2021 (9) TMI 645 - AT - Income Tax

Rectification u/s 254(2) - Addition of amount to the book profits by holding it to be a contingent liability - HELD THAT - We find that vide Para 20 of the order 2021 (1) TMI 741 - ITAT DELHI in respect of amount we have for the reasons stated therein have held the aforesaid amount to be allowable expenditure as it is not a liability of contingent in nature. Once the amount has been held it to be allowable as not being in contingent nature, the effect of the same will be that since it is not in the nature of contingent liability, it cannot be added to the book profits u/s 115JB of the Act. We thus find force in the submissions of Ld AR that the Ground No.3 2021 (1) TMI 741 - ITAT DELHI should have been allowed as its dismissal would be contrary to the finding given in Para 20 of the order. Considering the totality of the aforesaid facts, we are of the view that the dismissal of Ground No.3 is a mistake apparent which is amenable to rectification u/s 254(2) - MA of the assessee is allowed

Summary

Issues:
1. Disallowance of sales incentive provision as contingent liability.
2. Rectification order adding the provision to book profits.
3. Appeal dismissal leading to contradictory findings.
4. Rectification under section 254(2) of the Act.

The judgment pertains to a Miscellaneous Application (MA) filed by the assessee against the Tribunal's order regarding two appeals for Assessment Year 2009-10. In one appeal, the issue was the disallowance of a sales incentive provision as a contingent liability. The AO and CIT(A) held it as contingent, but the Tribunal noted the provision as scientific and allowed the expenses. In another appeal, the AO rectified the book profits by adding the provision, leading to a debate on its nature. The Tribunal dismissed the appeal, which contradicted its earlier decision. The assessee argued for rectification under section 254(2) of the Act due to this discrepancy.

Regarding the disallowance issue, the Tribunal found the provision to be allowable expenditure, not contingent liability. Consequently, it could not be added to book profits under section 115JB of the Act. The dismissal of the appeal was deemed a mistake apparent, rectifiable under section 254(2). Therefore, the Tribunal rectified the order, allowing the assessee's grounds. The dismissal of the MA was pronounced in open court on 10.09.2021.

In conclusion, the Tribunal rectified the order to align with its earlier decision on the provision's nature, allowing the assessee's grounds and overturning the contradictory dismissal. This judgment highlights the importance of consistency in decision-making and rectification to correct apparent mistakes in legal proceedings.