Debatable Issues Cannot Be Rectified Under Section 154 Of Income Tax Act: ITAT Ahmedabad

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) on 7 April held that authorities cannot invoke Section 154 of the Income Tax Act, 1961 to rectify debatable issues, as the provision applies only to mistakes apparent from the record.

A Bench comprising Judicial Member Suchitra Kamble and Accountant Member Narendra Prasad Sinha quashed the rectification order passed against The Madhavpura Mercantile Co-Operative Bank Ltd (under liquidation). It held:

“Any issue which is debatable in nature cannot be subject matter of rectification proceeding u/s. 154 of the Act,”

The bank filed its return for assessment year 2016–17 declaring nil income after setting off brought forward losses of Rs. 54.28 crore. The Assessing Officer later passed a rectification order and taxed Rs. 8.15 crore as short-term capital gains arising from the sale of depreciable assets, holding that the gains could not be adjusted against business losses.

The bank argued that its income stood diverted to the Deposit Insurance and Credit Guarantee Corporation (DICGC) due to an overriding title because it operated under liquidation.

The Tribunal rejected this contention. It held that the Supreme Court ruling in Deposit Insurance and Credit Guarantee Corporation v. Raghupathi Raghavan only granted DICGC priority in repayment and did not prevent accrual of income to the bank.

In the appeal for assessment year 2017–18, the Tribunal deleted an addition of Rs. 54.36 lakh towards bad debts after finding that the bank had written off the amounts in its books and that they arose from loans given in the ordinary course of banking business. It further held:

“Considering these facts, the issue of adjustment of STCG derived on sale of depreciable assets with the brought forward business loss is found to be debatable in nature and therefore could not have been subject matter of rectification proceeding u/s. 154 of the Act,”

Accordingly, the ITAT allowed the appeals and disposed of the matter.