FIRESTONE TRADING PVT. LTD.,MUMBAI vs. DCIT CC-6(4), MUMBAI

In this appeal, the solitary grievance of the assessee is against the action of the Assessing Officer in invoking the provisions of section 154 of the Act to reduce the deduction allowable under section 80HHC of the Act by a sum of Rs.2,88,385/-.

In brief, the relevant facts are that an assessment under section 143(3) r.w.s. 153A of the Act was completed on 20/03/2008 determining the total income at Rs.32,35,050/-, wherein deduction under section 80HHC of the Act was allowed at Rs.78,81568/-. The Assessing Officer observed that while determining the “profits of the business” in terms of Explanation (baa) to section 80HHC of the Act, 90% of the interest receipts of Rs.3,20,428/- was not reduced thereby resulting in excess deduction under section. 80HHC of the Act. The Assessing Officer issued a notice under section 154 of the Act dated 07/12/2011 and pointed out to the assessee that the deduction under section 80HHC of the Act was to be reworked after reducing 90% interest of Rs.3,20,428/- in terms of Explanation (baa) to section 80HHC of the Act. After considering the replies of the assessee, the Assessing Officer treated the aforesaid as a mistake apparent from record and accordingly scaled down the allowable deduction to the assessee under section 80HHC of the Act to the extent of Rs.2,88,385/- i.e. 90% of Rs.3,20,428/-. The said decision of the Assessing Officer has also been affirmed by the CIT(A).

In this context, the Ld. Representative for the assessee explained that what was required to be excluded in terms of clause (1) of Explanation (baa) to section 80HHC of the Act was the ‘net interest’ receipts and in the present case, assessee had paid interest of Rs.6,06,284/- and after reducing the interest receipt of Rs.3,28,428/-, there remains a net debit to the P&L Account of Rs.2,85,856/-, thereby showing that there was no positive interest income so as to be excluded from profits of the business as per Explanation (baa) to Section 80HHC of the Act. The Ld. Representative for the assessee vehemently emphasized that whether gross interest or net interest ( i.e. after reducing the out-flow of interest) has to be reduced is a debatable issue and such a controversy could not have been addressed by the Assessing Officer in the proceedings under section 154 of the Act. In this context, Ld. Representative for the assessee pointed that the notwithstanding the merits of the case, the impugned action of the Assessing Officer was impermissible in terms of section 154 of the Act itself.

On the other hand, Ld. Departmental Representative has relied upon the orders of the authorities below and contended that reworking the deduction allowable under section 80HHC of the Act, in view of the Explanation(baa) to section 80HHC of the Act was a mistake rectifiable within the meaning of section 154 of the Act.

I have carefully considered the rival submissions. Ostensibly, section 154 permits the Assessing Officer to rectify any mistake apparent from the record by amending an order. Quite clearly, in the present case, the issue revolves around the amount of interest which is liable to be excluded from the profits of the business in terms of clause(1) of Explanation (baa) to section 80HHC of the Act. As per the assessee, what is excludible is ‘net interest’ and for that matter he has also referred to the judgment of the Hon’ble Supreme Court in the ACG Associated Capsules Pvt. Ltd v. CIT , 343 ITR 89 (SC). Be that as it may, what is relevant is that the impugned decision could not have been taken by the Assessing Officer in a summary manner so as to suggest that there is a mistake apparent from record. Notably, a mistake apparent from record is one which is patent and obvious, on which no two views are possible. Therefore, without going into the merits of the adjustment made by the Assessing Officer, in my view, the action of the Assessing Officer is beyond the scope and ambit of section 154 of the Act and the same is hereby set-aside and assessee succeeds.

In the result, the appeal of the assessee is allowed, as above. Order pronounced in the open court on 09/12/2016