2015 (11) TMI 984 - AT - Income Tax

Rectification of mistake - allowing the brought forward losses of the assessment year 2005-06 - CIT(Appeals) cancelling the order passed under section 154 - Held that - The exercise of power under section 154 in the present case is totally invalid. As can be seen, the loss of ₹ 92,85,891 was quantified and allowed to be carried forward while processing the return filed by the assessee under section 143(1) of the Act for the assessment year 2005-06. However, the loss and depreciation involved was not verifiable. Therefore, if at all there is a mistake, then, it is in the quantification and carry forward of loss in the assessment year 2005-06 because of the fact that loss could not have been carried forward due to delayed filing of return of income. However, once loss was quantified and allowed to be carried forward in the assessment year 2005-06, we are not able to understand how it can be rectified in the assessment year 2006-07 wherein the brought forward loss has only been set off. Therefore, there being no mistake apparent on record in the assessment order passed for the impugned assessment year, exercise of power under section 154 of the Act is invalid. Accordingly, there being no infirmity in the order of learned Commissioner of Income-tax (Appeals), we uphold the same by dismissing ground raised. - Decided in favour of assessee.

Issues: Jurisdiction to invoke power under section 154 of the Income-tax Act

Analysis:
The appeal was against the order of the Commissioner of Income-tax (Appeals) pertaining to the assessment year 2006-07. The Department raised a ground challenging the cancellation of an order under section 154 of the Income-tax Act. The Assessing Officer had issued a notice under section 154 to rectify a mistake in the assessment order related to the allowance of brought forward losses. The order under section 154 disallowed the brought forward loss, resulting in an increased total income. The assessee contended that the Assessing Officer had no jurisdiction to invoke power under section 154, supported by various judicial precedents. The Commissioner of Income-tax (Appeals) held the order under section 154 invalid, stating that the mistake was not apparent from record and was a debatable issue.

Upon review, the Tribunal noted that the assessee had quantified the loss to be carried forward in the return for the assessment year 2005-06, and it was allowed to be carried forward after processing under section 143(1). In the assessment year 2006-07, the assessee set off the brought forward loss and declared nil income, with the assessment completed under section 143(3). The Assessing Officer later disallowed the set off based on the delayed filing of the 2005-06 return. The Tribunal found the exercise of power under section 154 invalid, as the quantification and carry forward of loss in 2005-06 was the actual mistake, not in the subsequent year. Once the loss was allowed to be carried forward, rectifying it in the following year was deemed inappropriate. The Tribunal upheld the Commissioner's decision, dismissing the Department's appeal.

In conclusion, the Tribunal ruled that the exercise of power under section 154 was invalid in this case, as there was no mistake apparent on record in the assessment order for the relevant assessment year. The decision of the Commissioner of Income-tax (Appeals) to cancel the order under section 154 was upheld, and the Department's appeal was dismissed.

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