K. S. Venkatesh vs. DCIT (Karnataka High Court)

DATE: July 3, 2015 (Date of pronouncement)
DATE: November 16, 2015 (Date of publication)
AY: 2004-05
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S. 154: Even if assessee offers interest income as "Other Sources" and claims set-off of brought forward business loss against it u/s 72, AO is not permitted to rectify as issue is debatable

The assessee, carrying on the business of money lending, 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 of Rs. 20,41,899 under the head “Income from other sources”. The assessee sought that business loss to the tune of Rs. 24,23,760/- being set off against the total income of Rs. 27,07,925/- which comprised “Income from Other Sources”, “Income from House Property” apart from “Income from Business”. This came to be accepted by the Assessing Officer and accordingly assessment order came to be framed on 30.11.2006. The AO passed a rectification order u/s 154 on the ground that the carried forward business loss to the tune of Rs. 24,23,760 had been allowed to be set off against “Income from Other Sources” and “Income from House Property” same should have been restricted to be set off only against “Business Income” as stipulated under section 72 of the Act on the ground that assessee himself had declared the interest earned from Banks, NSCs and Fixed Deposits as “Income from Other Sources” in his return of income. The AO’s order was upheld by the Tribunal. On appeal to the High Court HELD allowing the appeal:

As to whether this set off which has been claimed by the assessee is to be construed as one falling within four corners of Section 72 of the Act itself would be a debatable point and as such if the issue involves examination in detail, we are of the considered view that the Assessing Officer could not have resorted to invoking section 154 of the Act 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. 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 already observed by us herein above the issue as to whether the said income earned by way of interest on Fixed Deposits, NSCs, would be available to the assessee to seek for set off as business loss or not under section 72 of the Act is a debatable issue and as such we are of the considered view that said issue could not have been gone into in a proceeding under section 154 of the Act. 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 of the Act for rectification.

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