2013 (2) TMI 327 - HC - Income Tax

Rectification u/s 154 - Revenue contested that CIT(A) had directed to include only net commission receipts while arriving at deduction under Section 80HHC however, while excluding commission receipts set-off commission payment was wrongly given - whether rectification cannot be done when there are two possible interpretations ? - Held that - Action of AO to re-open the issue on the ground of rectification, is not coming within the purview of Section 154 which clearly states that rectification power is available only if there is a mistake apparent from the record and the said power cannot be invoked either to nullify the earlier order, which became final or on the basis of change of opinion. AO having challenged the order of the CIT(Appeals) before the ITAT and the same having been dismissed and having allowed the said order to become final, he is also bound by the said order passed. As decided T.S.Balaram, Income-tax Officer v. Volkart Brothers 1971 (8) TMI 3 - SUPREME COURT a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. Also see Seshasayee Paper & Boards Ltd. v. Inspecting Assistant Commissioner of Income Tax (1985 (3) TMI 37 - MADRAS HIGH COURT) & Assistant Commissioner of Income-Tax v. Saurashtra Kutch Stock Exchange Ltd. 2008 (9) TMI 11 - SUPREME COURT Thus in the light of the above decisions of the Supreme Court and this Court, and having regard to the fact that the Assessing Officer has already passed re-assessment order as per the directions of the CIT(Appeals), he was not justified in initiating further proceedings for rectification to impose his own view under the guise of rectification under Section 154 and as such the questions of law raised are answered in favour of the Assessee and against the Revenue.

Summary

Issues Involved:
1. Validity of the Assessing Officer's rectification of the order given effect to the Commissioner of Income Tax (Appeals) order.
2. Whether the rectification nullifies the Commissioner of Income Tax (Appeals) order.
3. Applicability of Section 154 of the Income Tax Act, 1961, when there are two possible interpretations.

Issue-wise Detailed Analysis:

1. Validity of the Assessing Officer's Rectification:
The primary issue was whether the Assessing Officer (AO) validly rectified the order that gave effect to the Commissioner of Income Tax (Appeals) [CIT(A)] order. The court noted that the assessee firm, having both a Manufacturing Division and a Commission Agency Division, filed assessments for the years 1993-94 and 1994-95. These returns were processed under Section 143(1)(a) of the Income Tax Act, 1961, and the income declared by the assessee was accepted. The AO initially excluded 90% of the gross commission receipts, which was contested by the assessee. The CIT(A) ruled that only 90% of the net commission should be excluded, a decision upheld by the Income Tax Appellate Tribunal (ITAT). The AO later issued a notice under Section 154, claiming a mistake in the initial order and proposing rectification. The court held that the AO's attempt to rectify the order was invalid as it did not fit within the purview of Section 154, which allows rectification only for mistakes apparent from the record.

2. Nullification of the Commissioner of Income Tax (Appeals) Order:
The court examined whether the AO's rectification nullified the CIT(A) order, which had become final. The court emphasized that the CIT(A)'s order, which was upheld by the ITAT, should stand as final, and the AO's action to re-open the issue under the guise of rectification was not permissible. The court cited several precedents, including the Supreme Court's ruling in T.S. Balaram, Income-tax Officer v. Volkart Brothers, which stated that a mistake apparent on the record must be an obvious and patent mistake, not something requiring a long-drawn process of reasoning. The court concluded that the AO's rectification attempt was an impermissible change of opinion, effectively nullifying the CIT(A)'s final order.

3. Applicability of Section 154 of the Income Tax Act, 1961:
The court addressed whether Section 154 could be invoked when there are two possible interpretations. The court referenced multiple judgments, including the Supreme Court's decision in Assistant Commissioner of Income-Tax v. Saurashtra Kutch Stock Exchange Ltd., which clarified that an error apparent on the face of the record should be obvious and not require extensive reasoning. The court reiterated that Section 154 could not be used to re-interpret or change an already settled matter. The AO's rectification was deemed invalid as it attempted to impose a new interpretation on an issue that had already been conclusively decided.

Conclusion:
The court concluded that the AO was not justified in initiating rectification proceedings under Section 154 to impose his own view. The questions of law were answered in favor of the assessee and against the Revenue. Both tax appeals were allowed, and no costs were awarded.