2015 (4) TMI 408 - HC - Income Tax

High Court reverses rectification order, allows deduction under Section 80I.

The High Court allowed the appeal, ruling in favor of the assessee. It held that the rectification under Sections 154/250 was unwarranted as the issues ... Rectification of mistake - Whether while calculating the eligible business profits for the purposes of deduction under Section 80I the assessee is entitled to include the amount actually contributed in the assessment year 1992-93 to the Cooperative Education Fund under Section 61(1)(b) of the Multi State Cooperative Societies Act, 1984? - Whether the Tribunal was justified in holding that the contribution to the Cooperative Education Fund was not a cess falling within the purview of Section 43B of the Income Tax Act, 1961?” Held that:- In the present case too, the view canvassed by the revenue is untenable. The CIT(A) had relied upon the Supreme Court’s ruling in Canara (1986 (7) TMI 5 - SUPREME Court) to hold that the relief was, in the circumstances of the case, admissible. Given that this issue as to the admissibility of relief either before the benefit of Section 80-I could be granted or thereafter, was a matter which required debate and some process of reasoning, the decision in T.S. Balaram, ITO (1971 (8) TMI 3 - SUPREME Court) clearly held the field. In other words, the revenue could not legitimately contend that the view expressed by the CIT(A) given effect to by the AO in his initial order of 12.05.1995, was utterly implausible. Such being the case, the issue was debatable. Therefore, recourse to the power of rectification under Section 154 was unwarranted in the given facts of this case. - Decided in favour of the assessee Issues:1. Whether the Tribunal erred in invoking Section 154 of the Income Tax Act, 1961 to rectify the order.2. Whether the assessee is entitled to include a sum contributed to the Cooperative Education Fund for deduction under Section 80I.3. Whether the contribution to the Cooperative Education Fund falls under Section 43B of the Income Tax Act, 1961.Issue 1:The appellant challenged the ITAT's order allowing the Revenue's appeal against the CIT(A)'s decision. The AO disallowed the business expenditure claimed under Section 43B, leading to a tax liability. The CIT(A) directed verification of the claim under Section 80-I, which would increase the eligible profits. The AO granted relief based on the claim but later issued a Show Cause Notice alleging an inadvertent mistake. The rectification order under Sections 154/250 was passed, leading to a revised taxable income. The assessee contended the rectification was unwarranted, and the CIT(A) reversed the order, allowing the deduction under Section 80I.Issue 2:The CIT(A) reversed the rectification order, stating that the AO incorrectly rectified the order, which involved a debatable point. The ITAT upheld the rectification, stating that the payments to the Cooperative Education Fund did not qualify as a 'cess' under Section 43B. The appellant cited a previous case where rectification was sought for the same assessment year, emphasizing the debatable nature of the issue. The ITAT's decision was based on the view that the relief was wrongly granted, which the appellant contested based on the Supreme Court's ruling in Canara Workshops case.Issue 3:The appellant relied on a previous case where rectification was sought for a subsequent year, arguing that debatable points of law do not fall under the scope of Section 154. The court affirmed that a mistake apparent on the record must be obvious and patent, not a debatable legal issue. The CIT(A) had relied on the Supreme Court's ruling to allow the relief, emphasizing the debatable nature of the issue. The court held that the power of rectification was unwarranted in this case as the issue was debatable, ruling in favor of the assessee.In conclusion, the High Court allowed the appeal, stating that the issue was debatable and did not warrant rectification under Section 154. The court emphasized the need for obvious and patent mistakes for rectification, ruling in favor of the assessee regarding the deduction under Section 80I.