2016 (4) TMI 1363 - AT - Income Tax

Rectification u/s 154 - TDS u/s 194C OR 194I - application barred by limitation - disallowance u/s 40(a)(ia) - non deduction of TDS u/s 194C on tanker hire charges - Main plank of his argument is that the payments made by the assessee on account of tanker hire charges were in the nature of rent as envisaged in section 194I and not in the nature of works contract covered u/s 194C as taken by the AO - HELD THAT - We are unable to accept this contention for the assessee as disallowance u/s 40(a)(ia) on account of tanker hire charges was made by AO in the order passed u/s 143(3) on 18.12.2007 and not in the order passed u/s 143(3)/147 on 24.12.2010 and as rightly held by CIT(A), the application filed by the assessee for rectification u/s 154 of the order passed by AO on 18.12.2007 was clearly barred by limitation as per subsection (7) of section 154 which provides that no amendment u/s 154 shall be made after expiry of four years from the end of the financial year in which the order sought to be amended was passed. The assessment made by AO u/s 143(3)/147 is independent and separate from the order passed u/s 143(3) in as much as the scope of such assessment is limited to bringing to tax the income which has escaped assessment made originally inter alia u/s 143(3) and the theory of doctrine of merger does not apply in the case of assessment made u/s 143(3) originally and the assessment made subsequently u/s 143(3)/147. Both these assessments stand independently on their own footing. We therefore find ourselves in agreement with CIT(A) that the application filed by the assessee for rectification u/s 154 was barred by limitation and the action of AO in rejecting the same was justified on this ground also. As rightly held by AO as well as by CIT(A), the issue as to whether the amount paid by the assessee on account of lorry hire charges is in the nature of works contract as covered by section 194C or in the nature of rent as envisaged u/s 194I is highly a debatable issue and the rectification of the same is beyond the purview of section 154, the scope of which is very limited. We, therefore do not find any infirmity in the impugned order of ld. CIT(A) upholding the order passed by AO whereby he rejected the application of the assessee for rectification on the issue of disallowance u/s 40(a)(ia) and upholding the same, we dismiss this appeal of the assessee.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Applicability of Section 194C versus Section 194I for TDS deduction.
3. Limitation period for filing a rectification application under Section 154.
4. Doctrine of merger in the context of original and reassessment orders.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961:
The Assessee, engaged in the business of transportation of oil, had hired tankers and paid ?1,12,73,615/- without deducting tax at source as mandated by Section 194C. The AO disallowed this amount under Section 40(a)(ia) in the assessment completed under Section 143(3). The CIT(A) confirmed this disallowance, and the Assessee's subsequent appeal to the ITAT was withdrawn. The Assessee later filed for rectification under Section 154, claiming the payments were not contractual and thus not subject to Section 194C. The AO rejected this application, stating that the issue had already been decided and confirmed by the CIT(A), and thus, no rectification was permissible under Section 154.

2. Applicability of Section 194C versus Section 194I for TDS deduction:
The Assessee argued that the payments for tanker hire charges should be considered as rent under Section 194I, not as a works contract under Section 194C. The Assessee contended that since the expenditure on rent was not covered by Section 40(a)(ia) for the relevant year, the disallowance was incorrect. Both the AO and CIT(A) held that the nature of the payments was a debatable issue, which could not be rectified under Section 154, as the scope of this section is limited to correcting apparent mistakes and does not extend to resolving debatable issues.

3. Limitation period for filing a rectification application under Section 154:
The rectification application was filed on 12.11.2014, seeking to amend the original order dated 18.12.2007. The CIT(A) upheld the AO's decision, noting that the application was barred by the four-year limitation period stipulated in Section 154(7). The Assessee argued that the original order merged with the reassessment order dated 24.12.2010, and thus the limitation period should be counted from the latter date. However, the CIT(A) and the Tribunal rejected this argument, stating that the original and reassessment orders stand independently, and the doctrine of merger does not apply.

4. Doctrine of merger in the context of original and reassessment orders:
The Assessee claimed that the original order under Section 143(3) merged with the reassessment order under Section 143(3)/147, thus extending the limitation period for rectification. The Tribunal disagreed, explaining that the reassessment order is separate and independent from the original order. Therefore, the rectification application was rightly considered time-barred.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, agreeing that the rectification application was barred by limitation and that the issue of whether the payments were subject to Section 194C or Section 194I was debatable and not subject to rectification under Section 154. Consequently, the appeal of the Assessee was dismissed. The Tribunal emphasized that rectification under Section 154 is limited to correcting apparent mistakes and does not extend to resolving debatable issues. The order was pronounced on 29.04.2016.