I assure you, using "it's" as a possessive has never ever been correct. ;D
Also, in keeping with my grammar Nazi status, the correct use of an apostrophe in your example would really be "James's":
Many respected sources require that practically all singular nouns, including those ending with a sibilant sound, have possessive forms with an extra s after the apostrophe. Examples include the Modern Language Association, The Elements of Style, and The Economist. Such sources would demand possessive singulars like these: Senator Jones's umbrella; Mephistopheles's cat. -Wikipedia
(And yes, I am consciously omitting the next two bullet points on Wikipedia's Apostrophe article that support the use of an apostrophe with no s, because exceptions like that are bad and add unneeded complexity -- particularly wholly arbitrary ones based on religion. ;D)