Commissioner of Income Tax vs Hussainbhai M. Badri

G.T. Nanavati, J.—The following question is referred to this Court by the Tribunal u/s 256(1) of the income tax Act, 1961 (''the Act''):

Whether, on the facts and in the circumstances of the case, the grant of relief u/s 80L having exhausted the availability of deduction u/s 86(v) of the income tax Act, 1961, the income tax Officer was not competent to, rectify the mistake by passing an appropriate order?

The ITO completed the assessment of the assessee for the assessment year 1971-72 on 6-9-1973, by passing an order. Thereafter, the assessee made an application for rectification of the said order on the ground that the ITO had not allowed deduction worth Rs. 944 u/s 80L of the Act, and that there was also a mistake in calculation in regard to rebate u/s 86(v) of the Act amounting to Rs. 1,167. The ITO accepted the contention of the assessee and granted relief by passing a rectification order u/s 154 of the Act on 12-9-1974. Possibly, the ITO had second thoughts about the correctness of his order and, therefore, he issued a notice on 19-5-1975, proposing to rectify his rectification order passed by him on 12-9-1974. He was of the view that as deduction was allowed u/s 80L, no rebate of Rs. 1,167 was admissible u/s 86(v). The assessee gave his written submissions and objected to the proposed action. The ITO, however, thought it fit to rectify the said order and withdrew the deduction allowed u/s 86(v).

Thereafter, the assessee preferred an appeal to the AAC. The appeal was allowed by the AAC on the ground that the question as to whether both the deductions are permissible or not was a highly debatable issue and, therefore, the ITO was not justified in rectifying the rectification order which was passed by him. Accordingly, the second rectification order passed by the ITO was annulled.

The revenue, therefore, approached the Tribunal by way of an appeal. The Tribunal also agreed with the view taken by the AAC and dismissed the appeal. Thereupon, the revenue moved the Tribunal for referring the abovestated question to this Court.

The learned counsel appearing for the revenue tried to support the second rectification order passed by the ITO on the ground that granting of deduction being a mistake apparent on the record, it was open to the ITO to initiate proceedings u/s 154. In our opinion, this contention raised on behalf of the revenue cannot be accepted. As regards what can be regarded as a mistake apparent on the record, the Supreme Court in T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, , has held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may be conceivably two opinions. It has held that a decision on a debatable point of law is not a mistake apparent on the record. Now, the question as to whether the assessee was entitled to a deduction both under sections 80L and 86(v) was a debatable question. The ITO, at one point of time, held that it was a grantable deduction and, therefore, he had granted that relief while granting the application made by the assessee. As that question is a highly debatable question, obviously, it could not have been regarded as a mistake apparent on the record. The ITO was, therefore, not justified in again initiating proceedings u/s 154 and rectifying the first rectification order passed by him. The AAC and the Tribunal were right in taking the view that the ITO was not justified in doing so. We, therefore, answer the question referred to us in the affirmative, that is, against the revenue and in favour of the assessee. No order as to costs.