2019 (3) TMI 793 - AT - Income Tax

Rectification of mistake u/s 154 - mistake apparent from the record - rectification order passed by AO withdrawing the deduction towards 50% of receipts as exempt - Club did not maintain separate accounts for the receipts from members/non members and in those assessments - whether treatment of exempted 50% of taxable receipts was a mistake apparent from record - HELD THAT - Contention of the Ld. DR cannot be accepted as it is a debatable issue. Under section 154 AO can rectify the mistake if it is a mistake apparent from record. It must be an obvious patent mistake and not something which can be established by a long process of reasoning on points on which there may be conceivable two different opinions and hence, it is a debatable issue. It was not a mistake apparent from record. Hence, rectification is not possible since in this case, the issue was taken up by the Assessing Officer in the proceedings u/s. 154 of the Act dated 03/06/2008 which is a debatable issue. AO is not justified in rectifying the mistake vide the impugned order. Accordingly, we quash the rectification order passed u/s. 154 . - decided in favour of assessee.

Summary

Issues:
Rectification of order under section 154 of the Income Tax Act - Mistake apparent from record.

Detailed Analysis:

Issue 1: Rectification of Order under Section 154 of the Income Tax Act

Analysis: The appeal pertains to the rectification of an order dated 14/03/2007 by the Assessing Officer, giving effect to the Tribunal's order dated 5.3.2004. The Tribunal had directed the tax receipts from non-members and TMBT's of the assessee club to be based on separate sets of books of account. The Assessing Officer treated the entire income as exempt from tax in the order dated 14.03.2007. However, it was later found that no separate sets of books were maintained to distinguish receipts from members and non-members for years prior to AY 1998-99. Consequently, a rectification order was passed on 03.06.2008, withdrawing 50% of the excess income wrongly allowed. The CIT(A) upheld the rectification order, stating that the mistake was apparent from the record as no separate books were maintained to quantify receipts from non-members. The principle of mutuality did not apply as the income had a direct nexus to individuals who were not club members. The CIT(A) also dismissed the contention of the proceedings being time-barred.

Issue 2: Appeal against the Rectification Order

Analysis: The assessee contended that the rectification order under section 154 was illegal and should be quashed as there was no mistake apparent from the record. The Assessing Officer had withdrawn the deduction towards exempt receipts based on the Tribunal's order, which directed a specific apportionment of taxable and exempt income. The Assessing Officer's contention that the mistake was apparent from the record was disputed as it was a debatable issue and not an obvious patent mistake. The Tribunal held that the issue was not a mistake apparent from the record, and rectification was not justified. Consequently, the rectification order passed under section 154 on 03/06/2008 was quashed, and the appeal of the assessee was allowed.

In conclusion, the Tribunal allowed the appeal of the assessee, quashing the rectification order under section 154 of the Income Tax Act as the mistake was not apparent from the record and was deemed a debatable issue.