2025 (4) TMI 985 - AT - Income Tax

Rectification u/s 154 - Mistakes apparent from the original assessment order - Deduction u/s 80IA in respect of seven units transferred after 01.10.2009 from the demerged company - HELD THAT - We can conclude that the issue of allowability of the deduction u/s 80IA(12A) is not an issue which could be considered a case of prima facie mistake apparent from the records. The issue under consideration was examined by the CIT(A) in appeal to the extent of partial disallowance due to reallocation of head office expenses. CIT(A) having co-terminus powers of the Assessing officer and also having powers of enhancement however did not consider it appropriate to modify the claim of the assessee in any other manner or for that matter invoking the provisions of above sub-section which was very much open even before him having partly considered it. Moreover the detailed discussion and analysis in the case of Ultratech 2023 (2) TMI 916 - ITAT MUMBAI in itself makes it evidently clear that the issue could not be decided by invoking the provisions of section 154 of the Act. We dismiss the grounds of appeal in this regard. Deduction u/s 80IA in respect of TPP - AO was not justified in invoking the provisions of section 80IA(2A) for withdrawing the claim of the assessee even on merits. The provisions of rectification u/s 154 of the Act in any case could not have been applied on the facts and the circumstances of the case. Therefore both on legal grounds and merits of the case we do not find any substance in the grounds of the Revenue which are accordingly dismissed.

The core legal questions considered in this appeal revolve around the validity and scope of the rectification order passed under section 154 of the Income-tax Act, 1961, particularly concerning the claim of deduction under section 80IA and its sub-sections, including the newly inserted subsection (12A). The principal issues addressed include:

1. Whether the rectification order under section 154 should be confined to correcting mistakes apparent from the original assessment order or can also consider the appellate order passed by the Commissioner of Income-tax (Appeals) (CIT(A)).

2. Whether the rectification order was rightly passed on a matter already decided by the CIT(A), or whether the issue raised was distinct and not previously adjudicated.

3. Whether the Assessing Officer (AO) could, by way of rectification under section 154, modify or overturn the decision of the CIT(A), and whether such rectification invalidates the statutory jurisdiction or time frame.

4. The correctness of allowing the deduction under section 80IA, specifically in light of the insertion of subsection (12A), and the ongoing appeals before the High Court on similar issues.

5. Whether a change of opinion on the same set of facts can constitute a mistake apparent from the record, especially when the claim is a beneficial one under section 80IA, and whether the denial of such deduction amounts to an error of law and ultra vires Article 265 of the Constitution.

Regarding the first three issues on the scope and propriety of rectification under section 154, the legal framework is clear that rectification is permissible only to correct "mistakes apparent from the record." The Supreme Court has held that a mistake apparent must be an obvious, glaring, or self-evident error, not one requiring elaborate argument or involving debatable questions. The AO's power under section 154 is limited and does not extend to reviewing or changing an order on merits or reconsidering issues already decided in appeal.

The Court noted that the CIT(A) had rightly confined the rectification to the appellate order and not the original assessment order, emphasizing that once an issue has been decided by the CIT(A), the AO cannot invoke section 154 to alter that decision. The AO's attempt to withdraw the deduction under section 80IA by invoking subsection (12A) was found to be a change of opinion rather than rectification of a mistake apparent from the record. The Court relied on precedents that disallow the use of section 154 for revisiting settled issues or for reassessment under the guise of rectification.

The Court also considered the submissions and evidence that the claim under section 80IA was thoroughly examined during the regular assessment proceedings and allowed by the AO with certain adjustments. The subsequent attempt to disallow the deduction via rectification was thus held to be impermissible.

