2019 (8) TMI 500

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....rom record and therefore disallowance of interest expenses by passing Rectification order u/s 154 is not in accordance with law and order so passed is void ab initio. 1.1 That, the ld.CIT(A) has further erred in upholding the action of ld.AO in making "reassessment" in the guise of "rectification" by ignoring the fact that interest expenditure claimed by assessee was allowed in the assessment completed u/s 143(3) after examining the facts and material available on record, thus the order so passed u/s 154 deserves to be held bad in law. Without prejudice to above and in the alternative: 2. On the facts and in the circumstances of the case and in law, ld. CIT(A) erred in confirming the disallowance of interest on mobilization advance by ld.AO by completely ignoring the undisputed fact that interest of Rs. 9,01,730/- was actually paid by the assessee and merely because the principal amount (on which interest is paid) was disbursed to sub contractor (M/s Kiran Infra Engineers Ltd.) towards execution, the assessee cannot be denied deduction of interest paid by it on the ground that interest should be claimed by sub contractor when the same was neither incurred nor paid by sub cont....

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.... carried out by the KIEL. The AO while passing the assessment order U/s 143(3) on 22.01.2015 accepted the return of income of the assessee. Subsequently the AO issued notice dated 17.08.2015 U/s 154 of the Act to rectify the mistake in respect of the claim of interest of Rs. 9,01,730/- claimed and allowed in the Profit and loss account. The AO then passed the order U/s 154 of the Act whereby the said interest of Rs. 9,01,730/- was disallowed and income of the assessee was enhanced to Rs. 13,73,340/-. The assessee challenged the action of the AO before the ld. CIT(A) but could not succeed. 3. Before us, the ld. Counsel for the assessee has submitted that the claim of interest on mobilization funds received from RVNL is debatable issue and does not fall in the ambit of 'mistake apparent on record'. He has further contended that the expenditure incurred on account of interest paid RVNL is not in dispute then the issue of allowability of the same cannot be treated as mistake apparent on record which can be rectified U/s 154 of the Act. The ld. AR has further contended that since the entire work was to be executed by KIEL and also to deal with financial and administration matter there....

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.... in support of his contention that the KIEL has also paid tax @ maximum marginal rate. The ld. AR has submitted that even on merits this interest expenditure is allowable in the hand of the assessee AOP when expenditure is incurred for the business of the AOP. 4. On the other hand the ld. DR has submitted that the Assessing Officer has given the reasons in the notice issued U/s 154/155 and pointed that the mobilization advanced received from the RVNL was disbursed to lead partner namely KIEL and therefore, the interest on the said amount paid to RVNL can be claimed only in the hand of KIEL and not allowable deduction in the hand of the assessee AOP. He has relied upon the orders of the authorities below and submitted that the AO is justified in passing the rectification order U/s 154 of the Act. 4.1 On merits the ld. DR has submitted that since this amount of mobilization advance was disbursed to the leading partner M/s KIEL and remained with the said partner therefore, the interest in respect of the said amount cannot be allowed in the hand of the assessee. Though the said partner as not claimed the said expenditure against the income to enjoy the benefit of deduction U/s 80IA ....

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..... It was not open to the ITO to go into the true scope of the relevant provisions of the Act in a proceedings under s. 154 of the IT Act, 1961. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Hegde vs. Mallikarjun Bhavanappa Tirumale (1960) 1 SCR 890, this Court while spelling out the scope of the power of a High Court under Art. 226 of the Constitution ruled that an error which has to be established by a long-drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on debatable point of law is not a mistake apparent from the record [see Sidhramappa Andannappa Manvi vs. CIT (1952) 21 ITR 333 (Bom) : TC 8R.1234]. The power of the officers mentioned in s. 154 of the IT Act, 1961, to correct "any mistake apparen....