Debatable Issues cannot be rectified while acting u/s 154: ITAT:

Debatable Issues cannot be rectified while acting u/s 154: ITAT The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in making rectification u/s.154 of the Act by adding prior years income as book profit u/s.115JB of the Act. The assessee raised two facets of arguments, first that this is a highly debatable issue and second that the assessee has already offered said income of Rs.1 crore in assessment year 2007-08 and making this addition again in relevant assessment year 2009-10 of Rs.99,30,600/- will tantamount to double addition. Brief facts are that the assessee filed its return of income for the assessment year 2009-10 on 30.09.2009 and accordingly, scrutiny assessment was passed u/s.143(3) of the Act on 23.11.2011. Subsequently, the AO issued notice u/s.154 of the Act for the reason that prior period income of Rs.1 crore was not taxed u/s.115JB of the Act. The AO in his rectification order u/s.154 of the Act dated 29.03.2016 made addition of Rs.99.31 lakhs being prior year income of Rs.1 crore shown below the line in the profit & loss account for financial year 2008-09 relevant to assessment year 2009-10. According to AO, prior year income was covered in the adjustment as envisaged while computing book profit u/s.115JB of the Act. Therefore, the AO carried out this mistake apparent from record and rectified the mistake by making addition of this Rs.99.31 lakh to the returned income of the assessee. Aggrieved, assessee preferred appeal before CIT(A). Before ITAT, the ld. counsel for the assessee filed copies of original return of income for assessment year 2007-08, revised return of income for assessment year 2007-08, Form No.3CA & 3CD, assessee’s audit objection for assessment year 2009-10. The ld.counsel for the assessee took us through the revised return, which is enclosed at page 32 of assessee’s paper-book, wherein total income declared was Rs.59,87,670/- and also shown us that in the return of income at column 23, this Rs.1 crore was already included in return for assessment year 2007-08. The ld.counsel also took us through the computation of income i.e., profit & loss account for the year ended 31.03.2009, which is enclosed at assessee’s paper-book page 74, which shows that prior income of Rs.1 crore is below the line but ld.counsel before us argued that since this income has already been offered in assessment year 2007-08 and paid taxes by filing revised return after survey, said additional income recorded in the books as prior income was to adjust the reserve account in assessment year 2009-10. According to him, if it is brought to tax again it will amount to double taxation. In view of these arguments, ld.counsel stated that this action cannot be done while acting u/s. 154 of the Act because this is highly debatable issue.

ITAT Views:

ITAT noted that the assessee could prove before us that this income has already been offered in assessment year 2007-08 and this cannot be added again in assessment year 2009-10. ITAT further noted that since the assessee has already offered this income in assessment year 2007-08 and issue is settled, only adjustment was made in the books of account of financial year 2008-09 relevant to assessment year 2009-10 and this fact was in the knowledge of AO at the time of making adjustment and even this was explained during the course of rectification proceedings by the assessee. In view of the above, first of all the assessee has offered this in assessment year 2007-08, it cannot be added again and moreover, this being highly contentious issue and debatable whether this is to be assessed in assessment year 2007- 08 or 2009-10, it cannot be rectified while acting u/s.154 of the Act. Hence, the tribunal allowed the appeal of assessee. For Official Judgment Download PDF Given Below: