Rectification order u/s 154 cannot be passed on debatable issue

The Income Tax Appellate Tribunal (ITAT) in the case of M/s Allied Agencies Vs ITO held that a decision on a debatable point of law is not a mistake apparent from the record.

In this matter, assessee had claimed a deduction of Rs. 13,47,480/- being interest paid to the partners in its computation of income/ P&L account. During the course of assessment proceedings, the Assessing Officer noted that the partnership deed had not authorized any payment of interest to any partner and as per the provisions of section 40(b)(ii) any payment of remuneration to any partner who is a working partner or of interest to any partner which, in either case, is not authorized by, or is in accordance with, the terms of a partnership deed is not deductible in computing the income chargeable under the heads “Profits or Gains of business or profession”. Consequently, the AO disallowed the extra claim of interest to the tune of Rs. 13,47,480/- and added the same in the income of the Assessee while rectifying the assessment order u./s 154 of the Act.

Aggrieved, the assessee filed an appeal before CIT(A) who dismissed the appeal filed by the assessee.

Before the tribunal, emphasized that disallowance made by AO and sustained by Ld. Commissioner is a debatable issue and not an apparent mistake warranting against u/s 154 of the Act, therefore, the same is liable to be deleted, being legally un-sustainable. ITAT relied on the judgment passed by The Hon‟ble Apex Court in the case of TS Balaram Vs. VolkartBrothers 82 ITR 50 (SC) wherein it was clearly held that a mistake apparent on the record must be an obvious and patent mistake and not something which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. Therefore, ITAT following the aforesaid decision quashed the order passed by the ld. AO u/s 154 of the Act.

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