1988 (8) TMI 128 - AT - Income Tax

Summary

Issues:
1. Rectification orders passed by ITO under s. 154 of the IT Act, 1961 were cancelled by CIT(A).
2. Whether relief under s. 35B of the Act was wrongly allowed to the assessee.
3. Applicability of the Special Bench decision in the case of J. Hemchand & Co. in allowing relief under s. 35B.
4. Mistake apparent from the record in withdrawing relief under s. 35B.

Analysis:
The appeals by the Revenue were directed against the CIT(A) order cancelling rectification orders passed by the ITO under s. 154 of the IT Act, 1961. The ITO withdrew relief under s. 35B in the assessment years 1978-79, 1979-80, and 1980-81, citing that certain expenditures did not fall under the specified clause of s. 35B(1)(b) of the Act. The CIT(A) held that the rectification orders of the ITO were not maintainable as the relief was allowed after due consideration and discussion. The CIT(A) observed that the points involved were arguable, and thus, rectification was not warranted as there were two possible opinions on the issue. The CIT(A) cancelled the rectification orders in all three assessment years, leading to the Revenue's appeals.

The Departmental Representative argued that the ITO had erred in not strictly applying the principle of J. Hemchand & Co. in allowing relief under s. 35B. However, the Counsel for the assessee contended that the ITO did consider the principles laid down in J. Hemchand & Co. while allowing relief under various heads. The Counsel emphasized that the scope of proceedings under s. 154 was limited to rectifying mistakes apparent from the record and not debatable issues. The Counsel cited precedents where similar rectification orders were cancelled by the Tribunal, supporting the argument that the ITO's orders were not rectifiable mistakes.

Upon considering the contentions of both parties and the facts on record, the Tribunal noted that the CIT(A) had directed the ITO to follow the principles of J. Hemchand & Co. only in the assessment year 1978-79, not in the subsequent years. The Tribunal found that the assessments were made after considering the decision of J. Hemchand & Co., even in the subsequent years. The Tribunal opined that the issue of whether the assessments should strictly adhere to the principles of J. Hemchand & Co. in the subsequent years was debatable and not covered under s. 154 of the Act. The Tribunal emphasized that the ITO had allowed the relief after due consideration and discussion, and the successor ITO's view was beyond the scope of rectification under s. 154. The Tribunal upheld the CIT(A)'s decision to cancel the ITO's rectification orders, leading to the dismissal of all three appeals by the Revenue.