2014 (2) TMI 663 - AT - Income Tax

Rectification of order u/s 154 of the Act Error apparent on record Addition of expenditure Held that - Allowance of expenses on account of leave encashment whether the expenses are allowable in relevant assessment year on payment basis or an earlier year Held that - A question which involved interpretation of law and determination of controversial facts could not be rectified under section 154 of the Income-tax Act, 1961 - Relying upon Deva Metal Powders (P.) Ltd. v. Commissioner, Trade Tax, UP 2007 (12) TMI 221 - SUPREME COURT OF INDIA a rectifiable mistake must exist and the same must be apparent from the record - It must be a patent mistake, which is obvious and whose discovery is not dependent on elaborate arguments - a rectifiable mistake is a mistake which is obvious and not something which has to be established by a long drawn process of reasoning or where two opinions are possible. Cancellation order passed u/s 154 of the Act Held that - The assessee explained before the AO that the brokerage and commission income earned by it in the relevant year - It was explained before the AO that the discount from dealers and manufacturers was also derived by assessee in the relevant assessment year by placing order on behalf of its customers for purchase of cars/vehicles - The discount is basically in the nature of commission given by manufacturer/dealer on the value of every vehicle booked by assessee. According to assessee, due to long term policy and to maintain long term business relations an understanding has evolved between the assessee company and the dealers which entitles the latter to a certain percentage of discount/commission on every booking of vehicles made by it. Discount from dealer/manufacturer Held that - The manufacturer/dealer discount is included in the TDS certificates and also accounted for by the assessee under the head brokerage and commission - Whether the discount is allowable as discount from dealer/manufacturer is clearly an allowable deduction - Even though, if at all, it is to be considered not to be allowable, it is a highly debatable issue and this cannot be disallowed u/s. 154 of the Act because this is not a mistake apparent from record - CIT(A) has rightly deleted the addition and we confirm the same Decided against Revenue.

Summary

Issues Involved:
1. Rectification order passed by AO u/s. 154 for addition of expenditure.
2. Rectification order passed by AO u/s. 154 for addition of income arising out of discounts.

Issue 1: Rectification order for addition of expenditure:
The appeal by revenue challenges the order of CIT(A) canceling the rectification order passed by the AO u/s. 154 for adding expenditure. The AO claimed that a mistake occurred regarding the provision for leave encashment, disallowed in AY 2005-06 but allowed in AY 2006-07. The assessee argued that the payment was made in AY 2006-07 and correctly claimed the deduction u/s. 43B. The CIT(A) considered the issue and held that the matter was debatable, not a clear mistake, citing legal precedents. The CIT(A) concluded that the issue was not a mistake apparent from the record and dismissed the revenue's appeal.

Issue 2: Rectification order for addition of income from discounts:
The revenue's appeal challenges the CIT(A)'s decision to cancel the rectification order adding income from discounts. The AO added Rs.24,57,260 as income arising from discounts after initially allowing it during assessment u/s. 143(3). The assessee explained that the discount was essentially commission received from dealers/manufacturers for vehicle bookings. The CIT(A) accepted the assessee's explanation and deleted the addition, considering the issue debatable and not a clear mistake. The CIT(A) found that the discount was accounted for correctly and allowed as a deduction. The Tribunal upheld the CIT(A)'s decision, stating that the issue was not a mistake apparent from the record. Consequently, the revenue's appeal was dismissed.

In conclusion, both issues involved rectification orders passed by the AO under section 154 of the Income-tax Act. The Tribunal upheld the CIT(A)'s decisions in both cases, emphasizing that the matters were debatable and not clear mistakes apparent from the record.