2008 (8) TMI 477 - HC - Income Tax

Rectification of mistake levy of interest for short payment/non-payment of advance ax - (i) Whether, Tribunal was justified in upholding the order passed by the Assessing Officer under section 154 levying interest under sections 234B and 234C even though the income was computed under section 115JA ? - we are of the considered view that rectification order passed in the case of the assessee on September 12, 2002, when the legal issue on account of which the rectification was sought to be made was highly debatable one as there was no judgment of the jurisdictional High Court. The two other judgments available on the issue were taking a view contrary to each other - we answer question (i), as referred to above, in favour of the assessee and against the Revenue by holding that the power of rectification could not be exercised by the respondents in the facts and circumstances of the present case.

Summary

Issues:
1. Whether interest under sections 234B and 234C of the Income-tax Act can be levied when income is computed under section 115JA of the Act?
2. Whether the Assessing Officer can levy interest under sections 234B and 234C even if no interest was levied during the original assessment under section 143(3) of the Act?

Issue 1:
The appellant challenged the order of the Income-tax Appellate Tribunal, which upheld the Assessing Officer's decision to levy interest under sections 234B and 234C of the Income-tax Act, despite the income being computed under section 115JA of the Act. The appellant argued that interest should not be charged as the tax under section 115JA is based on audited profit and loss accounts, which are finalized after the close of the year. The appellant relied on the judgment of the Gauhati High Court, which supported their position. However, the Commissioner of Income (Appeals)-I ruled in favor of the appellant, but the Tribunal sided with the Revenue. The appellant contended that the legal issue was debatable when the rectification notice was issued, citing conflicting judgments from different High Courts. The appellant argued that the power of rectification under section 154 could not be exercised in a debatable legal scenario. The court referred to precedents emphasizing that rectification can only be made for obvious and patent mistakes, not debatable legal points. Considering the debatable nature of the issue and conflicting High Court judgments, the court ruled in favor of the appellant, holding that the power of rectification could not be exercised in this case.

Issue 2:
The second issue revolved around whether the Assessing Officer could levy interest under sections 234B and 234C despite no interest being charged during the original assessment under section 143(3) of the Act. The appellant argued that as the legal issue regarding the levy of interest was debatable at the time of rectification, the power of rectification under section 154 could not be exercised. The Revenue contended that since the issue had been decided in their favor, the rectification order was in conformity with the law. The court, after considering the arguments and legal precedents, ruled in favor of the appellant, emphasizing that the rectification order could not be faulted as the legal issue was debatable at the time of the rectification notice. The court cited the lack of contrary judgments from higher courts to support the Revenue's position, ultimately deciding in favor of the appellant and against the Revenue.

In conclusion, the High Court ruled in favor of the appellant on both issues, holding that the power of rectification under section 154 could not be exercised by the Revenue due to the debatable nature of the legal issues involved at the time of the rectification notice. The court emphasized the importance of clear and patent mistakes for rectification under section 154, and in the absence of a clear legal position supported by higher court judgments, the rectification order could not be upheld.