2012 (10) TMI 401 - AT - Income Tax

Rectification u/s 254(2) Disallowance u/s 14A Since the matter has been left un-adjudicated and therefore, there is an apparent mistake in the impugned order of this Tribunal, which requires to be rectified. Issue needs fresh consideration following the decision in case of Godrej & Boyce Manufacturing Co Ltd (2010 (8) TMI 77 - BOMBAY HIGH COURT). Issue remand back to AO. Rectification u/s 254(2) - Disallowance of deduction u/s 10A on suo-moto disallowance made by the assessee in relation to reimbursement of salary and expenses of its AE Held that - As the finding of the Tribunal is not based on any new issue or point; but the disallowance was made by the AO and confirmed by the CIT(A) on the very same point. For exercising the jurisdictional u/s 254(2), it is the mandatory condition that such mistake should be wide apparent, manifest and patent and not something which could be involved serious circumstances of disputes of question of facts or law and can be established by long drawn process and reasoning on the point to be rectified. Therefore, the Tribunal has no power to review its order passed on merit and in the grab of rectification of mistake no order can be passed u/s 254(2) which amounts to reversal of the order passed after discussing all the facts and statutory provisions in detail. Issue decides in favour of revenue.

Summary

Issues:
1. Non-adjudication of disallowance u/s 14A of the IT Act.
2. Disallowance of deduction u/s 10A on suo-moto disallowance made by the assessee.

Analysis:

Issue 1: Non-adjudication of disallowance u/s 14A of the IT Act
The assessee raised a point in the Miscellaneous Application regarding the non-adjudication of the disallowance u/s 14A of the IT Act in the order dated 30.3.2012. The Tribunal found that the issue had been left un-adjudicated and required rectification. Referring to the decision of the Bombay High Court in the case of Godrej & Boyce Manufacturing Co Ltd vs DCIT, the Tribunal decided not to interfere with the order of the Commissioner of Income Tax(Appeals) regarding the disallowance u/s 14A. The Tribunal directed the Assessing Officer to consider the contention of the assessee that no direct or indirect expense had been incurred to earn the exempt income.

Issue 2: Disallowance of deduction u/s 10A on suo-moto disallowance made by the assessee
The second mistake alleged by the assessee in the Miscellaneous Application pertained to the disallowance of deduction u/s 10A concerning the reimbursement of salary and expenses of its AE. The Tribunal considered the arguments presented by both parties. The Assessing Officer and the Commissioner of Income Tax(Appeals) disallowed the deduction u/s 10A on the grounds that the income resulting from the adjustment made by the assessee had no nexus with the software development activity, thus not qualifying for the deduction. The Tribunal examined the issue and upheld the decision of the Assessing Officer and Commissioner of Income Tax(Appeals) regarding the disallowance u/s 10A. The Tribunal found that the disallowance was not based on any new issue and therefore did not require rectification under sec. 254(2).

In conclusion, the Tribunal partly allowed the Miscellaneous Application filed by the assessee, maintaining the decisions on both issues.