The Income Tax Appellate Tribunal ( ITAT ), Hyderabad bench has held that applying individual tax rates to the AOP is not a mistake apparent on the face of the record and therefore, it cannot be rectified through Section 154 of the Income Tax Act, 1961.
The assessee- Trust was formed for the benefit of a sole beneficiary. It filed its returns of income for the relevant A.Ys and the returns were initially processed u/s 143(1) of the Act. Thereafter, the AO perused the record and observed that the assessee is an AOP and was required to be charged u/s 167B of the Act, whereas, the individual tax rates were wrongly charged. Observing that this is a mistake apparent from the record, he issued a notice u/s 154 of the Act on 4.12.2017 to rectify the said mistake.
The assessee argued that the AOP was regular in filing the returns of its income and the assessments were also completed considering the applicable new slab rates for individuals only and that there is no mistake apparent from record.
The Tribunal analysed the relevant provisions and found that the Member of the AOP should have a share in the income of the AOP and such share should be excluded from his income to examine whether his income exceeds the maximum amount which is not chargeable to tax in the relevant year.
“Therefore, I am of the view that the provisions of section 167B are not applicable automatically, but can be applied only after examination of facts as to whether any of the Member of the AOP has income which exceeds the maximum amount which is not chargeable to tax in the relevant years. Therefore, it is not a mistake apparent from the record which can be rectified u/s 154 of the Act,” the Tribunal said.
“Therefore, I am satisfied that the AO had exceeded his jurisdiction in exercising his powers u/s 154 of the Act. It was clearly a debatable issue and as held by the Hon’ble Supreme Court in the case of T.S. Balaram vs. Volkart Bros (Supra) a mistake apparent from the record must be patent mistake on which there can be no two opinions. Therefore, according to me, the initiation and exercise of powers u/s 154 of the Act by the AO is not sustainable. Even on merits, we find that the Trustees are not the beneficiaries in any way and there is a sole beneficiary who has no other income but the income generated by the Trust. It is also submitted by the learned Counsel for the assessee that the assessee Trust is not carrying on any business but is only managing the income from other sources for the benefit of the beneficiary. Therefore, even on merits, I am not inclined to accept the order u/s 154 of the Act,” the Tribunal said.
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