2018 (6) TMI 500 - AT - Income Tax

Rectification of mistake u/s 154 - Disallowance of LTA - change in method of accounting - Held that - LTA is well supported by logical and scientific methodology - assessee has also given sound reasons for change in the method of accounting and providing LTA on actuarial basis which is based on the valuation of perquisites offered to the employees as part of overall packaging and accounted for as a short term provision since LTA has to be availed by the employee in every block of two years and has to be disbursed by the employer as taxable perquisites - thus there is a mistake which is apparent from record in the findings of the first appellate authority - hence AO is allowed to delete the addition. - Decided in favour of assessee.

Summary

Issues:
Challenge to the rejection of application u/s 154 regarding disallowance of LTA on due basis.

Analysis:
The assessee challenged the correctness of the order of the CIT(A) regarding the disallowance of Leave Travel Allowance (LTA) on a due basis. The Assessing Officer disallowed the LTA claim, stating that the assessee changed the accounting method without scientific basis. The CIT(A) upheld the disallowance, emphasizing the lack of scientific methodology in the provision for LTA. The assessee then filed a rectification application u/s 154, which was dismissed by the CIT(A) citing a different Supreme Court decision. The assessee contended that the valuation of LTA was supported by scientific evidence, which the CIT(A) overlooked. The Tribunal noted that the provision for LTA was based on logical and scientific methodology, considering the change in accounting method and actuarial basis for LTA valuation. The Tribunal found a mistake in the CIT(A)'s findings and allowed the appeal, directing the deletion of the addition of ?30.97 lakhs.

This case highlights the importance of supporting claims with scientific methodology and logical reasoning, especially in matters concerning provisions like LTA. The Tribunal emphasized the need to consider all factual aspects and sound reasons provided by the assessee, which the CIT(A) had overlooked. The decision underscores the significance of a thorough assessment based on evidence and logical analysis to rectify mistakes apparent from the record. The judgment serves as a reminder of the duty of authorities to carefully evaluate claims and rectification applications, ensuring a fair and just outcome for the taxpayer.