2023 (5) TMI 210 - AT - Income Tax

Validity of rectification order as barred by limitation - AO made additions after 4 years while passing rectification order u/s 154 - HELD THAT - On perusal of the show-cause notice u/s 154 dated 30.11.2016 and the final order u/s 154 dated 07.05.2018 we find that the show-cause notice as well as final order talk of rectification of intimation dated 10.04.2014 and not of assessment-order dated 31.03.2014. Thus, viewed from 10.04.2014, the rectification-order dated 07.05.2018 is within the 4 years time-limit prescribed in section 154(7) and there would be no illegality. Therefore, to ascertain correct state of affairs, we confronted the Ld. AR about the details of intimation dated 10.04.2014 but the Ld. AR could not spell out satisfactorily. Hence, in absence of clear details coming before us, we are not satisfied with the claim projected by assessee in this ground; resultantly we dismiss this ground. Quantum of disallowance - AO has rightly made an addition @ .5% of the total expenditure AND mention of 5% by AO in the assessment-order is a mistake - HELD THAT - Fi rstly we observe that before making the impugned disallowance, the AO show-caused the assessee to make a reasonable amount of disallowance. Thus, the thrust of AO was on amount and that too reasonable . Secondly , we observe that there was a disallowance of Rs. 3,00,000/- of similar nature in AY 2012-13, which is very close to Rs. 2,68,197/- and far distant from Rs. 26,83,197/-. This shows that the reasonable amount of disallowance could be Rs. 2,68,197/- only. Ld. DR is not able to place any cogent evidence before us to demonstrate that the AO wanted to make disallowance as high as 5%. Lastly, we are of the view that even if there be any ambiguity or doubt in drafting the assessment-order, it has to be resolved in favour of assessee and the revenue cannot take advantage of it for the simple reason that the AO, who is an officer of revenue, has drafted assessment-order. There was no mistake in the quantum of disallowance made by AO in assessment-order. Consequently, we quash further addition made in rectification-order. The assessee succeeds in this ground.

Summary

Issues involved:
The issues involved in the judgment are the time-barred rectification order and the legality of the addition of Rs. 24,15,000 made through the rectification order.

Time-barred Rectification Order:
The assessee contended that the rectification order dated 07.05.2018 was time-barred and should be quashed. The argument was based on the expiry of the 4 years' time-period prescribed in section 154(7) by 31.03.2018. However, upon examination of the show-cause notice and final order, it was found that the rectification was related to an intimation dated 10.04.2014, not the assessment order dated 31.03.2014. As the rectification was within the 4 years' time-limit from the intimation date, the claim of being time-barred was dismissed due to lack of clear details.

Legality of Addition in Rectification Order:
The AO made an addition of Rs. 24,15,000 through the rectification order, increasing the initial addition of Rs. 2,68,197. The assessee argued that the initial addition was correct and the mention of "5%" in the assessment order was a mistake. It was contended that the reasonable amount of disallowance was Rs. 2,68,197, supported by the assessment details of preceding years. The AO's intention to make a 5% disallowance was disputed, and it was highlighted that no rectification application was filed by the assessee. After considering the submissions, it was observed that the AO focused on a "reasonable amount" of disallowance, and the disallowance in a previous year was similar to the initial amount. The lack of evidence supporting the AO's intention for a 5% disallowance led to the quashing of the additional Rs. 24,15,000 in the rectification order. The appeal was partly allowed in favor of the assessee.

Separate Judgement:
No separate judgment was delivered by the judges in this case.