2022 (9) TMI 1319 - AT - Income Tax

Rectification of mistake u/s 154 - enhancing the tax liability of the assessee u/s.115BBE - Scope of debatable issue - additions under the head income from other sources while completing the assessment u/s.143(3) for Undisclosed principle and interest and Unexplained money u/s.69A - rectification as tax on the additions made during the assessment proceedings is computed erroneously under normal rate of tax interest instead of higher rate of tax under Section 115BBE - HELD THAT - During the assessment proceedings the AO verified the material found during the course of search and also perused the statement recorded u/s 132(4) - It is noticed that the assessee in the statement recorded has explained the assessee receives income from agricultural land and also some interest on hand loans given by the assessee. The assessee while answering Q.No.10 has stated that the source for these hand loans is his agricultural income and the interest income over the years. It can be observed from the order of the AO in para 11.1 where the AO has noted down certain facts as those emerging out of the statement recorded from the assessee wherein the AO himself has stated the fact that the assessee earn income from agriculture and money lending business. It is an admitted fact that the source for the money lending business is agricultural income and the interest income earned by the assessee. In the light of these factual findings we see merit in the argument by the learned A.R. that the decision of the AO to make addition without invoking section 69 /69A and also initiation of penalty proceedings under Section 270A of the Act is taken consciously. It cannot therefore be said that invocation of Section 69A and consequently Section 115BBE of the Act is accidental omission by inadvertence to be termed as prima facie mistake apparent from record for the purpose of rectification under Section 154 of the Act. In the legal issue whether the addition can be termed as made u/s.69A by a rectification order u/s.154, we are of the considered view that the impugned addition whether to be made u/s.69A is highly debatable in view of the submissions made by the assessee denying ownership of the document found in the course of search. When the taxability of the addition under a specific section is a point of contention / debatable, the tax levied on the said addition cannot be said to be not debatable. In the case of PCIT vs. Mphasis Software and Services (India) Pvt Ltd 2022 (1) TMI 790 - KARNATAKA HIGH COURT held that invoking section 154 would be untenable when the matter requires adjudication upon the issue which is debatable issue. We hold that the AO is not correct in passing the order of rectification u/s.154 enhancing the tax liability of the assessee u/s.115BBE and we therefore delete the same. The appeal is allowed in favour of the assessee.

Summary

Issues Involved:
1. Validity of the rectificatory order passed under Section 154 of the Income Tax Act.
2. Applicability of Section 115BBE for taxing the addition of Rs. 4,28,85,414.
3. Invocation of Sections 69 and 69A in the rectification order.
4. Initiation of penalty proceedings under Section 270A versus Section 271AAC.

Detailed Analysis:

1. Validity of the Rectificatory Order Passed Under Section 154:
The assessee contended that the rectificatory order was passed hastily without considering relevant material facts, making it liable to be set aside. The order was also void because it was issued without a Notice of Demand under Section 156. The Tribunal noted that Section 154 is meant for rectifying mistakes apparent from the record. The Tribunal found that the addition of Rs. 4,28,85,414 was not made under Sections 69 or 69A in the original assessment, and therefore, invoking Section 115BBE in the rectification order was not permissible. The Tribunal concluded that the issue was debatable and not a prima facie mistake apparent from the record, thus falling outside the scope of Section 154.

2. Applicability of Section 115BBE for Taxing the Addition of Rs. 4,28,85,414:
The assessee argued that Section 115BBE could not be invoked as the addition was not made under Sections 69 or 69A. The Tribunal observed that the AO had assessed the amount under "income from other sources" and not under Sections 69 or 69A. The Tribunal noted that the AO's decision to make the addition without invoking Sections 69/69A and initiating penalty under Section 270A was a conscious decision. Therefore, it could not be said that the invocation of Section 69A and consequently Section 115BBE was an accidental omission, making it outside the scope of Section 154 rectification.

3. Invocation of Sections 69 and 69A in the Rectification Order:
The Tribunal examined whether the addition could be deemed to be made under Sections 69/69A through a rectification order under Section 154. It was found that the AO had not mentioned Sections 69/69A while making the additions in the original assessment. The Tribunal highlighted that the source of the money used for money lending was not disputed, and the AO had not raised any contention regarding the source. The Tribunal concluded that the invocation of Sections 69/69A in the rectification order was not permissible as it was a debatable issue and not a prima facie mistake apparent from the record.

4. Initiation of Penalty Proceedings Under Section 270A Versus Section 271AAC:
The assessee contended that the AO had levied penalty under Section 270A for under-reporting of income, indicating that the addition was not made under Sections 69/69A. The Tribunal noted that the AO had initiated penalty proceedings under Section 270A and not Section 271AAC for the addition of Rs. 4,28,85,414, while for another addition of Rs. 9,72,500, the AO had correctly invoked Section 271AAC. This indicated a conscious decision by the AO, and therefore, the invocation of Section 271AAC in the rectification order was not permissible.

Conclusion:
The Tribunal held that the AO was not correct in passing the rectification order under Section 154 to levy tax under Section 115BBE. The addition of Rs. 4,28,85,414 was not made under Sections 69/69A in the original assessment, and the issue was debatable, falling outside the scope of Section 154. The appeal filed by the assessee was allowed, and the rectification order was set aside.