In a recent ruling, the Income Tax Appellate Tribunal ( ITAT ) of Delhi held that rectification is not ermissible for debatable issues related to income tax matters. The case in question involved the assessee, Beacon Higher Education Services Pvt. Ltd., who had claimed depreciation on a non-compete fee under the Income-tax Act, 1961 ( ITA ). The depreciation claim arose from agreements made in 2011, one for service continuation and another for non-compete purposes, amounting to ₹1,20,93,750.
During the assessment process for the financial year 2014-15, the Assessing Officer ( AO ) found that the non-compete agreements did not qualify as intangible assets eligible for depreciation. The AO issued a rectification notice under Section 154 of the tax statute, aimed at correcting what was considered an obvious mistake in the original assessment. In response, the assessee defended its claim but was ultimately overruled, leading to the disallowance of the depreciation and an addition of ₹1,20,93,750 to the assessee-company’s taxable income.
Get a Copy of GST Question Compendium with 500 Real World Queries, Click Here
Aggrieved, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who initially ruled in the assessee-company’s favor, stating that the issue was outside the scope of Section 154 of ITA, which is reserved for correcting apparent mistakes and not debatable issues. However, in a surprising turn, the CIT(A) later reversed his decision, following a ruling by the Delhi High Court in Sharp Business Systems v. CIT. The High Court had ruled against a similar depreciation claim on a non-compete fee, prompting the CIT(A) to disallow the assessee’s claim as well.
Aggrieved, the assessee took the matter to the ITAT, arguing that the issue of depreciation on non-compete fees was highly debatable, with various High Courts offering conflicting views. Moreover, the decision in the Sharp Business Systems case was under appeal before the Supreme Court. The assessee’s legal team stressed that Section 154 of ITA only applies to clear, unmistakable errors and not to complex legal issues that require detailed interpretation. They cited several judicial precedents to support their argument that rectification is inappropriate when the law can be interpreted in more than one way.
Get a Copy of GST Question Compendium with 500 Real World Queries, Click Here
The Bench of Mr Kul Bharat and Mr Brajesh Kumar Singh, after reviewing the case, sided with the assessee. It ruled that since the issue was indeed debatable and pending final resolution in higher courts, it did not qualify as a “mistake apparent on record” under Section 154 of tax statute. The tribunal further noted that when there is room for multiple interpretations of a tax provision, the interpretation favoring the taxpayer should be preferred. As a result, the ITAT set aside the CIT(A)’s rectification order, allowing the assessee’s appeal for statistical purposes.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
