INCOME TAX ACT, 1961

Section 154

Rectification under section 154 - Mistake apparent - AO having dealt with debatable issue while framing original assessment -

Return of income filed by assessee was selected for scrutiny and after calling for necessary information, including books of account and examining them, AO completed the assessment under section 143(3). While doing so, AO examined assessee's claim of deduction under section 80-IC and apportioned/re-allocated certain common expenses to the unit at Baddi for which deduction under section 80-IC was claimed. As a result of such re-allocation of expenditure deduction claimed under section 80-IC was reduced by an amount of Rs. 4 crores. Against assessment order so passed, assessee preferred appeal before CIT(A). In the meanwhile, AO, alleging incorrect allowance of deduction under section 80-IC as well as R&D expenses under section 35, initiated proceedings under section 154 and ultimately passed order under section 154. In said order, AO held that while completing assessment, AO had wrongly allocated actual revenue expenditure, instead of total R&D expenditure including the amount on which assessee had claimed deduction under section 35(2AB). Further, AO held that deduction of R&D expenditure had to be allowed as per amount mentioned in Form No. 3CL, issued by the DSIR. Assessee challenged this. Held: When AO after applying his mind to the facts and material on record in the course of assessment proceedings had computated deduction under section 80-IC on re-allocation of certain expenditure, proceedings under section 154 could not have been initiated only because it was felt that certain expenditure had been improperly allocated. When facts on record showed that assessee was maintaining separate books of account in respect of its various units, allocation of common expenses to different units by itself was debatable issue. That being the case, AO having dealt with such debatable issue in the assessment order, it could be dealt with again in rectification proceedings under section 154 which is only meant to rectify mistakes apparent on the face of record.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2011-12 & 2014-15

INCOME TAX ACT, 1961

Section 37(1)

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