2014 (9) TMI 490 - AT - Income Tax

Rectification of mistake u/s 154 Rectification of interest u/s 254D(6A) Withdrawal of interest u/s 244(1A) Held that - Merely because the AO has wrongly allowed the claim of interest, he intended to re-compute it through rectification proceedings - even if he has granted the above interest wrongly, that will not entitle the AO to form a ground and agitate by means of rectification proceedings u/s. 154 of the Act, unless it can be said that there is a blatant and apparent mistake that has crept in, in the order of the Assessing officer, purely based on material facts on record - the powers conferred by the Statute u/s. 154 on the AO are very limited and are circumscribed by the restrictions mentioned - the earlier assessment was the subject matter of issue before the Settlement Commission and the Settlement Commission passed the order u/s 245D(4) of the Act for which an application was filed by the assessee before the Settlement Commission - the assessment was not completed and the assessment was completed only on 22-03-1991 which is a reassessment - the issue dealt by the AO in the rectification order u/s. 154 of the Act cannot be said to be a mistake apparent from record as it was arrived after due application of mind thus, there is no mistake apparent on record in the earlier order of the AO so as to take up the issues in the proceedings u/s 154 of the Act the order of the CIT(A) is set aside Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of interest under section 220(2) of the Income Tax Act.
2. Withdrawal of interest granted under section 244(1A) of the Income Tax Act.
3. Levy of interest under section 245D(6A) of the Income Tax Act.
4. Validity of rectification proceedings under section 154 of the Income Tax Act.

Detailed Analysis:

1. Levy of Interest under Section 220(2) of the Income Tax Act:
The assessee contended that interest under section 220(2) was not leviable because once the Settlement Commission passes an order under section 245D(1), the regular assessment under section 143(3) loses its existence. They relied on the Supreme Court's decision in Brij Lal vs. CIT. The department, however, argued that the provisions of section 220(2) are statutorily enforceable and the Assessing Officer is justified in charging interest. The Tribunal observed that the issue was debatable and could not be rectified under section 154 as it was not a blatant and apparent mistake.

2. Withdrawal of Interest Granted under Section 244(1A) of the Income Tax Act:
The CIT(A) confirmed the Assessing Officer's decision to withdraw interest under section 244(1A) because the assessee was not entitled to any refund. The assessee argued that interest once granted cannot be withdrawn through rectification proceedings under section 154. They cited several case laws to support their claim. The Tribunal noted that the issue was debatable and not a mistake apparent from the record, thus not suitable for rectification under section 154.

3. Levy of Interest under Section 245D(6A) of the Income Tax Act:
The Assessing Officer levied interest under section 245D(6A) which was enhanced after rectification under section 154. The assessee argued that this enhancement was done without proper notice, violating section 154(3). The Tribunal found that the issue was debatable and could not be rectified under section 154 as it required reasoning on points where there could be two opinions.

4. Validity of Rectification Proceedings under Section 154 of the Income Tax Act:
The Tribunal emphasized that rectification under section 154 is only permissible for mistakes that are obvious and patent, not for issues that require elaborate reasoning or where there could be two opinions. The Tribunal concluded that the issues raised by the Assessing Officer were not apparent mistakes but debatable issues. Therefore, the rectification proceedings under section 154 were invalid.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, reversing the order of the CIT(A) and canceling the rectification order passed by the Assessing Officer under section 154. The Tribunal declined to adjudicate the other grounds raised by the assessee on merits, as the primary issue was resolved in favor of the assessee. The judgment was pronounced on 05-09-2014.