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TMI Blog2022 (11) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2017, and thereafter, filed its revised return on 14th May, 2018, both times declaring an income of NIL, as there was business loss in the AY 2017-18. 4. The Assessing Officer ('AO') initiated scrutiny assessment proceedings under Section 143(3) of the Income Tax Act, 1961 ('the Act of 1961') for the said assessment year and passed assessment order dated 21st December, 2019. The AO disallowed the write off of the 'bad debt' and made an addition to income of Rs.30,00,152/-. The AO computed and raised a demand of Rs.5,53,839/-. 5. The Assessee filed an appeal against the aforesaid assessment order dated 21st December, 2019, which is pending before the Commissioner of Income Tax (Appeals). 6. In the meantime, the Act of 2020 was notified, which provided for resolution of disputed tax. The applications eligible for settlement under the Act of 2020 were the proceedings which were pending and filed upto 31st January, 2020. The benefit of the Direct Tax Vivad Se Vishwas Scheme ('DTVSV Scheme') could be availed by Assessee upon payment of tax amount and the Assessee would be benefitted by the waiver of interest and penalty. Further, the DTVSV Scheme offered the Assessee immunity from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that there was error apparent in the AO's treatment of disallowed bad debt by himself. The Assessee, therefore, requested AO to consider the application and rectify the mistake apparent from record since business income needs to be adjusted against business loss first and balance business loss is to be set-off against other heads of income. 12. Learned counsel for the Petitioner states that the present petition has been filed against the arbitrary action of the Respondent in modifying its original assessment order dated 21st December, 2019, which was pending in appeal, while considering the Assessee's application for resolution of the tax dispute of AY 2017-18 under the DTVSV Scheme. She states that the action of the AO is in excess of his jurisdiction under the Act of 2020, as it is contrary to the intent of the DTVSV Scheme and also violative of the rights of the Assessee to have the tax dispute settled under the Scheme. She states that the exercise of modification of tax demand undertaken by the AO, while considering the application filed by the Assessee under the DTVSV Scheme of 2020 is impermissible, in addition to being contrary of the object of the DTVSV Scheme. She sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ources - Rs. 34,79,649/- Business Loss - (Rs. 41,37,936) Business Loss - (Rs. 71,38,088) Add: bad debts disallowed - Rs. 30,00,152/- 30,00,152 2. Total Taxable Income 30,00,152 3. Tax @15% (Taxed at special rate being Short Term Capital Gain) 4,50,023 4. Education Cess @3% 13,501 5. Total Tax Payable 4,63,524 Computation modified as per rectification order dated 15th February, 2021 'TABLE B' S. No. Particulars Amount (in Rs.) 1. Return Income declared by the Assessee as under: Business Loss - (Rs. 71,38,088) Add: Capital gain as declared - Rs.36,58,439/- Add: Income from other sources - Rs.34,79,649/- NIL 2. Addition made by AO 30,00,152 3. Total Taxable Income 30,00,152 4. Tax @30% 9,00,046 5. Education Cess @3% 27,001 6. Total Tax Payable 9,27,047 18. It is not disputed by the Respondent in its Counter Affidavit and by the learned senior standing counsel for Revenue during the arguments that both the computations are equally permissible under the Act of 1961 and that the AO has modified the computation dated 21st December 2019 in his rectification order dated 15th February, 2021, solely on the basis of audit objection ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d debt has to be added to the business income of the assessee to arrive at the net income/net loss. It is not chargeable to tax as a separate head of income as is sought to be done in TABLE B. 23. Further, the objection raised by the Audit Party in this case was not to a mistake apparent from the record, which can be corrected under Section 154 of the Act of 1961, but it is an opinion in law on the manner in which set-off of business losses is to be permitted. It is also evident from the record that the legal opinion of the Audit Party is at variance with the opinion of the AO, who determined that it was permissible to add as income, the amount arising from disallowed bad debt resulting in reduction of the business loss, while passing the original assessment order. Therefore, there were two different legal opinions available on record with respect to the sequence of set-off giving rise to a debatable issue. 24. In this regard, it would be relevant to mention here that the Supreme Court in the case of T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay v. M/s Volkart Brothers, Bombay, 1971 (2) SCC 526, has held that for the purpose of Section 154 of the Act of 1961, a mist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and scope of the functions of the internal audit organisation of the Income Tax Department are co-extensive with that of Receipt Audit or on the basis of the provisions specifically detailing its functions in the Internal Audit Manual, we hold that the opinion of an internal audit party of the Income Tax Department on a point of law cannot be regarded as "information" within the meaning of Section 147(b) of the Income Tax Act, 1961. (Emphasis Supplied) 29. Thus, since the objection of the Audit Party in this case was on a point of law, no reassessment proceedings could also have been permissible, inasmuch as the Supreme Court in M/s Indian & Eastern Newspaper Society (Supra) has clearly held that the opinion of an internal Audit Party of the Income Tax Department on a point of law cannot be regarded as 'information' and gives no cause to the AO to initiate reassessment proceedings. The Supreme Court while deciding the aforesaid issue, in reference to the provisions of Section 34(1)(b) of the erstwhile Income Tax Act, 1922, corresponding to S. 147 of the Act, has also held that discovery of an error by the Income Tax Officer, upon reconsideration of the same material, does not gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing was initiated consequent to an audit objection dated 31st August, 2020, even though, the rectification order finally came to be passed on 15th February, 2021 and therefore, we are unable to agree with the contention of the Petitioner that the rectification proceedings were initiated only upon receipt of the application of the assessee on 28th December, 2020 under the Act of 2020. 35. However, the aforesaid issue need not detain us, since we have held that the rectification order itself was incorrect and as held above, we have set aside the impugned rectification order dated 15th February, 2021. We also set aside the consequential order of the Respondent rejecting the Petitioner's application for settlement under the DTVSV Scheme, on the ground that the tax liability was not ascertained, and restore the application to the file of the AO as on 28th December, 2020. We direct the Respondent to determine the amount payable by the assessee in accordance with the provisions of the Act of 2020 and grant a Certificate to the assessee containing particulars of tax arrears and amount payable, in accordance with law, within a period of two weeks. 36. The writ petition stands disposed of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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