2023 (6) TMI 45 - AT - Income Tax

Rectification u/s 154 - during processing the return u/s 143(1) the provision for payment of gratuity, u/s 40A(7) was rejected - CPC has rejected the rectification petition u/s 154 - HELD THAT - During processing of return u/s 143(1) the provision for payment of gratuity is added back with total income by contravening section 40A(7). As per the revenue the CPC has a power to disallow the amount on basis of the tax audit report, sated in Col. 21(e) of Form No. 3CD which is not come under purview of mistake apparent from the record, u/s 154. So, section 154 will not be applicable in this case. But the assessee prayed that a reasonable opportunity was denied by the revenue authorities. So,before going for addition u/s 40A(7) the assessee should get a reasonable opportunity before the revenue authority for processing of rectification u/s 154. Accordingly, we remit back the matter to the ld. AO for further adjudication related to the addition made by the CPC. Appeal of assessee allowed for statistical purposes.

Issues involved:
The issues involved in this case are the rejection of the provision for payment of gratuity under section 40A(7) during the processing of the return under section 143(1) of the Income Tax Act, 1961, and the subsequent appeal against the orders of the Commissioner of Income Tax (Appeals) and the Central Processing Centre (CPC).

Grounds raised by the assessee:
The appellant raised multiple grounds challenging the orders passed by the authorities, including the arbitrary nature of the order, lack of opportunity provided under section 154, failure to independently dispose of the appeal grounds, impermissible attempt at review via rectification, inconsistency in applying the principle of consistency, non-binding nature of opinions by Chartered Accountants, and lack of thoughtful consideration of facts by the authorities.

Ex-parte disposal of appeal:
The appellant did not appear for the hearing, and the adjournment petition was rejected due to lack of proper evidence. Consequently, the appeal was disposed of ex-parte after hearing the learned DR and based on the available record.

Background of the case:
The case involved the rejection of the provision for payment of gratuity under section 40A(7) during the processing of the return under section 143(1), resulting in an amount of Rs. 3,22,425 being disallowed. The appellant filed a rectification petition under section 154, which was rejected by the CPC. Subsequently, the appeal was made to the Commissioner of Income Tax (Appeals) who upheld the CPC's decision, leading to the appeal before the tribunal.

Observations of the ld. DR:
The learned DR highlighted the provisions of section 143(1)(a) and the Tax audit report (Form 3CD) indicating the disallowance of the provision for gratuity under section 40A(7). The DR emphasized that the adjustment made by the CPC was not a mistake apparent from the record under section 154, and the Department had the authority to rectify such errors even without the assessee's request.

Tribunal's decision:
The tribunal, after considering the submissions and the revenue authority's order, noted that the disallowance of the provision for gratuity was not a mistake apparent from the record under section 154. However, the tribunal acknowledged that the appellant should have been given a reasonable opportunity before the revenue authority for processing the rectification under section 154. Therefore, the matter was remitted back to the ld. AO for further adjudication on the addition made by the CPC.

Conclusion:
The tribunal allowed the appeal of the assessee for statistical purposes and remitted the matter back to the assessing officer for further adjudication. The order was pronounced in the open court on 30.05.2023.

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