M/S.TRIVANDRUM CLUB,TRIVANDRUM vs. THE ASSISTANT DIRECTOR OF INCOMETAX( EXEMPTION), TRIVANDRUM

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.

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.

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.

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 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 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.

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.

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 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 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.

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