Law:

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Section 154 of the Income-tax Act, 1961 - Rectification of mistake - Apparent from record - Assessment year 1966-67 - For assessment year 1966-67, penal interest was levied on assessee, a registered firm, under section 139(1) for late filing of return - Subsequently, ITO realised that interest was leviable by treating assessee as unregistered firm in view of proviso (iii)(a) to section 139(1) and passed rectification order under section 154 enhancing penal interest - Whether issue of levy of penal interest under proviso (iii)(a) to section 139(1) treating registered firm as unregistered firm in absence of application for extension of time for filing return by assessee being controversial, ITO was unjustified in taking resort to section 154 - Held, yes Facts For the assessment year 1966-67, the assessee-firm filed its return on 23-7-1968 though it was due to be filed on or before 30-9-1966. While completing the assessment, the ITO levied penal interest under section 139(1) and completed the assessment. Realising subsequently that the status of the assessee was that of a registered firm and that penal interest was chargeable by treating the assessee as an unregistered firm under section 139(1)(iii)( a), the ITO enhanced the penal interest by rectifying the assessment order under section 154. On appeal, the AAC held that in view of the provisions in section 139(1)(iii)( a), levy of interest taking the assessee as registered firm was an apparent mistake which could be rectified under section 154. However, the AAC held that as the assessee had not made any application for extension of time for filing its return, it was not liable to penal interest at all. On appeal by the revenue, the Tribunal upheld the order of the AAC. On reference: Held The settled legal position laid down by the Supreme Court in the case of T.S. Balaram, ITO v. Volkart Bros. [1977] 82 ITR 50 , is that a mistake apparent from the record must be an obvious and patent mistake and not something which has to be established by a long drawn process of reasoning on a point or points on which there may conceivably be two opinions. A decision on a debatable point of law is not a mistake apparent from…

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