2011 (12) TMI 252 - AT - Income Tax

Rectification under 154 - Return filed adjustment under 143(1) - Held That - Dis-allowance of foreign exchange expenditure can be made after due verification of the details of nature of expenses and other evidences relating thereto, and not certainly by way of rectification treating the item to be in the nature of a mistake apparent from record.

Summary

Issues:
1. Rectification under section 154 of the Income-tax Act, 1961 for Assessment Year 2004-05.
2. Disallowance of losses on foreign exchange fluctuation/expenses.

Issue 1 - Rectification under section 154:
The appeal was filed against an order under section 154 of the Income-tax Act, 1961 for the Assessment Year 2004-05. The Assessing Officer made adjustments to the returned income by disallowing foreign exchange expenditure and unpaid expenses, resulting in a total addition to the income. The Commissioner of Income-tax (Appeals) confirmed the Assessing Officer's action, stating that rectification under section 154 is for rectifying mistakes apparent from records without conflicting interpretations. The appellant's claim of foreign exchange fluctuation was contradicted by notes to accounts, leading to the confirmation of the Assessing Officer's order.

Issue 2 - Disallowance of losses on foreign exchange fluctuation/expenses:
The Assessing Officer's order under section 154 included disallowance of losses on foreign exchange fluctuation/expenses in the returned income. However, the Tribunal noted that the power to rectify intimation under section 143(1) is limited to arithmetical corrections post-June 1, 1999. The Assessing Officer exceeded his authority by re-determining the income through rectification under section 154, which was not permissible under the law. The Tribunal held that the Assessing Officer was unjustified in adding the amount of foreign exchange fluctuation to the returned income and directed its exclusion from the total income, ultimately allowing the appeal filed by the assessee.

In conclusion, the Tribunal found that the Assessing Officer's rectification under section 154 exceeded the permissible scope, leading to the exclusion of the disallowed amount from the total income. The judgment emphasized the limitations on rectification powers post-June 1, 1999, and the necessity for adherence to statutory provisions while making adjustments to returned income.