2013 (7) TMI 442 - AT - Income Tax

Rectification u/s 154 - CIT(A) rejeced the plea of the assessee that the AO erred in assuming the jurisdiction u/s 154 in respect of a debatable issue - whether the CIT(A) has erred in not directing the AO to grant interest u/s 244A on refund due - Held that - It is settled proposition of law that a mistake apparent from the record must be an obvious and patent mistake and not something which can be established by long drawn process of reasoning can be rectified u/s 154.Thus, a mistake cannot be rectified u/s 154 when there is a debatable point of fact or law. In the case of HEG Ltd. (2009 (12) TMI 35 - SUPREME COURT) held that interest component in the refund will partake the character of amount due u/s 244A, it became an integral part of the refund amount which is not paid after the said amount become due and payable.Similarly, in the case of Sandvik Asia Ltd (2006 (1) TMI 55 - SUPREME Court), it was held that once the interest became due it takes the same colour as the excess amount of tax which is refundable on regular assessment. Thus the issue of grant of interest on interest is a highly debatable and rather allowable claim in favour of the assessee. Therefore, a decision on such a debatable issue cannot be passed under the provisions of sec. 154. Accordingly,set aside the impugned order passed u/s 154 being beyond jurisdiction of the AO in the peculiar facts and circumstances of the case - appeal of the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction of Assessing Officer under section 154 regarding debatable issues.
2. Rectification of interest granted under section 244A.
3. Applicability of legal principles in rectification proceedings.

Issue 1: Jurisdiction of Assessing Officer under section 154 regarding debatable issues

The appeal challenged the rejection by CIT(A) of the plea that the rectification order dated July 28, 2008, passed by the Assessing Officer was barred by limitation under section 154(7) and was without jurisdiction. The appellant contended that the Assessing Officer erred in assuming jurisdiction under section 154 for a debatable issue. The appellant also argued that the Assessing Officer should have granted interest under section 244A in accordance with the law. The CIT(A) directed the Assessing Officer to adopt principles suggested for calculating interest. The appellant, supported by legal counsel, argued that rectification under section 154 should be for obvious mistakes, not debatable issues. The appellant cited various court decisions supporting the grant of interest on the composite amount of refund plus interest, making it a non-rectifiable issue under section 154.

Issue 2: Rectification of interest granted under section 244A

The Assessing Officer initially granted interest under section 244A(1)(b) to the appellant. However, an audit objection raised concerns about the calculation of interest on the refund amount, leading to a proposed modification of the order under section 154. The objection highlighted a discrepancy in the calculation of interest, resulting in an excess grant to the appellant. The Assessing Officer issued a show-cause notice and subsequently passed an order rectifying the excess interest granted. The appellant objected to this revision, citing the debatable nature of the issue and invoking legal precedents supporting the grant of interest on interest. The Tribunal held that rectification under section 154 is not suitable for deciding debatable legal issues, especially when supported by legal authorities.

Issue 3: Applicability of legal principles in rectification proceedings

The Tribunal emphasized that rectification under section 154 is reserved for correcting obvious and patent mistakes, not debatable legal issues. Citing decisions by the Hon'ble Supreme Court and High Courts, the Tribunal reiterated that interest on interest is a debatable issue favoring the assessee. Consequently, the Tribunal set aside the order passed under section 154, deeming it beyond the Assessing Officer's jurisdiction. As a result, the other issues raised by the appellant became irrelevant. The Tribunal allowed the appeal, emphasizing the importance of jurisdictional boundaries in rectification proceedings.

This comprehensive analysis covers the jurisdictional aspects, rectification of interest granted under section 244A, and the application of legal principles in the context of the legal judgment delivered by the Appellate Tribunal ITAT MUMBAI.