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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Per CHANDRA POOJARI, AM:
This appeal filed by the assessee is directed against the order of the CIT(A),
Trivandrum dated 14/02/2017 and pertains to the assessment year 1998-99.
The assessee has raised lengthy grounds in this appeal which mainly relates
to the rectification of order dated 14/03/2007 giving effect to the order of the
Tribunal dated 5.3.2004 stating that there is no mistake apparent from record to
invoke the provisions of section 154 of the I.T. Act by ADIT(Exemptions) vide
order dated 03/06/2008.
I.T.A. No.138/Coch/2017
The facts of the case are that the Tribunal vide its order dated 5.3.2004
directed to tax receipts from non members and TMBT’s of the assessee club on
the basis of separate sets of books of account maintained by them. Accordingly,
effect for the said order was given on 14.03.2007 treating the entire amount of
income determined as exempt from tax. Then, finding that no separate sets of
books of account to distinguish the receipts from members and non members
had been maintained for the years prior to AY 1998-99 and in those
assessments, the Assessing Officer treated only 50% of the receipts as exempt
from tax, rectification order for the year under consideration has since been
passed on 03.06.2008 withdrawing 50% of the excess income which was
wrongly allowed in the appeal effect given order dt.14.03.2007 as exempt, due
to the reason that no separate sets of books of account so as to distinguish the
receipts from members and non members had been maintained for the year
under consideration as well.
On appeal, the CIT(A) observed that the Assessing Officer, by virtue of
section 154 of the Act, can rectify any mistake apparent from the record. If it is a
mistake which requires to be established by a complicated process of
investigation, argument or proof it cannot be regarded as a mistake apparent
from the record. The CIT(A) observed that after giving effect to the ITAT order
vide order dated 14.03.2007, the entire income was exempted from tax by the
Assessing Officer without considering the fact that no separate sets of books of
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account so as to quantify the receipts from non-members and TMBT's had been
maintained by the assessee. According to the CIT(A), the mistake inadvertently
crept in which is very much apparent from the record and cannot be construed
as argumentative in nature and does not further involve complicated process of
investigation, argument and proof. Hence, the CIT(A) held that the rectification
order passed on 03.06.2008 was very well within the permissible limit of the Act
and does not require further interference. According to the CIT(A), it is not the
case of the assessee that they actually had maintained separate sets of books of
account to distinguish the receipts from members and non members during the
year under consideration. It is also not the case of the assessee that the principle
of mutuality is applicable to the income determined in the rectification order
passed. The CIT(A) observed that to the income of Rs.19,70,050/- which was
brought to tax after allowing direct and indirect/common expenses as directed by
the ITAT, the principle of mutuality would not apply since it has direct nexus to
the receipts from the individuals who were not members of the assessee club.
In view of the above, the CIT(A) confirmed the rectification order passed u/s.
154 of the Act.
4.1 The CIT(A) observed that another ground of appeal that the proceedings
were barred by limitation of time was factually incorrect since the rectification
order was rightly passed within four years from the end of the financial year in
which the order sought to be amended was passed. As effect to the order of the
I.T.A. No.138/Coch/2017
ITAT was given on 14.03.2007 and same was the order sought to be amended,
the CIT(A) held that the rectification order passed on 03.06.2008 was within the
prescribed time limit and hence, dismissed this ground.
Against this, the assessee is in appeal before us. The contention of the Ld.
AR is that the rectification order passed u/s. 154 of the Act is illegal and should
be quashed as there is no mistake apparent from record.
On the other hand, the Ld. DR relied on the order of the CIT(A).
We have heard the rival contentions and perused the record. Originally, the
Assessing Officer passed the order on 14/03/2007 giving effect to the order of
the ITAT, Cochin Bench in ITA No. 285/Coch/2003 dated 05/03/2004 wherein he
had given deduction as follows:
Gross Income 27,50,082
Less: 50% of receipts treated as exempt 13,75,041
Gross total income 13,75,041
Less: Direct expenses allowed in the order dated 3,12,795 22/03/2002 Indirect expenses/ common expenses @10% 4,55,784 Depreciation 11,457 7,80,036 Total Income 5,95,010
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7.1 However, the Assessing Officer passed the rectification order on 03/06/2008
withdrawing the deduction towards 50% of receipts as exempt at Rs.13,75,041/-
and determined the income at Rs.19,70,050/- instead of Rs.5,95,010/-.
7.2 Now the contention of the Ld. AR is that deduction was granted to the
assessee in terms of ITAT order in ITA No. 285/Coch/2003 dated 05/03/2004
wherein it was held as follows:
“7(2) As far as the apportionment is concerned, we direct the Assessing Officer to treat 50% as taxable and the balance 50% as exempt.
7(6) As far as the assessment years 1997-98 and 1998-99 are concerned, the assessing officer may bring to tax the receipts from non-members and TMBT’s on the basis of the separate accounting made by the assessee- club. This is subject to verification to be made by the assessing officer. Therefore, there is no need of any estimation for these two assessment years as far as taxable receipts are concerned.”
7.3 Contrary to this, the ld. DR made the submission that in the assessment
years prior to the assessment year 1997-98, the Club did not maintain separate
accounts for the receipts from members/non members and in those
assessments, 50% of the receipts were treated as exempt, as the receipts from
non members were not discernible. Therefore, the treatment of exempted 50%
of taxable receipts was a mistake. Since the order dated 14/03/2007 was an
order giving effect to the Tribunal order dated 05/03/2004, the mistake is also
apparent from record. This contention of the Ld. DR cannot be accepted as it is
a debatable issue. Under section 154 of the I.T. Act, the Assessing Officer can
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rectify the mistake if it is a mistake apparent from record. In other words, it must
be an obvious patent mistake and not something which can be established by a
long process of reasoning on points on which there may be conceivable two
different opinions and hence, it is a debatable issue. It was not a mistake
apparent from record. Hence, rectification is not possible since in this case, the
issue was taken up by the Assessing Officer in the proceedings u/s. 154 of the
Act dated 03/06/2008 which is a debatable issue. Thus, the Assessing Officer is
not justified in rectifying the mistake vide the impugned order. Accordingly, we
quash the rectification order passed u/s. 154 dated 03/06/2008.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on this 16th January, 2019.
sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER
Place: Kochi Dated: 16th January, 2019 GJ Copy to: 1. M/s. Trivandrum Club, Vazhuthacaud, Trivandrum. 2. The Assistant Director of Income-tax (Exemptions), Trivandrum. 3. The Commissioner of Income-tax(Appeals), Trivandrum. 4. The Pr. Commissioner of Income-tax, Trivandrum. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin
I.T.A. No.138/Coch/2017