2023 (3) TMI 1352 - AT - Income Tax

Rectification of mistake u/s 154 - disallowance u/s 40A(3)which was in turn endorsed by the CIT(A) in the first appeal and decided against the assessee - assessee contended that the cash payments were made on Holiday/Sunday and is thus covered by extant clause (J) of Rule 8DD of the Income Tax Rules as well as by considerations of business expediency - assessee further contends that provisions of Section 154 confer a very narrow and limited power to rectify any mistake which is apparent from record - HELD THAT - We agree. The Rule 6DD(J) at the relevant time provided for inapplicability of Sect ion 40A(3) where the payments were made in cash on bank Holidays. The Assessing Officer has questioned the intention of cash payments shown on Sunday of every month and thus rejected the explanation. While, the explanation of payments on Holidays appears highly doubtful but however such inference cannot be taken in the realm of obvious mistake. Sect ion 154 has no application to gauge the purported mala fides in explanation offered by the Assessee behind such transaction. The narrow jurisdiction of Section 154 is thus not available to the Assessing Officer to rectify such so called mistake. We thus set aside the order of the CIT(A) and cancel the rectification carried out on this point.Appeal of the assessee is allowed.

Summary

Issues involved:
The appeal against the order of the Commissioner of Income Tax (Appeals) concerning disallowance under Section 40A(3) of the Income Tax Act, 1961 for Assessment Year 2012-13.

Details of Judgment:

Issue 1: Disallowance under Section 40A(3) of the Act
- The Assessing Officer made a disallowance of Rs.65,42,800/- on account of cash payments made towards purchase of bricks, alleging a breach of Section 40A(3) of the Act.
- The assessee contended that the cash payments were made on Holiday/Sunday and thus covered by Rule 6DD(J) of the Income Tax Rules as well as by business expediency considerations.
- The Assessing Officer invoked Section 154 of the Act based on the opinion of the audit team, despite explanations provided by the assessee during assessment proceedings.
- The Tribunal agreed with the assessee that Section 154 is limited to rectifying obvious and patent mistakes, not interpretations of provisions, and set aside the order of the CIT(A) and canceled the rectification on this point.
- The jurisdiction of Section 154 does not extend to questioning the intention behind transactions or determining mala fides in explanations offered by the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A) and canceling the rectification carried out under Section 154 regarding the disallowance under Section 40A(3) of the Income Tax Act.