Assessing Officer cannot review total order of Income Tax u/s 154 assessment on debatable issues

The Case pertains and revolves around the issue that the mistake sought to be corrected u/s 154 by Assessing Officer must be obvious that such that can be easily corrected, such as an arithmetical mistake, quoting a wrong, section etc. The error should not be on a debatable issue. 

The Income Tax Appellate Tribunal at Chandigarh in the case of M/s City Clinic Pvt. Ltd. having PAN No. AABCC7800N vs. ACIT SCO-47-49, Sector 34A Circle 4(1), Chandigarh ITA No. 112/Chd./2017 in connection with the Assessment Year 2006-07 has held that an Assessing Officer cannot review his total order of assessment on debatable issues.

Pleaders engaged:

The appellant was represented by Shri Parikshit Aggarwal and the respondent was represented by Shri S.K. Mittal

Date of hearing:

The hearing was concluded on 1.6.2017

Assessing Officer cannot touch debatable issues while rectifying u/s 154 Date of Pronouncement of order:

The order was pronounced in the open Court 2.6.2017 by Shri Bhavnesh Saini, Judicial Member.

Backgrounds of the case:

The appeal was preferred by the assessee directed against the order of Ld. CIT (A)-2, Gurgaon passed on 25.11.2016 for assessment year 2006-07 on the following grounds.

Grounds of appeal before the Tribunal:

1. That on the facts of the case, the CIT(A) in Appeal No. 204/2013-14 dated 25.11.2016 was wrong in passing that order in contravention of the provisions of Section 250(6) of the Income Tax Act, 1961.
2. That in the circumstances of the case, the CIT (A) was not justified in confirming the act of Ld. Assessing Officer who had held that while computing the Book profit as per Section 115JB, the reduction of brought forward loss shall be computed according to the Income Tax Act figures and not as per Books of accounts of the appellant though the same was directly contrary to the provisions of the Act, as such,  he erred in allowing reduction of Rs. 9,25,932/- from book profit as against claim of the appellant at Rs. 58,28,298/- . The Assessing Officer had erred in enhancing the assessed book profit by an amount of Rs. 49, 02,366/-.

3. That in the facts of the case, the CIT (A) was not justified in not allowing the issue that computation of book profit and reduction of loss that was carried forward or depreciation, whichever was less, according to the books of accounts cannot be taken up in a proceeding held under the provisions of section 154 of the Act and the rectification carried out was beyond the scope of the provisions of the said Section.

Rectifying the debatable issues in section 154- not valid – Facts of the case:

The facts of the case are that the assessee filed its return of income stating total income as NIL. The case was picked up for scrutiny. The assessee was running a hospital at Chandigarh. The Assessing Officer disallowed some expenses as declared by the assessee and computed the total income at Rs. 2, 63,419/- .

After decreasing unabsorbed depreciation the income of the assessee was assessed at NIL by an order dated 25.11.2008 passed under section 143(3).

The assessee calculated tax under section 115JB of the Income Tax Act and declared his tax liability as NIL.

The Assessing Officer on perusal of computation sheet noted that the assessee declared its book profit at Rs. 48, 84,807/- during the assessment year concerned.

The assessee had shown Rs. 9, 25,932/- as its losses set off and Rs. 59, 51,104/- as its depreciation that was set off.

For the purpose of computation of income tax under section 115JB, an amount of Rs. 9,25,932/- should have been decreased from the book profit of Rs. 48,84,807/-.

The assessee reduced an amount of Rs. 59, 51,104/- from the book profit for which MAT was reduced at Rs.9, 43,492/- .

The Assessee did not pay any tax under section 115JB for which it was noted that there is a mistake apparent on record.

The Assessing Officer issued notice under section 154 of the Act to the assessee. The assessee filed a reply.

The Assessing Officer however passed the order under section 154 of the Act on 18.3.2013 and raised a demand amounting to Rs. 5, 14,727.

The assessee being aggrieved by the said order preferred an appeal before the Ld. CIT (A) against the order under section 154 of the Act.

The appeal of the assessee was however dismissed. The assessee being aggrieved by the order of dismissal preferred an appeal before the Tribunal.

The Ld. Counsel for the assessee reiterated the arguments already made before the authorities below and stated that the issue of computation under section 115JB was highly debatable, as such; no order under section 154 should have been passed.

The Counsel relied upon the order of the ITAT, Agra Bench passed in ACIT Vs. Cardinal Drugs Pvt. Ltd. [2013] 37 CCH 22 and also that of the ITAT, Delhi Bench in ACIT Vs. Uflex Ltd. [2013] 55 SOT 43.

The Ld. CIT (A) relied upon the order of the lower authorities.

The Tribunal considered the rival submissions of the parties and perused the record.

The judgment:

It was observed that the Hon’ble Calcutta High Court in Hindustan Lever Ltd. vs. Joint Commissioner of Income Tax  and others [2006] 284 ITR 42 held that mistake must be obvious that such that can be easily corrected, such as an arithmetical mistake, quoting a wrong, section etc. The error should not be on a debatable issue. It was further noted that the Hon’ble Supreme Court in ITO vs. Volkart Brothers and others, 82 ITR 50, had held that a mistake apparent on record must be an obvious one and not something that can involving two opinions.

The ITAT, Agra Bench, in the case of ACIT vs. Cardinal Drugs Pvt. Ltd. (supra) held has held on similar terms.

After considering the rival submissions it was held that there was no justification to interfere with the order passed by the Id. CIT (A).

It was noted that Section 154 of the Act provides that to rectifying any mistake apparent from record, the Authority may alter any order passed by it.

Therefore, there should be a mistake apparent from the record of the Authorities at the time of exercising jurisdiction under Section 154 of the Act.

The Hon’ble Calcutta High Court in Hindustan Lever Ltd. vs. Commissioner of Income-Tax and others [2006] 284 ITR 42 (Cal) held that the error must be obvious that can be easily corrected and not on datable issue.

It was observed that the assessee has disclosed all the particulars regarding its income for computation under Section 115JB at the time of filing return of income.

The certificate stating that the assessee was a sick industrial company issued was also filed at the time of assessment.

Therefore, the loss declared by the assessee has been accepted. There was no scope for him to resort to the provision of Section 154 of the Act for enhancing the income of the assessee.

The Id. CIT (A) correctly held that there was no mistake apparent from record and Assessing Officer cannot pass the impugned order. It was observed that the Ld. CIT (A) correctly set aside the order under Section 154 of the Act.

Accordingly the order of the authorities below under section154 of the Act was set aside. The addition made by the assessee was deleted.

As a result, the appeal of the assessee was allowed.

Also read:  Rectification of mistakes under section 154 of the Income Tax Act