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2020 (1) TMI 780 - AT - Income TaxRectification u/s 154 - disallowing / adding cost of construction - HELD THAT - We notice in this backdrop of pleadings that the learned lower authorities action invoking sec. 154 proceedings is not liable to be concurred with. We reiterate that the Assessing Officer has himself treated the assessee s case as involving under assessment and not rectification as indicated in preceding paragraphs. Hon'ble jurisdictional high court s decision in Commissioner of Income Tax, Kolkata-IV vs. M/s J.L. Morison India Ltd. 2018 (6) TMI 1683 - CALCUTTA HIGH COURT holds that such rectification proceedings do not involve a long drawn process of arguments or reasoning but an error apparent from records. There is no such reason in the Assessing Officer s said show cause notice. We therefore draw strong support from their lordships decision and reverse both the lower authorities action invoking sec. 154 rectification jurisdiction for the purpose of partly disallowing the assessee s cost of construction.
Issues Involved:
1. Validity of jurisdiction assumed under Section 154 of the Income Tax Act, 1961. 2. Legality of the addition of ?27,88,995/- as unexplained investment. Issue-wise Detailed Analysis: 1. Validity of Jurisdiction Assumed under Section 154 of the Income Tax Act, 1961: The appellant contested the assumption of jurisdiction under Section 154 by the Assessing Officer (AO), arguing that none of the conditions precedent for invoking Section 154 were satisfied. The appellant emphasized that Section 154 is applicable only to "mistakes apparent from the record," which are obvious and do not require interpretation or debate. The appellant contended that the AO's decision to rectify the cost allocation between sold and unsold areas was a matter of subjective opinion and not an apparent mistake. The appellant cited several judicial precedents, including *Star Rolling Mills P. D. vs. CIT* and *Balaram, ITO vs. Volkart Brothers*, to support the argument that the AO exceeded his jurisdiction by invoking Section 154 for a debatable issue. The CIT(A) dismissed the appellant's arguments, stating that the AO's action was valid as the appellant had not proportionately disclosed the cost of construction for sold and unsold areas. The CIT(A) held that the AO's rectification order was to ensure the correction of an apparent mistake from the record. The Tribunal, however, disagreed with the lower authorities, stating that the AO had treated the case as involving underassessment rather than an apparent error. The Tribunal referred to the jurisdictional High Court's decision in *Commissioner of Income Tax, Kolkata-IV vs. M/s J.L. Morison India Ltd.*, which held that rectification proceedings should not involve a long-drawn process of arguments or reasoning but should address an error apparent from records. The Tribunal concluded that the AO's action under Section 154 was not justified and reversed the lower authorities' decision. 2. Legality of the Addition of ?27,88,995/- as Unexplained Investment: The appellant argued that the addition of ?27,88,995/- as unexplained investment under Section 69 of the Act was baseless and unfounded. The appellant maintained that the cost of construction was properly disclosed and that any discrepancy could have been referred to the Valuation Officer under Section 142A of the Act. The appellant cited judicial precedents, including *CIT vs. Maharajadhiraja Kameswar Singh of Darbhanga* and *Dhakeswari Cotton Mills Ltd. vs. CIT*, to argue that assessments based on conjecture, suspicion, and surmise are invalid. The appellant further argued that mere rejection of an explanation does not automatically warrant addition under Section 69, as held in *CIT vs. P.K. Noorjahan*. The CIT(A) dismissed the appellant's arguments, stating that the appellant had not proportionately disclosed the cost of construction for sold and unsold areas, and thus, the AO's addition was justified. The Tribunal, however, found that the AO's action was based on subjective opinion rather than an apparent mistake. The Tribunal held that the AO's notice and subsequent order under Section 154 were not valid, as the issue involved was debatable and required interpretation. Consequently, the Tribunal reversed the lower authorities' decision and allowed the appellant's appeal. Conclusion: The Tribunal allowed the appellant's appeal, holding that the AO's action under Section 154 was not justified as it involved a debatable issue rather than an apparent mistake from the record. The Tribunal reversed the lower authorities' decision to disallow ?27,88,995/- from the cost of construction and ruled in favor of the appellant.
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