1994 (2) TMI 91 - AT - Income Tax

Assessment Order Capital Gains Interest Payable To Assessee Mistake Apparent From Record Rectification Of Mistakes Rectification Proceedings

Summary

Issues:
1. Withdrawal of interest u/s 244(1A) by the ITO through orders u/s 154.
2. Appeal against the orders passed by the CIT(A) upholding the rectifications.

Detailed Analysis:

Issue 1: Withdrawal of interest u/s 244(1A) by the ITO through orders u/s 154
The case involved appeals against orders passed by the CIT(A) dated 20-10-1986 and 10-7-1987 concerning the withdrawal of interest u/s 244(1A) by the ITO through orders u/s 154 for the year 1977-78. The original assessment was completed on 6-9-1980, and subsequent reassessment on 19-9-1984 led to the withdrawal of interest allowed u/s 244(1A) by the ITO through orders u/s 154 dated 10-12-1985 and 22-9-1986. The CIT(A) upheld the ITO's actions, leading to the appeals by the assessee against the rectifications.

Issue 2: Appeal against the orders passed by the CIT(A) upholding the rectifications
During the appeal hearing, the assessee contended that there was no provision in sec. 244(1A) allowing the withdrawal of interest already granted, citing the absence of such provision unlike in sec. 214 and the new sec. 244(1A) effective from 1-4-1989. The assessee argued that the withdrawal of interest was a debatable issue and not a mistake apparent from the record, referring to the Supreme Court's decision in T.S. Balaram ITO v. Volkart Bros. [1971] 82 ITR 50. On the other hand, the Departmental Representative argued that refund should be based on the tax determinable even after reassessment, implying no refund was payable, and that orders u/s 154 were not appealable as they did not enhance the assessment or reduce the refund. The DR relied on the Karnataka High Court's decision in CIT v. H.V. Mirchandani [1986] 161 ITR 800 to support this argument.

Judgment:
The ITAT reversed the decision of the CIT(A) and canceled the orders passed by the ITO u/s 154 withdrawing the interest already allowed u/s 244(1A). The ITAT agreed with the assessee's contention that without a specific provision in sec. 244(1A) for withdrawal of interest once granted, the ITO could not withdraw the interest. The ITAT emphasized that the provisions of sec. 154 could only be used if the interest was wrongly allowed initially, and in this case, the allowance of interest was warranted based on the facts at the time. The ITAT concluded that the withdrawal of interest was not permissible without a specific provision and that the debatable nature of the issue prevented it from being rectified under sec. 154. The appeals filed by the assessee were allowed, overturning the CIT(A)'s decision.