INCOME TAX ACT, 1961

Section 154

Rectification under section 154 - Mistake apparent from record - AO after examination of trustee taxability charged maximum marginal rate under section 167B -

Assessee-trust formed for the benefit of a sole beneficiary. AO observed that assessee was an AOP and was required to be charged under section 167B, whereas, the individual tax rates were wrongly charged. AO issued a notice under section 154 to rectify the mistake. Assessee stated that since the date of formation, AOP was regular in filing the returns of its income and the assessments were also completed considering the applicable new slab rates for individuals only and that there was no mistake apparent from record. AO, however, invoked the provisions of section 167B, he verified the records of 3 Trustees and observed that one of the Members of AOP had taxable income of Rs. 20,85,530 and agricultural income of Rs. 2,20,500. Therefore, AO held that in the case of assessee, tax should be charged on its total income at maximum marginal rate. CIT(A) confirmed the order of AO.Held: AO has to examine the facts and also has to verify the income of each of the Trustees. Assessee had stated that return of income of the said member was not part of assessment records of assessee, but the same was referred to by AO in the order under section 154. AO had exceeded his jurisdiction in exercising his powers under section 154. It was clearly a debatable issue and as held by Supreme Court in the case of T.S. Balaram v. Volkart Bros [(1971) 82 ITR 50 (SC) : 1971 TaxPub(DT) 0355 (SC)] that a mistake apparent from record must be patent mistake on which there can be no two opinions. Therefore, initiation of powers under section 154 by AO was not sustainable.