2014 (8) TMI 1227 - HC - Income Tax

High Court Upholds Tribunal Decision on Section 80HHC Deduction Dispute

The High Court upheld the decision of the Income Tax Appellate Tribunal to dismiss the Revenue's appeal regarding the rectification of mistakes in the ... Rectification of mistake u/s 154 - mistake was occurred in calculation of deduction u/s 80HHC of the Income Tax Act, 1961 while giving appeal effect u/s 251 - HELD THAT:- We find that the Tribunal while dismissing the appeal preferred by the Revenue has held It is a fact that the AO while giving appeal effect to the order of CIT(A) u/s. 251 of the Act dated 30.05.2006 allowed deduction u/s. 80HHC of the Act and that deduction was allowed on the basis of Form No.10CCAC as well as in view of the direction of CIT(A). The AO has taken recourse to the rectification proceedings as he wanted to compute the turnover and computation of turnover is a highly debatable issue as the assessee in original allowance i.e. giving appeal effect to the order of CIT(A) has given his opinion, which he cannot rectify while acting u/s. 154 of the Act. Once this is a position, we are of the view that the CIT(A) has rightly quashed the rectification proceedings carried out by the AO u/s.154 The provision for rectification of mistake under Section 154 of the Income Tax Act, in our view, is “to rectify any mistake apparent from the record”, that is, the mistake should be palpable and as the Tribunal had held that in the instant case it is “a highly debatable issue”, we are of the view that no substantial question of law arises out of the order passed. The revenue was unable to demonstrate that the rectification of computation made arose out of a mistake apparent from the record. Therefore, the application and the appeal are dismissed. Issues:1. Interpretation of Section 154 of the Income Tax Act, 1961 regarding rectification of mistakes in computation.2. Whether the Income Tax Appellate Tribunal erred in quashing the rectification order under Section 154 without considering the circumstances.3. Application of procedural frame for computing deduction under Section 80HHC of the Income Tax Act, 1961.4. Validity of the impugned order and allegations of non-application of mind by the Income Tax Appellate Tribunal.Analysis:1. The appeal under Section 260A of the Income Tax Act, 1961 was filed by the Revenue against the order of the Income Tax Appellate Tribunal related to the Assessment Year 2002-2003. The main issue was whether the rectification order under Section 154 was rightly passed due to a mistake apparent from the record in the calculation of deduction under Section 80HHC of the Income Tax Act, 1961. The Tribunal dismissed the appeal by holding that the computation of turnover, which was a debatable issue, could not be rectified under Section 154. The Tribunal emphasized that the mistake should be palpable to rectify under this section, and as the issue was debatable, no substantial question of law arose from the order.2. The Tribunal, in its decision, highlighted that the Assessing Officer (AO) had allowed the deduction under Section 80HHC based on Form No. 10CCAC and the direction of the CIT(A). The AO initiated rectification proceedings to recompute the turnover, which the Tribunal deemed as a debatable issue. The Tribunal agreed with the CIT(A) in quashing the rectification proceedings under Section 154, emphasizing that the AO could not rectify an opinion given while acting under this section. Consequently, the Tribunal upheld the decision to dismiss the Revenue's appeal.3. The Tribunal's judgment also addressed the procedural aspect of computing deduction under Section 80HHC of the Income Tax Act, 1961. It emphasized that the rectification proceedings initiated by the AO were not in line with the procedural frame required for computing the deduction. The Tribunal's decision was based on the understanding that the rectification order did not align with the direction provided by the CIT(A) for computing the deduction accurately.4. Finally, the High Court concluded that the Revenue failed to demonstrate that the rectification of computation was based on a mistake apparent from the record. The Court upheld the Tribunal's decision to dismiss the application and the appeal. It was emphasized that the rectification under Section 154 should only be for rectifying palpable mistakes, and in this case, the issue was deemed debatable, leading to the dismissal of the appeal.