclusion:
The Tribunal quashed the order passed by the AO under section 154, holding that the AO did not have the jurisdiction to rectify the order. The view taken by the AO in the original order under section 158BD was a possible view on merit. The appeal of the assessee was allowed.