2021 (3) TMI 254 - AT - Income Tax

Rectification of mistake u/s 154 - case was selected for limited scrutiny vide notice u/s. 143(2) - addition as incurred by the assessee towards CSR - Addition on the ground that there is nothing on record to demonstrate that the said expense is laid out wholly and exclusively for the purpose of business and, therefore, the same is not allowed as per the provisions of section 37(1) - HELD THAT - We find substance in the submissions of Ld. AR that once the case was selected for limited scrutiny in which the returned income was accepted by the AO, passing an order under section 154 by making an addition on the ground that the same is a mistake apparent on record, is illegal and void beyond his jurisdiction. We set aside the order of CIT(A) and quash the order passed by the AO u/s. 154 of the Act. Accordingly, the grounds raised by the assessee are allowed.

Summary

Issues:
1. Dismissal of appeal by CIT(A) for Assessment Year 2015-16.
2. Legality of order passed under section 154 of the Income Tax Act.
3. Jurisdiction of AO in limited scrutiny cases.
4. Allowance of CSR expenses by Assessing Officer.

Analysis:
1. The appeal was filed against the CIT(A) order dismissing the appeal. The appellant contended that the issue was debatable and the order under section 154 was void ab initio. CIT(A) erred in not considering the nature of the business while dismissing the appeal. The appellant argued that the claim for CSR expenses was allowed in the original assessment completed under section 143(3) of the Act, and rectification under section 154 cannot be used to rectify lapses in the original assessment.

2. The AO passed an order under section 154 making an addition towards CSR expenses, stating it was not wholly and exclusively for business purposes. The appellant challenged this order, arguing that the case was selected for limited scrutiny, and the AO had accepted the returned income. The ITAT held that passing an order under section 154 for an addition in a limited scrutiny case where the returned income was accepted is beyond the AO's jurisdiction. Citing legal precedents, the ITAT set aside the CIT(A) order and quashed the AO's order under section 154.

3. The ITAT admitted additional legal grounds raised by the appellant, following the Supreme Court's decision in National Thermal Power Co. Ltd. v. CIT. The grounds challenged the AO's action in disallowing CSR expenses beyond the limited scrutiny scope. The ITAT found the AO's action to be beyond the limited scrutiny and declared it illegal, null, and void, thus allowing the appellant's grounds.

4. The ITAT considered the facts and legal arguments presented by both parties. It observed that the AO's order under section 154 was not valid in a limited scrutiny case where the returned income was accepted. Relying on legal decisions, the ITAT allowed the appeal, setting aside the CIT(A) order and quashing the AO's order under section 154. The appeal of the assessee was allowed, and the decision was pronounced in open court on 23rd February 2021.