Section 154 rectification cannot withdraw a valid VDIS deduction where the issue is debatable and not an apparent error.

Rectification under section 154 could not be used to withdraw a deduction earlier allowed for income disclosed under the Voluntary Disclosure of Income Scheme, 1997 when the issue was debatable and not an apparent error from the record. The assessee was assessed under section 158BD read with section 158BC after search action in the cases of its directors, and the disclosure certificate issued by the Commissioner under the scheme remained valid. Because the legal effect of the accepted disclosure on computation of undisclosed income under Chapter XIV-B was not settled in the Revenue's favour, the Assessing Officer could not re-adjudicate the matter through rectification. The rectification order was therefore without jurisdiction and was quashed.

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Issues: Whether the Assessing Officer could invoke section 154 of the Income-tax Act, 1961 to withdraw the deduction earlier allowed in respect of income disclosed under the Voluntary Disclosure of Income Scheme, 1997 while computing undisclosed income under Chapter XIV-B.

Analysis: The assessee had not itself been subjected to a direct search under section 132 of the Income-tax Act, 1961, though search action was taken in the case of its directors and the assessee was later assessed under section 158BD read with section 158BC. The disclosure under the Voluntary Disclosure of Income Scheme, 1997 had been accepted by the Commissioner and the certificate issued under the scheme remained in force. The issue whether such disclosed income could be excluded from the undisclosed income computation was not a settled proposition in favour of the Revenue and depended on the interaction between the scheme, the search-related provisions and the facts of the case. Since the legality of the earlier allowance was itself debatable, the error could not be treated as one apparent from the record. In these circumstances, the Assessing Officer could not use section 154 to revisit the completed assessment or displace the Commissioner's accepted certificate under the scheme.

Conclusion: The rectification order was without jurisdiction and was rightly quashed; the deduction for the amount disclosed under the scheme could not be withdrawn under section 154.

Ratio Decidendi: Rectification under section 154 is impermissible where the point sought to be altered is debatable and the Assessing Officer is, in substance, attempting to re-adjudicate the effect of a validly accepted voluntary disclosure certificate.

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