2022 (2) TMI 491 - AT - Income Tax

Rectification u/s 154 - mismatch of provision for leave encashment between the figure claimed by the assessee and certified by the Tax Auditor - Admittedly, the assessee did not file any clarification by the Tax Auditor in this regard - whether the AO correctly exercised the jurisdiction u/s 154 ? - HELD THAT - AO is empowered to amend any order passed by him under the Act with a view for rectifying the mistake apparent from record. Therefore, for exercising power under section 154 of the Act, there should exist a mistake apparent from record. In the present case as per AO the assessee failed to furnish any evidence with regard to its contention that the mismatch of amount on account of leave encashment as per books and as per tax audit report occurred due to clerical/typographical error made in the tax audit report. Moreover, the assessee failed to furnish any certification from the Tax Auditor certifying that there was clerical/typographical error in the tax audit report. Looking to the finding of the AO that no certificate by the Tax Auditor was furnished to state true and correct fact, in our considered view, the AO himself ought to have made inquiry from the Tax Auditor of the assessee. Undisputedly, it is the Assessing Officer who wanted to amend the concluded assessment. Therefore, he was required to verify the facts by making requisite inquiry. We, therefore, set aside the impugned order and direct the AO to decide the issue afresh after making necessary inquiry and verification of facts related to issue under consideration. The grounds raised by the assessee are allowed for statistical purposes only.

Issues Involved:
1. Legality of the order passed by CIT(A).
2. Scope of Section 154 of the Income Tax Act, 1961 for rectification of mistakes apparent from the record.
3. Addition of ?3,06,32,000 on account of provision for leave encashment.
4. Typographical error in the audit report and its impact on the assessment.
5. Use of surmises and conjectures by CIT(A) in confirming the addition.

Detailed Analysis:

Issue 1: Legality of the order passed by CIT(A)
The appellant contended that the order passed by the CIT(A) was erroneous both in law and on facts. The CIT(A) confirmed the addition made by the AO, ignoring the contention that only mistakes apparent from the record can be rectified under Section 154 of the Act.

Issue 2: Scope of Section 154 of the Income Tax Act, 1961 for rectification of mistakes apparent from the record
The core issue was whether the AO correctly exercised jurisdiction under Section 154 of the Act. The appellant argued that the AO's action was beyond the scope of Section 154, which allows rectification only for mistakes apparent from the record. The appellant cited several judgments, including CIT vs Keshri Metal Pvt. Limited and TS Balaram, ITO Company Circle IV, Bombay vs Volkart Brothers, to argue that the mistake must be obvious and patent, not something that requires a long-drawn process of reasoning.

Issue 3: Addition of ?3,06,32,000 on account of provision for leave encashment
The AO added ?3,06,32,000 to the assessee's income, based on a discrepancy between the provision for leave encashment shown in the Profit & Loss Account and the amount certified by the auditor in the tax audit report. The appellant argued that this discrepancy was due to a typographical error in the audit report and that the actual provision was correctly added back in the computation of taxable income.

Issue 4: Typographical error in the audit report and its impact on the assessment
The appellant maintained that the discrepancy was a clerical error and that the correct amount of ?17,539.82 lakhs was reflected in the audited financial statements. The AO, however, did not accept this explanation and proceeded with the rectification under Section 154. The Tribunal noted that the appellant did not provide any certification from the Tax Auditor to confirm the typographical error.

Issue 5: Use of surmises and conjectures by CIT(A) in confirming the addition
The appellant argued that the CIT(A) confirmed the addition based on surmises and conjectures without appreciating and verifying the facts on record. The Tribunal observed that the AO should have made an inquiry with the Tax Auditor to verify the facts, as it was the AO who intended to amend the concluded assessment.

Tribunal's Conclusion:
The Tribunal concluded that the AO's action under Section 154 was not justified without making necessary inquiries to verify the appellant's claim of a typographical error. The Tribunal set aside the impugned order and directed the AO to decide the issue afresh after making the necessary inquiries and verification of facts. The appeal was allowed for statistical purposes.

Order:
The appeal of the assessee was allowed for statistical purposes, and the AO was directed to re-examine the issue after conducting appropriate inquiries. The order was pronounced in the open Court on 10th February 2022.

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