THE issue before the Bench is - Whether an allowance, which has been decided in any proceeding by way of appeal or revision can still be rectified u/s 154. And the HC's clear-cut answer is NO.
Facts of the case
The CIT commenced proceedings u/s 263 seeking to revise the assessment on the ground that the Respondent was allowed a deduction u/s 35D and the same was erroneous and prejudicial to the interest of revenue. This was on the basis that the aforesaid expenses were incurred in connection with private placement of equity shares, while the deduction u/s35D(2)(c)(iv) was available only in respect of public issue of shares. The CIT dropped the proceeding u/s 263. The Order dropping the Section 263 proceedings did record that the same was without prejudice to any action that may be taken by the department u/s 147. Thereafter, a notice u/s 148 was issued. The AO confirmed the reopening of the assessment and disallowed the claim for deduction on account of amortisation u/s 35D. The CIT (A) held that reopening of assessment u/s 147 was not sustainable in as much as the AO could have no reason to believe that income chargeable to tax had escaped assessment.
The CIT commenced proceedings u/s 263 seeking to revise the assessment on the ground that the Respondent was allowed a deduction u/s 35D and the same was erroneous and prejudicial to the interest of revenue. This was on the basis that the aforesaid expenses were incurred in connection with private placement of equity shares, while the deduction u/s35D(2)(c)(iv) was available only in respect of public issue of shares. The CIT dropped the proceeding u/s 263. The Order dropping the Section 263 proceedings did record that the same was without prejudice to any action that may be taken by the department u/s 147. Thereafter, a notice u/s 148 was issued. The AO confirmed the reopening of the assessment and disallowed the claim for deduction on account of amortisation u/s 35D. The CIT (A) held that reopening of assessment u/s 147 was not sustainable in as much as the AO could have no reason to believe that income chargeable to tax had escaped assessment.
The CIT(A) held that the present proceeding for reopening was only on account of a change of opinion and therefore outside the purview of Section 147. However, the CIT (A) in his order did observe that once an order u/s 143(3) had been passed by an AO he was precluded from interfering with the said order except by way of rectification of mistake u/s 154. The Tribunal dismissed the Appeal of the Revenue. Pending the challenge of the CIT (A) before the Tribunal, the AO rectified the order dated u/s 143 (3) by disallowing a deduction u/s 35D and adding the same to the income. This was on the basis that the above expenses were incurred with regard to private placement of equity shares and not public issue of shares and that therefore, the assesse was not entitled to the benefit of Section 35D(2)(c) (iv). The CIT(A) held that the disallowance of the benefit under Section 35D was not amenable to rectification u/s 154 as the same could entail more then one opinion. The Tribunal dismissed the appeal of the Revenue as the issue being debatable would not make it a mistake apparent on the face of the record for invoking Section 154.
On Appeal before the HC the Revenue's counsel submitted that in view of Section 35D(2)(c)(iv), the benefit of the same was available only where expenditure was incurred in connection with a public issue and admittedly in this case it was not a public issue but a private placement. Therefore, the deduction granted was clearly an error apparent on record warranting rectification u/s 154. The Respondent Counsel submitted that in view of Section 154(1A), in the present facts, the exercise of jurisdiction u/s 154(1) to rectify a mistake was barred as the same issue was a subject matter of both appellate and Revisional proceedings. He further contended that whether the nature of the issue by the Respondent was public or private was a subject matter of examination and consequently debatable.
Having heard the parties, the HC held that,
On Appeal before the HC the Revenue's counsel submitted that in view of Section 35D(2)(c)(iv), the benefit of the same was available only where expenditure was incurred in connection with a public issue and admittedly in this case it was not a public issue but a private placement. Therefore, the deduction granted was clearly an error apparent on record warranting rectification u/s 154. The Respondent Counsel submitted that in view of Section 154(1A), in the present facts, the exercise of jurisdiction u/s 154(1) to rectify a mistake was barred as the same issue was a subject matter of both appellate and Revisional proceedings. He further contended that whether the nature of the issue by the Respondent was public or private was a subject matter of examination and consequently debatable.
Having heard the parties, the HC held that,
++ sub Section 1(A) of Section 154 prohibits exercise of jurisdiction to rectify an error apparent from the record u/s 154(1) where the same matter has been considered and decided in any proceeding by way of appeal or revision;
++ this very matter(issue) viz. availability of deduction u/s 35D has been subject matter of appeal and the same has been considered and decided by the Appellate Authorities. Consequently, no rectification proceeding would lie in such a case in view of Sub Section 1(A) to Section 154 of the said Act;
++ the issue of allowability of deduction u/s 35D(2) (iv) in the facts of the present case is a matter of opinion depending upon the exact nature of the issue. Consequently, it becomes debatable even on questions of fact and therefore outside the purview of Section 154 as it is not a mistake apparent from the record.
++ this very matter(issue) viz. availability of deduction u/s 35D has been subject matter of appeal and the same has been considered and decided by the Appellate Authorities. Consequently, no rectification proceeding would lie in such a case in view of Sub Section 1(A) to Section 154 of the said Act;
++ the issue of allowability of deduction u/s 35D(2) (iv) in the facts of the present case is a matter of opinion depending upon the exact nature of the issue. Consequently, it becomes debatable even on questions of fact and therefore outside the purview of Section 154 as it is not a mistake apparent from the record.
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