| The Tax Publishers2022 TaxPub(DT) 0754 (Chd-Trib) INCOME TAX ACT, 1961
Section 154
The AO invoked the provisions of section 154 of the Act and reduced the deduction under section 80-IC of the Act but it was not so done in the preceding as well as in succeeding years. Thus, the issue had become debatable. Therefore, the rectification made by the AO under section 154 of the Act was not justified.
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Rectification - AO accepted the returned income on scrutiny under section 143(3) - Invoked section 154 on the allowability of deduction under section 80-IC - Debatable Issue--Rectification not permissible
Assessee filed Income Tax Return, declaring its income at 'NIL' which was processed under section 143(1) of the Income Tax Act, 1961 (the 'Act'). Subsequently, the case was taken up for scrutiny under section 143(3) of the Act whereby the AO, after examining all relevant records, accepted the returned income including the deduction under section 80-IC of the Act, as claimed by the assessee. Subsequently, the AO invoked the provisions of section 154 of the Act and observed that the partners of the assessee were entitled to get interest @ 12% on their capital in terms of the partnership deed but no interest to the partners had been given and debited in the Profit and Loss Account on their credit balances of capital. The AO worked out the said interest @ 12% on the opening credit balances of capital of the partners at Rs. 7,17,782. He held that this amount of Rs. 7,17,782 was liable to be reduced from the deduction claimed under section 80-IC of the Act. Accordingly, the deduction under section 80-IC of the Act was computed at Rs. 15,21,957 instead of Rs. 22,39,739, as claimed by the assessee. On appeal, Commissioner (Appeals) upheld the action of the AO. Held: The AO invoked the provisions of section 154 of the Act and reduced the deduction under section 80-IC of the Act by observing that the assessee did not charge interest on the opening balance of the capital contributed by the partners. However, in the preceding as well as succeeding years no such action was taken by the AO and the claim of the assessee was accepted for deduction under section 80-IC of the Act, as such this issue pertaining to the charging of interest on the credit balances of the capital of the partners was highly debatable. Therefore, the rectification made by the AO under section 154 of the Act was not justified.
Followed:Plastiblends India Limited v. Addl. CIT (2017) 86 taxmann.com 137(SC) : 2017 TaxPub(DT) 4436 (SC) and ITO VS. Volkart Brothers & Ors. reported at (1971) 82 ITR 50 (SC) : 1971 TaxPub(DT) 0355 (SC)
REFERRED :
FAVOUR : In favour of assessee.
A.Y. : 2012-13
IN THE ITAT, CHANDIGARH BENCH
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