2007 (9) TMI 333 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of AO in rectifying mistakes while giving effect to an appellate order.
2. Time-barred rectification of mistakes.
3. Correctness of deduction under s. 32AB.

Summary:

1. Jurisdiction of AO in rectifying mistakes while giving effect to an appellate order:
The primary issue is whether a mistake rectifiable u/s 154 of the IT Act can be corrected while giving effect to an appellate order u/s 250/254, especially when the mistake is unrelated to the appellate order. The Tribunal held that the AO exceeded his jurisdiction by rectifying a mistake while giving effect to an appellate order, as the mistake was not the subject-matter of the appeal. The AO must strictly follow the directions of the appellate order and cannot reassess the income afresh or cure defects in the original assessment order unless specifically directed by the appellate authority.

2. Time-barred rectification of mistakes:
The appellant argued that the rectification of the mistake in allowing excess deduction under s. 32AB in the original order u/s 143(3) dated 29th March 1989 was time-barred. The Tribunal agreed, noting that the limitation for rectification under s. 154 is four years from the end of the financial year in which the order was passed, which had expired in March 1993. The AO attempted to rectify the mistake in 2003, well beyond the prescribed limitation. The Tribunal emphasized that the AO should have invoked s. 154 or s. 263 within the prescribed time limits, which the Revenue Department failed to do.

3. Correctness of deduction under s. 32AB:
The Tribunal examined the correctness of the deduction under s. 32AB. The original assessment allowed a deduction of Rs. 7,24,430, whereas the appellant's claim based on the audit report was Rs. 2,04,985. The Tribunal noted that the deduction under s. 32AB is independent of the final assessed income and is based on the investment or reserve created under the prescribed scheme. The Tribunal found that the AO's action of reducing the deduction while giving effect to the Tribunal's order was beyond his jurisdiction, as it was not the subject-matter of the appeal. The Tribunal also criticized the CIT(A)'s reasoning, stating that the deduction under s. 32AB is not dependent on the final income assessed but on the investment made or reserve created.

Conclusion:
The Tribunal allowed the grounds raised by the assessee, holding that the AO had exceeded his jurisdiction by rectifying a mistake not related to the appellate order. The appeal was allowed, and the rectification of the deduction under s. 32AB was deemed incorrect. The Tribunal emphasized that the AO must strictly adhere to the directions of the appellate order and cannot travel beyond its limits.