2024 (6) TMI 1196 - AT - Income Tax

Rectification u/s. 154 - Denial of deduction 80P - HELD THAT - In the instant case, the AO has not brought out single material on record to show that the deduction granted in the assessment order completed is a mistake apparent from the record. The rectification order does not provide for any reason. AO in the show cause notice had referred in the case of Citizen Cooperative society Ltd 2017 (8) TMI 536 - SUPREME COURT where benefit of deduction u/s. 80P was denied since in the facts of that case assessee was dealing with non-members and had violated the principles of mutuality. AO has also referred to the judgment of case of SAURASHTRA KUTCH STOCK EXCHANGE LTD 2008 (9) TMI 11 - SUPREME COURT for the limited proposition that a rectification order can be passed on the basis of subsequent judgment. It is interesting to note that the AO has not referred to the subsequent judgment in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT which was already available when he had issued show cause notice to the assessee. The Hon ble Apex Court in Mavilayi Service Cooperative Bank Ltd. (supra) has clearly held that to the extent of dealing with non-members, proportionate deduction for the same can be denied. As mentioned earlier, in the instant case the AO while issuing show cause notice for rectification had not mentioned that the assessee had violated the principles of mutuality by dealing with nonmembers. Therefore, the issue is highly debatable and by no stretch of imagination can be termed as a mistake apparent on the record. Only an obvious and patent mistake which can be established not by a long drawn process of reasoning alone can be subjected to rectification proceedings u/s. 154 - In this case, there is nothing on record to suggest that the assessee had violated the principles of mutuality and has been dealing with non-members. Therefore, we are of the view that the issue raised in this appeal is not a mistake apparent on record which is amenable to rectification u/s. 154 - Assessee s appeal is allowed.

Summary

Issues involved:
- Justification of CIT (Appeals) in confirming the order of the AO denying deduction u/s. 80P of the Act.

Detailed Analysis:
1. Background and Facts: The appeal was filed against the CIT (Appeals) order for the assessment year 2014-15. The primary issue was the denial of deduction u/s. 80P of the Act amounting to Rs.27,16,210 by the AO through a rectification order u/s. 154.

2. AO's Action and CIT (Appeals) Decision: The AO initially allowed the deduction u/s. 80P after scrutiny. However, a notice u/s. 154 was issued proposing to rectify the assessment order to disallow the deduction. The CIT (Appeals) upheld the AO's decision, emphasizing that the appellant was duly informed of the intention to rectify, and the issue was not a mistake apparent from records. The CIT (Appeals) referred to relevant case laws and refused to interfere with the AO's order.

3. Tribunal's Assessment: The assessee appealed to the Tribunal, arguing that the issue was debatable and not a clear mistake for rectification u/s. 154. The Tribunal noted that the AO's rectification order lacked reasoning or evidence to support the denial of the deduction. The AO had not demonstrated that the deduction was wrongly granted, especially in light of the principles of mutuality and dealing with non-members.

4. Legal Precedents and Decision: The Tribunal highlighted the importance of a mistake being apparent on the record for rectification u/s. 154. It referenced the judgment in T.S. Balaram v. Volkart Brothers to emphasize the need for a clear and obvious error for rectification. The Tribunal found that the issue of denying the deduction u/s. 80P was debatable and not a mistake apparent from the record. As a result, the Tribunal allowed the assessee's appeal, overturning the CIT (Appeals) decision.

5. Conclusion: The Tribunal's decision emphasized the requirement for a mistake to be evident on the record for rectification under section 154. In this case, the denial of the deduction u/s. 80P was deemed debatable and not meeting the criteria for rectification. The Tribunal's ruling favored the assessee, highlighting the importance of clear errors for rectificatory actions under the law.

6. Judgment: The Tribunal allowed the assessee's appeal, overturning the CIT (Appeals) decision to confirm the order of the AO denying the deduction u/s. 80P of the Act. The decision was pronounced in the open court on January 17, 2024.