On the substantive issue of the allowability of deduction under section 80IA, particularly subsection (12A), the Court undertook a detailed examination of the legislative history, statutory provisions, and relevant judicial precedents. Section 80IA provides tax deductions for profits and gains of certain undertakings, including power generation units. Subsection (12) was introduced to clarify that in case of amalgamation or demerger, the benefit of deduction would flow to the successor company as if the amalgamation had not taken place. However, subsection (12A), inserted by the Finance Act 2007 with effect from 1 April 2008, states that subsection (12) shall not apply to undertakings transferred in a scheme of amalgamation or demerger on or after 1 April 2007.

The AO relied on subsection (12A) to deny the deduction to the assessee for units acquired from the demerged company. The assessee argued that subsection (12A) merely negated the disabling effect of subsection (12) and restored the pre-2000 position where both amalgamating and amalgamated companies could claim deductions on a pro-rata basis. The assessee further contended that the scheme of amalgamation had been sanctioned by the High Courts, conferring a right to claim deductions on the amalgamated company.

The Court referred extensively to coordinate bench decisions of the Tribunal in the assessee's own case for various assessment years, which had allowed the deduction under section 80IA(12A) after detailed analysis. These decisions held that subsection (12A) does not disentitle the successor entity from claiming deduction and that the benefit is attached to the undertaking, not the owner. The Court observed that the legislative intent behind subsection (12A) was to neutralize the effect of subsection (12), which had curtailed the amalgamating company's rights, rather than to deny the successor company's entitlement.

The Court also noted that the ultimate shareholder, Grasim Industries Limited, retained entrepreneurial risk and ownership, supporting the claim that the deduction should continue. Additionally, the Court rejected the Revenue's reliance on Circulars issued by the CBDT as they cannot override the plain language of the statute or judicial interpretations.

On the issue of whether the AO could rectify the order after the CIT(A) had allowed the deduction, the Court held that the AO could not invoke section 154 to withdraw benefits granted by the appellate authority. The CIT(A)'s order, even if brief, was a decision on the matter, and the AO's rectification attempt was impermissible as it amounted to review or change of opinion, which is beyond the scope of section 154.

Regarding the contention that a change of opinion on the same facts does not constitute a mistake apparent from the record, the Court affirmed the settled legal position that rectification under section 154 cannot be used to revisit debatable issues or re-examine facts already considered. The claim under section 80IA being a beneficial claim, its wrongful denial would amount to an error of law and ultra vires Article 265 of the Constitution. The Court relied on authoritative precedents holding that rectification is not a substitute for appeal or revision and cannot be used to effect a change of opinion.

In conclusion, the Court upheld the CIT(A)'s order allowing the deduction under section 80IA and dismissed the Revenue's appeal against the rectification order. The Court emphasized that the AO's reliance on subsection (12A) to withdraw the deduction was legally unsustainable and that the rectification provisions could not be invoked to alter an issue already decided on merits by the appellate authority. The Court's decision preserves the principle that rectification orders must be confined to correcting manifest errors and cannot be used as a tool for reassessment or review of settled issues.

The significant holdings include the following verbatim excerpts and core principles:

"A mistake apparent from 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 can conceivably be two opinions."

"The provisions of section 154 cannot be resorted to in order to make a revision in a matter on which there could be two plausible interpretations."

"Once an issue has been decided by the CIT(A), the AO could not have invoked provision of section 154 of the Act to withdraw the benefits granted by the CIT(A) on that particular issue."

"Sub-section (12A) of section 80IA of the IT Act merely neutralizes applicability of sub-section (12) and does not disentitle the successor entities to claim deduction in accordance with section 80IA."

"The deduction under section 80IA is attached to the undertaking and not to the owner, and the change in ownership pursuant to amalgamation sanctioned by High Courts does not affect the entitlement to deduction."

"The scheme of amalgamation sanctioned by the High Courts confers the right upon the amalgamated company to continue to claim deduction under section 80IA in respect of the eligible undertakings for the residual period."

"The AO was not justified in invoking the provisions of section 80IA(12A) for withdrawing the claim of the assessee even on merits."

"The rectification order under section 154 of the Act is not a substitute for appeal or revision and cannot be used to change an opinion or review an order already passed."

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