2016 (6) TMI 969 - AT - Income Tax

Scope of rectification - whether the prior period loss which was claimed and allowed as deduction in the assessment proceedings u/s 143(3) of the Act, could be allowed or not in the present assessment year on payment basis cannot be examined in the proceedings u/s 154 of the Act? - Held that - In any event the claim of the assessee that there was actual payment of the aforesaid sum during the previous year and the loss in question is allowable as deduction u/s 43B(c ) of the Act was not considered by the AO in the order u/s 154 of the Act. In any event this is a debatable issue and therefore proceedings u/s 154 of the Act cannot be appropriate As far as the employee s contribution to PF and ESI is concerned the question is as to whether analogy of section 43B of the Act is applicable to the employer s contribution can be extended to employee s contribution u/s 36(1)(va) of the Act is a debatable issue. A series of case laws on this issue would also show that this issue is highly a debatable one and outside the purview of the proceedings u/s 154 of the Act. - Decided against revenue

Summary

Issues:
1. Jurisdiction of the Assessing Officer under section 154 of the Income Tax Act, 1962.
2. Allowance of prior period loss and employee's contribution to PF/ESI as deductions.
3. Debatable issues and applicability of section 43B and 36(1)(va) of the Act.
4. Decision on the appeal by the Revenue against the order of CIT(A).

Jurisdiction of the Assessing Officer under section 154 of the Income Tax Act, 1962:
The Revenue appealed against the order of CIT(A) concerning the jurisdiction of the Assessing Officer under section 154 of the Income Tax Act, 1962. The AO had issued a show cause notice proposing rectification of errors in the assessment order of the Assessee for AY 2005-06. The Assessee contended that the mistakes were not apparent from the record and required a detailed reasoning to establish. The CIT(A) held that the issues were debatable and two views were possible, thus not falling under the purview of rectification under section 154. The Tribunal concurred with CIT(A) and dismissed the Revenue's appeal.

Allowance of prior period loss and employee's contribution to PF/ESI as deductions:
The AO proposed to disallow a prior period loss and employee's contribution to PF/ESI in the assessment order. The Assessee argued that the prior period adjustment was allowable under section 43B(c) of the Act and provided detailed explanations for the adjustments made. Regarding employee's contribution to PF/ESI, it was contended that payment before the due date of filing the return under section 139 should not be disallowed as per various judicial decisions. The AO, however, reduced the total loss determined in the assessment order. On appeal, the CIT(A) held that the issues were debatable and canceled the order passed under section 154. The Tribunal upheld CIT(A)'s decision, emphasizing the debatable nature of the issues.

Debatable issues and applicability of section 43B and 36(1)(va) of the Act:
The Tribunal analyzed the debatable issues surrounding the prior period loss and employee's contribution to PF/ESI. It was observed that the question of allowing prior period loss on a payment basis and the applicability of section 43B(c) were not considered by the AO in the rectification order. Similarly, the applicability of section 36(1)(va) to employee's contribution was deemed debatable. Citing case laws and the absence of a decision by the jurisdictional High Court, the Tribunal agreed with CIT(A)'s decision that the issues fell outside the scope of rectification under section 154.

Decision on the appeal by the Revenue against the order of CIT(A):
After considering the submissions and case laws presented by both parties, the Tribunal dismissed the appeal of the Revenue. The Tribunal concurred with the CIT(A)'s decision that the issues raised were debatable and not suitable for rectification under section 154 of the Income Tax Act, 1962. The Tribunal emphasized the lack of a clear decision by the jurisdictional High Court on the matters in question, supporting the dismissal of the Revenue's appeal.

---