2015 (3) TMI 1343 - AT - Income Tax

Revision u/s 263 - AO has not disallowed provision for gratuity and provision for leave encashment - rectification u/s. 154 - computation of book profit u/s 115JB - HELD THAT - CIT has reached to a prima facie conclusion that assessment order is erroneous and so also prejudicial to the interest of Revenue for the reason that the AO has not disallowed provision for gratuity amounting to ₹ 25.75 lakhs and provision for leave encashment amounting to ₹ 11,79,202 while framing assessment u/s. 143(3) and thereafter computing book profit u/s 115JB of the Act. Even now before us, on merits the assessee has nothing to say rather the assessee on merits has conceded this issue that the same is subject-matter of rectification u/s. 154 of the Act. As the issue is covered in the case of South India Steel Rolling Mills (1997 (2) TMI 10 - SUPREME COURT), we confirm the order of CIT revising the assessment. But the assessment cannot be directed to be reframed de-novo and AO will go into the issues raised by CIT in his order i.e. the issue of provision of leave encasement and provision of gratuity. - Decided against assessee.

Summary

Issues:
1. Revision order passed by CIT u/s 263 of the Income Tax Act
2. Whether a mistake apparent from record rectifiable u/s 154 can be considered as an error in the assessment order
3. Jurisdiction of CIT to revise assessment and direct de novo assessment

Issue 1: Revision order passed by CIT u/s 263 of the Income Tax Act

The appeal arose from a revision order passed by CIT, Kolkata-1 u/s 263 of the Income Tax Act, 1961. The assessment for AY 2008-09 was framed by DCIT, Circle-3, Kolkata u/s. 143(3)/115JB of the Act. The assessee challenged the revision order on four grounds, questioning the CIT's authority and jurisdiction. The CIT issued a show-cause notice for revising the assessment based on the non-inclusion of provisions for gratuity and leave encashment while computing tax u/s. 115JB. The CIT directed the AO to verify the facts and figures, despite the pending rectification application u/s. 154. The Tribunal analyzed the issue and upheld the CIT's revision order, emphasizing the distinct powers of rectification u/s. 154 and revision u/s. 263 granted to the CIT.

Issue 2: Whether a mistake apparent from record rectifiable u/s 154 can be considered as an error in the assessment order

The assessee contended that the mistake regarding the provisions for gratuity and leave encashment, which was rectifiable u/s. 154, should not constitute an error in the assessment order under u/s. 263. The Tribunal referred to the provisions of Section 154, highlighting the AO's obligation to rectify such mistakes within six months of receiving the application. Despite the AO's inaction on the rectification application, the CIT was not precluded from exercising revisionary powers u/s. 263. The Tribunal cited the Supreme Court's decision in South India Steel Rolling Mills case, emphasizing the wide amplitude of revisional powers u/s. 263 and confirming the CIT's authority to revise the assessment.

Issue 3: Jurisdiction of CIT to revise assessment and direct de novo assessment

The Tribunal addressed the jurisdictional aspect of the CIT's power to revise the assessment and direct a de novo assessment. While the AO had not rectified the mistake apparent from record within the specified timeframe, the CIT proceeded with the revision under u/s. 263. The Tribunal upheld the CIT's revision order, noting that the AO's failure to act on the rectification application did not hinder the CIT's authority to revise the assessment. The Tribunal dismissed the assessee's appeal, confirming the CIT's revision order and directing the AO to address the issues raised regarding the provisions for leave encashment and gratuity.

In conclusion, the Tribunal upheld the CIT's revision order under u/s. 263, emphasizing the distinct powers of rectification and revision granted to the AO and CIT, respectively. The Tribunal confirmed the CIT's authority to revise the assessment based on the error identified, despite the pending rectification application, and dismissed the assessee's appeal.