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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee against the order dated 31/03/2023, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2010–11.
In this appeal, the assessee has raised the following grounds:-
“On facts and in law learned CIT-Appeals erred in holding that impugned rectification order is correct in law.
Regal Industries ITA no.1737/Mum./2023
Learned CIT Appeals erred in not appreciating that the mistake sought to be rectified as per notice u/s 154 issued by A.O. did not contemplate or disclose his intention to bifurcate and re compute income under two different heads of income viz profits and Gains of Business and Income from other sources when total income was already assessed u/s 143 (3) (after discussion) as business income, and hence the rectification order passed by A.O. for reason in respect of which no notice was issued u/s 154 is contrary to law. Without prejudice to above ground, Learned CIT erred in upholding rectification order passed by A.O. when the mistake was on arguable point and hence was not a mistake apparent from records and that the A.O. resorted to review in the garb of rectification which is impermissible.”
The only dispute raised by the assessee is against the rectification order passed by the Assessing Officer (“AO”) under section 154 of the Act, which was upheld by the learned CIT(A) vide impugned order.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a partnership firm and is engaged in the manufacturing of Grey from yarn on looms. For the year under consideration, the assessee filed its return of income on 28/07/2010, declaring a total income of Rs.nil. The return filed by the assessee was selected for scrutiny under CASS and statutory notices under section 143(2) as well as section 142(1) were issued and served on the assessee. The AO vide order dated 24/12/2012, passed under section 143(3) of the Act computed the total income of the assessee at Rs. nil after setting off of brought forward business loss for the assessment years 2007-08 and 2008-09. The AO issued notice dated 06/01/2016, under section 154 of the Act on the basis of incorrect carry forward and set off of losses for the assessment year 2007-08 and 2008-09 against the income for the year under consideration. The AO vide order dated 31/03/2016, passed under section 154 of the Act treated the interest income of Rs.10,18,211, received by the assessee as income from other sources and Regal Industries ITA no.1737/Mum./2023 set off the brought forward losses against the business income after reducing the aforesaid interest income. Accordingly, the AO assessed the total income of the assessee at Rs.10,18,211.
The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and held that no evidence has been submitted by the assessee to prove that the interest receipts do have a business nexus. The relevant findings of the learned CIT(A), vide impugned order, are as under:-
“The other contention of the assessee is "there's nothing in the IT act that mandated that interest income can be assessed only and only under the head "income from other sources..........". it's a fact that the assessee is into grey cloth manufacturing. If the interest income has to be treated as business income it's the appellant who has to give evidence to this effect. Since no evidence has been submitted to prove that the interest receipts do have a business nexus it is held that the AO was right in treating the same as Income from other sources. It is therefore held that the impugned rectification order is correct in law.”
Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. It is evident from the record that vide order passed under section 143(3) of the Act the only addition made by the AO was in respect of disallowance of interest expenditure under section 36(1)(iii) of the Act. Subsequently, the AO initiated the rectification proceedings on the basis of incorrectly carrying forward and setting off of losses of the preceding year against the income of the year under consideration. Vide order passed under section 154 of the Act, which resulted in the present appeal, the AO treated the interest income of Rs.10,18,211, as income from other sources and accordingly, reduce the same from the business income for the purpose of Page | 3
Regal Industries ITA no.1737/Mum./2023 setting off of carried forward business loss. Thus, the AO passed the rectification order under section 154 of the Act by re-characterising the interest income and treating the same as income from other sources instead of income from the business as claimed by the assessee. We find that the learned CIT(A) also rejected the submission of the assessee on the basis that the assessee has not submitted any evidence to prove that the interest receipts do have a business nexus. During the hearing, the learned AR referred to the submissions filed by the assessee before the AO during the rectification proceedings, wherein it was submitted that the interest income is earned from the business activity of the assessee firm. Thus, from the above, it is evident that the AO and learned CIT(A) disagreed with the submissions of the assessee in the rectification proceedings and seeks to examine the issue regarding characterisation of the interest income. Accordingly, in the facts and circumstances of the present case, we are of the view that the issue of whether the interest income is income from other sources is a debatable issue and cannot be said to be covered under the ambit of the expression “mistake apparent from the record”.
The Hon'ble Supreme Court in T.S. Balram, ITO v/s Volkart Brothers, [1971] 82 ITR 50 (SC) held that for initiating proceedings under section 154 of the Act, the mistake apparent from record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. In view of the above, as is evident from the facts available on record, the issue of interest income on which rectification under section 154 of the Act was done
Regal Industries ITA no.1737/Mum./2023 by the AO in the present case is open to divergent views, and the same requires long drawn process of examination, therefore, we are of the view that rectification order passed under section 154 of the Act on this issue clearly falls beyond the ambit of the expression “mistake apparent from the record”. Accordingly, the impugned order passed by the learned CIT(A) upholding the order passed under section 154 of the Act is set aside and grounds raised by the assessee are allowed.
In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 08/08/2023