2015 (10) TMI 320 - HC - Income Tax

Rectification of mistake - set off of the carry forward business loss denied - Held that - In the instant case the Assessing Officer sought to rectify the original assessment order on the ground that carried forward business loss and same had been set off against the total income which was inclusive of the income earned by the assessee under the head Income from Other Sources and Income from House Property as declared by him in the return of income and carried forward loss could have been set off against Business Income only. As already observed by us herein above the issue as to whether the said income earned by way of interest on Fixed Deposits, NSCs, would be available to the assessee to seek for set off as business loss or not under section 72 of the Act is a debatable issue and as such we are of the considered view that said issue could not have been gone into in a proceeding under section 154 of the Act. The brought forward loss came to be set-off against the total income earned by the assessee as per the assessment order dated 30.11.2006. As to whether income earned by way of interest would form part of total income so as to allow the assessee to seek set-off is an issue which will have to be gone into in detail and mere declaration in the return of income by assessee would not alter its status and as such it cannot be held that an error had occurred in the assessment order so as to enable the Assessing Officer to invoke section 154 of the Act for rectification. In that view of the matter we are of the view that substantial question of law is required to be answered in the negative i.e., in favour of assessee and against the revenue.

Summary

Issues:
1. Correctness of the order passed by Income Tax Appellate Tribunal (ITAT), Bangalore Bench in ITA No.60/BANG/2009.

Analysis:
The appeal questions the correctness of the order passed by ITAT, Bangalore Bench in ITA No.60/BANG/2009. The facts leading to the appeal include the filing of a return of income for the assessment year 2004-05 claiming a loss of Rs. 24,23,760. The Assessing Officer accepted the carried forward loss and allowed it to be set off against various sources of income. Subsequently, a rectification order was issued under section 154, changing the set off to only business income. The CIT(Appeals) affirmed this decision, leading to an appeal before the Tribunal. The Tribunal held that the Assessing Officer could not change the head of income in a rectification proceeding under section 154, leading to the dismissal of the appeal.

In response to the substantial questions of law raised in the appeal, the arguments presented by the appellant's counsel focused on the interpretation of section 154 and the permissibility of set off against different sources of income. The appellant relied on various judgments to support their contention that rectification under section 154 should not be allowed when there are multiple interpretations possible. The respondent's counsel, on the other hand, supported the orders passed by the authorities, emphasizing the error apparent on the face of the record regarding the set off against different income sources.

Upon detailed examination of the case, the High Court observed that the Assessing Officer's invocation of section 154 to change the set off from various income sources to only business income was not justified. The court referred to the requirement of an obvious and patent mistake for rectification under section 154, citing relevant precedents. It was concluded that the issue of whether income from interest sources could be set off as business loss needed detailed examination and could not be decided under section 154. Therefore, the substantial question of law was answered in favor of the assessee, leading to the allowance of the appeal and setting aside of previous orders.

In the final order, the High Court allowed the appeal, setting aside the orders passed by ITAT, CIT(Appeals), and the Deputy Commissioner of Income Tax. The costs were also made easy in this matter.