2008 (1) TMI 432 - AT - Income Tax

Tribunal Upholds Lower Authorities' Decisions on Interest Income Rectification & Setoff

The Tribunal upheld the decisions of the lower authorities, ruling against the assessee's claims for rectification of interest income under section 154 ... Rectification Of Mistakes Issues Involved:1. Non-acceptance of application under section 154 for rectification of interest income.2. Alternative claim for setting off interest income against interest expenditure.Issue-wise Detailed Analysis:1. Non-acceptance of application under section 154 for rectification of interest income:The main grievance of the assessee was the non-acceptance of an application filed under section 154, contending that the interest income earned on lien money kept for the purpose of a bank guarantee during the pre-commencement of business should be reduced from the returned and assessed income. The assessee argued that this interest income was inextricably linked with the process of setting up the business and should be treated as a capital receipt, reducing the cost of fixed assets or pre-operative expenses, in line with the Supreme Court's decisions in CIT v. Karnal Co-operative Sugar Mills Ltd. [2000] 243 ITR 2 and Bokaro Steel Ltd. [1999] 236 ITR 315. The assessee also cited Circular No. 68 dated November 7, 1971, and the Kerala High Court's decision in Kil Kotagiri Tea and Coffee Estates Co. Ltd. v. ITAT [1988] 174 ITR 579, arguing that a mistake arising from the interpretation of law by the Supreme Court is a mistake apparent from the record within the meaning of section 154 of the Act.The Assessing Officer (AO) rejected the application, stating that there were no mistakes apparent from the record as the returned income had been accepted under section 143(1). The Commissioner of Income-tax (Appeals) upheld the AO's decision, noting that the assessee itself had shown the interest receipts as income from other sources and that determining whether the interest earned should be taxed under 'Other sources' or adjusted against expenses required an in-depth examination, which was not covered under section 154. The Tribunal agreed with the lower authorities, stating that the AO had no discretion to adjust the returned income under the amended provisions of section 143(1) effective from June 1, 1999. The AO had correctly processed the returns based on the income declared by the assessee, and there was no apparent mistake in the intimation issued under section 143(1).2. Alternative claim for setting off interest income against interest expenditure:The assessee alternatively claimed that if the interest income was not reduced from the returned/assessed income, it should be set off or adjusted against the interest expenditure. The Commissioner of Income-tax (Appeals) rejected this contention, reasoning that the issue was not covered by the provisions of section 154. The Tribunal upheld this decision, stating that the AO could not make any adjustments to the returned income under the amended section 143(1) provisions. The Tribunal also noted that the appellate authorities' powers in rectification proceedings under section 154 are limited to addressing apparent mistakes, and the AO had correctly processed the returns based on the income declared by the assessee.In conclusion, the Tribunal found no infirmity in the order of the Commissioner of Income-tax (Appeals) rejecting the petition under section 154 and dismissed the appeals filed by the assessee. The judgment emphasized that the AO's actions were in accordance with the amended provisions of section 143(1) and that there was no apparent mistake in the intimation issued.