Delhi H.C : The assessee had not added a sum being provision for doubtful debts and advances/bad debts to the income

High Court Of Delhi

CIT vs. Jindal Stainless Ltd.

Assessment Year : 2004-05

Section : 154

Dipak Misra, C.J. And Manmohan, J.

ITA No. 1500 Of 2010

October 6, 2010

JUDGMENT

Manmohan, J. – The present appeal has been filed under section 260A of the Income-tax Act, 1961 (for brevity, “the Act”), challenging the order dated June 22, 2009, passed by the Income-tax Appellate Tribunal (in short “the Tribunal”) in I. T. A. No. 1847/Del/2008, for the assessment year 2004-05.

2. Briefly stated the relevant facts of the present case are that the respondent-assessee filed a return declaring income of Rs. 71.43 crores. However, the assessment was completed under section 143(3)/153A of the Act wherein the respondent-assessee’s income was computed at Rs. 83.06 crores. On April 10, 2007, the Assessing Officer (in short, “the AO”) reduced the income to Rs. 79.81 crores under section 154 of the Act.

3. Subsequently, as the Assessing Officer was of the opinion that the respondent-assessee had not added a sum of Rs. 39.28 lakhs being provision for doubtful debts and advances/bad debts to the income, he issued a fresh notice under section 154 of the Act. Since the respondent-assessee did not respond to the said notice, another notice dated July 13, 2007, was issued.

4. In reply to the aforesaid notice, the respondent-assessee submitted that out of Rs. 39.28 lakhs, an amount of Rs. 38,59,820 were bad debts and a sum of Rs. 68,039 only was towards provision. However, the Assessing Officer added the entire amount of Rs. 39.28 lakhs to the income of the respondent-assessee under section 154 of the Act.

5. Though the Commissioner of Income-tax (Appeals) (in short, “the CIT(A)”) dismissed the respondent-assessee’s appeal, the Tribunal deleted the addition of Rs. 39.28 lakhs made by the Assessing Officer under section 154 of the Act on the ground that the Assessing Officer’s action was on a debatable issue and jurisdiction under section 154 of the Act could have been invoked only to rectify a mistake apparent from the record-which was not the present case. The relevant observations of the Tribunal are reproduced hereinbelow :

“6. After hearing both the sides and going through the records, we hold that the provisions of section 154 of the Income-tax Act, 1961, can be invoked when there is a mistake and the mistake is apparent from the records. When the mistake was not apparent from the records and there can be conflict of views and there are possibility of more than one view, the Assessing Officer cannot justify the rectification as a mistake apparent from the record. In the present case, the Assessing Officer has made an order under section 143(3) of the Income-tax Act on July 19, 2007. The assessee complied with the queries made during the assessment proceedings. Nothing has been said in respect of this bad debt/provision for the bad debt in this assessment order under section 143(3). A decision on a debatable point of law or failure to apply the law to a set of facts which remains to be investigated cannot be corrected by way of rectification under section 154 of the Income-tax Act, 1961. This section does not empower the Assessing Officer to investigate a particular point which he had apparently missed at the time of finalization of the order under section 143(3) of the Act. The Assessing Officer claimed that the assessee was provided with an opportunity before rectification appears to be irrelevant to the facts of the case when there was no mistake apparent from the record which can justify the action of the Assessing Officer. The Assessing Officer’s jurisdiction under section 154 of the Income-tax Act is only limited to rectify the mistake apparent from the records. The mistake must be apparent on the face of the records. We are of the considered view that the Assessing Officer’s action under section 154 of the Income-tax Act on a debatable issue and the Commissioner of Income-tax (Appeals)’s confirmation of the Assessing Officer’s action does not appear to be good in the eye of law. In view of these facts, we set aside the order of the Assessing Officer as well as of the Commissioner of Income-tax (Appeals) and direct to allow the claim of the assessee. Since we have granted relief to the assessee on ground Nos. 1, 2 and 3 there is no need to adjudicate on remaining ground taken by assessee. In the result, the appeal of the assessee is allowed.”

6. Ms. Prem Lata Bansal, learned counsel for the Revenue, submitted that the Tribunal had erred in law in deleting the addition of Rs. 39.28 lakhs made by the Assessing Officer on account of provision for doubtful debts under section 154 of the Act. She submitted that the Assessing Officer had rightly invoked the jurisdiction under section 154 of the Act as there was a mistake apparent from the record and the Assessing Officer’s action was not a debatable issue.

7. Though neither the notices dated February 5, 2007, and July 13, 2007, under section 154 of the Act nor the Assessing Officer’s order dated July 19, 2007, have been placed on record, yet from the Commissioner of Income-tax (Appeals)’s and the Tribunal’s order it is apparent that the Assessing Officer had added an amount of Rs. 38,59,820 on the ground that doubtful debts and advances were not allowable under section 36(1)(vii) of the Act. However, the Supreme Court recently in the case of T.R. F. Ltd. v. CIT [2010] 323 ITR 397 (SC) has held that after April 1, 1989, it is not necessary for the assessee to establish under section 36(1)(vii) that the debt had become irrecoverable. To claim deduction under section 36(1)(vii), it was enough if the bad debt is written off by the assessee as irrecoverable in its accounts. Consequently, in view of the aforesaid judgment and the assessee’s stand, deduction under section 36(1)(vii) was certainly a debatable issue.

8. We are also in agreement with the view of the Tribunal that neither a debatable point of law nor failure to apply the correct law to a set of facts can be corrected by way of a rectification under section 154 of the Act. In fact, the Supreme Court in the case of Mepco Industries Ltd. v. CIT [2009] 319 ITR 208 (SC) has held that the right to rectify mistakes under section 154 of the Act cannot be invoked in case of change of opinion. A rectifiable mistake is a mistake which is obvious and not something which has to be established by a long drawn process of reasoning or where two opinions are possible.

9. Consequently, the Tribunal in the present case has rightly held that a decision on a debatable point of law cannot be treated as a mistake apparent from the record.

10. Accordingly, the present appeal being devoid of merit, is dismissed.

[Citation : 337 ITR 495]

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