Brief of the Case
Karnataka High Court held In the case of K.S. Venkatesh vs. DCIT that The Hon’ble Apex Court in T.S.Balaram Vs Volkart Brothers and others reported in 1971 (82) ITR 50 has observed that a mistake apparent on the record must be obvious and patent mistake and not something which is established by long drawn process of reasoning. Thus, keeping in mind the finding of this case, in the instant case the Assessing Officer sought to rectify the original assessment order on the ground that carried forward business loss could have been set off against “Business Income” only is not valid ground for rectification u/s 154.
Facts of the Case
The Return of income filed for the assessment year 2004-05 claiming a loss of Rs. 24,23,760/- and the jurisdictional Assessing Officer after issuing notice under section 143(2) framed the assessment order under section 143(3) where under the carried forward loss of Rs. 24,23,760/- accepted by the Assessing Officer and was allowed to be set off against total income of the assessee comprising “Income from Other Sources, “Income from House Property” apart from “business income”.
Subsequently by issuance of notice under section 154, assessment was sought to be rectified to which the assessee filed his objections contending that the issue involves long drawn process of reasoning and as such assessment order cannot be rectified under section 154. However, it was noticed by the authority that assessee had himself shown interest income earned from the Banks, NSCs and Fixed Deposits as “Income from Other Sources” in the return of income and as such it came to be held that it is an error apparent on the face of the record and as such order passed by the Assessing Officer came to be rectified and the business loss as determined for the assessment year 2003-04 at Rs.21,43,917/- was brought forward to the assessment year 2004-05 and was allowed to be set off only against business income of Rs.6,23,596/- for the current year as per provisions of section 72.
Contention of the Assessee
The ld counsel of the assessee submitted that jurisdictional Assessing Officer could not have invoked section 154 since there was no error apparent on the record of the assessment order and if two views are possible and one view has been adopted by the Assessing Officer, rectification proceedings cannot be initiated to take a different view and as such relies on the decision of Apex Court in T.S.Balaram, Income Tax Officer, Company Circle IV, Bombay Vs Volkart Brothers and others reported in 1971 (82) ITR 50 contending it is squarely applicable to the facts on hand where under it has been held if issue involves long drawn process of reasoning same cannot be construed as ground to hold there is error apparent on the face of the record for being rectified under section 154. He has also contended that the word “head” found in sub-section (1) of Section 72 preceding the words “profits and gains of business or profession” is conspicuously absent in sub- clause (i) of section 72 and as such there is no impediment on the part of the assessee to seek for set off of the business loss for the assessment year in question against “profits and gains” and such business loss cannot be restricted to business profits only. He relied on the various judgments.
Contention of the Revenue
The ld counsel of the revenue submitted that when the assessee himself had declared in his return of income filed for the assessment year 2004-05 that the income earned was from “other sources”. Assessing Officer had committed an error in giving a set off towards loss in respect of the income earned from business and this being an error apparent on the face of the record and Assessing officer having no jurisdiction to change the head of income had committed an error in doing so in the assessment order dated 30.11.2006 and as such rectification proceeding was initiated against the assessee by issuance of notice under section 154 and as such it cannot be faulted with. He relied on the judgments Tuticorn Alkali Chemicals and Fertilizers Ltd. vs. CIT (1997) 93 Taxman 502 and CIT vs. Menon Impex pvt. Ltd. (2003) 128 Taxman 0011.
Held by CIT (A)
CIT (A) dismissed the appeal of the assessee and affirmed the order passed by the jurisdictional Assessing Officer.
Held by ITAT
ITAT held that one cannot change the “head” in proceedings under section 154 and therefore Assessing Officer could not have changed the head from “income from other sources” as claimed by assessee to that of “income from business” and could not have allowed to set off against the carry forward business. However, he dismissed the appeal of the assessee confirmed the orders passed by the authorities.
Held by High Court
It is not in dispute that the assessee is carrying on the business of money lending and had deposited money in Fixed Deposits, NSCs, Banks and had earned interest and in the return of income filed had shown the interest income earned under the head “Income from other sources”.
A bare reading of section 154 would clearly indicate that Assessing Officer would be empowered to invoke section 154 namely amend any order passed by it under the provisions of the Act, amend with intimation or deemed intimation under sub- section (1) of Section 143 or on intimation under sub- section (1) of section 200A as indicated under section1 (a) (2) to (8) of Section 154 in order to rectify any mistake apparent from the record. We are of the considered view that the Assessing Officer could not have resorted to invoking section 154 so as to bring within the sweep of “error apparent on the face of the record”. The Hon’ble Apex Court in T.S.Balaram Vs Volkart Brothers and others reported in 1971 (82) ITR 50 has observed that a mistake apparent on the record must be obvious and patent mistake and not something which is established by long drawn process of reasoning. Thus, keeping in mind the dicta laid down in the above referred case when the facts on hand are perused yet again, we are left with irresistible conclusion that in the instant case the Assessing Officer sought to rectify the original assessment order on the ground that carried forward business loss was to the tune of Rs. 24,23,760/- and same had been set off against the total income which was inclusive of the income earned by the assessee under the head “Income from Other Sources” and “Income from House Property” as declared by him in the return of income and carried forward loss could have been set off against “Business Income” only.
As to whether income earned by way of interest would form part of total income so as to allow the assessee to seek set-off is an issue which will have to be gone into in detail and mere declaration in the return of income by assessee would not alter its status and as such it cannot be held that an error had occurred in the assessment order so as to enable the Assessing Officer to invoke section 154 for rectification. In that view of the matter we are of the view that substantial question of law No.1 formulated herein above is required to be answered in the negative i.e., in favour of assessee and against the revenue.
Accordingly appeal of the assessee allowed.