Commissioner of Income Tax vs Mali Ram Verma

On the application filed u/s 256(1), the Tribunal has referred the following question for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the learned Dy. CIT(A) on the ground that the issue before him was debatable and hence could not be considered as a mistake apparent on record rectifiable u/s 154 despite the fact that when the Tribunal decided the appeal, the issue was no longer debatable as far as the State of Rajasthan was concerned, in view of the decision of the Hon''ble Rajasthan High Court in the case of Commissioner of Income Tax Vs. Shiv Raj Bhatia,

The assessee is a development officer of the LIC. In the year under consideration, the assessee claimed deduction of 50 per cent on account of expenditure out of the incentive bonus earned by him. The return was processed u/s 143(l)(a) without any adjustment being made to the returned income. The AO, however, subsequently withdrew the claim of the assessee by passing an order u/s 154. The assessee preferred an appeal before the Dy. CIT(A). Dy. CIT(A) quashed the order of AO u/s 154 of the IT Act, 1961, on the ground that whether assessee is entitled for deduction of any expenditure out of incentive bonus, is a debatable issue, therefore, ITO cannot withdraw the expenditure on incentive bonus in an order u/s 154 of the Act. The view taken by Dy. GIT(A) has been affirmed by the Tribunal vide order dt. 12th Jan., 1998

Learned counsel for the revenue Mr. Mathur submits that issue involved in this case has been considered by this Court in the case of Commissioner of Income Tax Vs. Shiv Raj Bhatia, vide order dt. 1st May, 1996, holding that when assessee is employee of the LIC and received any incentive bonus, no deduction can be allowed out of that incentive bonus in the name of expenditure.

Mr. Mathur further submits that when there is a decision of the High Court on the date of order of Tribunal, Tribunal cannot say that issue is debatable and Tribunal is bound to follow the view taken by the jurisdictional High Court.

The facts are not in dispute that in processing the return, the deduction claimed by the assessee out of incentive bonus has not been disallowed. Subsequently in an order u/s 156 that incentive bonus has been withdrawn. Though there was no decision of the High Court on the date of order of the AO, but on the date of order of Tribunal i.e., 12th Jan., 1998, the decision of jurisdictional High Court in case of Shiv Raj Bhatia v. CIT (supra) was available. We agree with Mr. Mathur that on that date, Tribunal cannot say that issue is debatable so far Rajasthan State is concerned. When the issue is not debatable, Tribunal has committed error in holding that issue is debatable in spite of decision of jurisdictional High Court in Shiv Raj Bhatia''s case (supra), which is binding on the IT authorities including Tribunal.

In the result, we answer the question in negative i.e., in favour of Revenue and against assessee.

Reference so made stands disposed of accordingly.