2010 (9) TMI 63 - HC - Income Tax

High Court rules in favor of assessee on investment allowance withdrawal; classification issue not a clear mistake.

COMMISSIONER OF INCOME TAX Versus MR. FEDDERS LLOYED CORPN. (P) LTD.

The High Court ruled in favor of the assessee, holding that the withdrawal of investment allowance under Section 154 of the Income Tax Act was not ... Rectification of an order u/s 154 - Whether a controversial issue be rectified u/s 154 - Held that: - ITAT rightly held that the issue was debatable. - Since the dispute, whether the Air-conditioners and refrigerators were articles falling in the list of Schedule-XI, namely, whether they were domestic or electric appliances or it was a controversial question, rectification proceedings under Section 154 could not be initiated - ITO Vs. Volkart Brothers And Others [1971 -TMI - 6255 - SUPREME Court] Issues:Question of law regarding the withdrawal of investment allowance under Section 154 of the Income Tax Act, 1961 based on the classification of air-conditioners and refrigerators as domestic electrical appliances.Analysis:The case involved a question of law related to the withdrawal of investment allowance under Section 154 of the Income Tax Act, 1961 concerning the classification of air-conditioners and refrigerators as domestic electrical appliances. The assessee company, a manufacturer of air-conditioners and refrigerators, had claimed investment allowance under Section 32A of the Act, which was initially allowed by the Assessing Officer in the original assessment. However, the Assessing Officer later issued a notice under Section 154 of the Act to withdraw the investment allowance. The CIT (A) in appeal held that the issue was debatable, and hence, action under Section 154 was not justified. The ITAT upheld this decision, emphasizing that the dispute over the classification of air-conditioners and refrigerators as domestic or electric appliances was a controversial question, making rectification proceedings under Section 154 inappropriate.The High Court referred to a Supreme Court judgment in T.S. Balram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers And Others, 82 ITR 50, which highlighted that a mistake apparent on the record must be obvious and patent, not something requiring a long process of reasoning with possible differing opinions. The Supreme Court's stance indicated that decisions on debatable points of law do not constitute mistakes apparent from the record. The High Court concurred with the ITAT's view that the Assessing Officer's action under Section 154 was not justified in this case due to the contentious nature of the classification issue. Ultimately, the High Court ruled in favor of the assessee and against the revenue, holding that the dispute over the classification of air-conditioners and refrigerators as domestic electrical appliances rendered the withdrawal of investment allowance under Section 154 unwarranted.In conclusion, the High Court's detailed analysis and reference to relevant legal precedents supported the decision to uphold the ITAT's ruling that the classification issue regarding air-conditioners and refrigerators as domestic electrical appliances was debatable, precluding rectification proceedings under Section 154 of the Income Tax Act, 1961. The judgment emphasized the need for mistakes apparent from the record to be clear and indisputable, rather than involving complex legal interpretations or differing opinions on debatable points of law.