2024 (3) TMI 606 - AT - Income Tax

Scope of rectification of mistake - disallowance on account of EPF and ESI vide order u/s 154 - HELD THAT - AO had accepted the return filed u/s 139 of the Act vide intimation u/s 143(1) of the Act dated 24.11.2019. The same was based on the tax audit report in form no. 3CB and 3CD. Thus, the question of delay in deposit of the employees contribution was very much in the assessment records upon which the intimation u/s 143(1) was served upon the assessee. As at relevant time there was law in favour of assessee allowing such expenditure so it has to be concluded that assessee was benefited by same and failure to follow a divergent view in favour of Revenue cannot be considered to be an error apparent on record and thus learned AO was not justified to substitute his opinion by invoking provision of Section 154. The question of relying any judgment in favour of Revenue to invoke section 154 powers is not manifested from the order u/s 154 and thus the learned CIT(Appeals) too erred to sustain the order on the basis of the judgment in Checkmate Services Pvt. Ltd. case 2022 (10) TMI 617 - SUPREME COURT Hon ble High Court 2004 (10) TMI 36 - MADHYA PRADESH HIGH COURT held that as on the date, when the assessee claimed the benefit of investment allowance, i.e., on 31-3-1989, the issue in regard to its claim was debatable one as there was cleavage of judicial opinion between several High Courts. On the date of rectification i.e., on 19-10-1992, the decision in N. C. Budharaja 1993 (9) TMI 6 - SUPREME COURT was not rendered by the Supreme Court, therefore, invocation of provisions of section 154 was not justified. Assessee appeal allowed.

Summary

Issues involved: Appeal against order passed by the Commissioner of Income Tax (Appeals) regarding disallowance made on account of EPF and ESI.

Summary:
1. The assessee appealed against an order passed by the Commissioner of Income Tax (Appeals) regarding disallowance of EPF and ESI amounting to Rs. 73,18,988 under Section 154 of the Income-tax Act, 1961. The assessee argued that the addition made by the learned AO was beyond jurisdiction as it was allowed in the assessment under Section 143(1) of the Act. The Hon'ble Supreme Court judgment in Checkmate Services Pvt. Ltd. case was cited to support the disallowance of employees' contribution to EPF and ESI if not deposited before the due date prescribed in the respective statutes.

2. The learned AR relied on Instruction No. 1814 of the Board and a judgment of the Hon'ble Madhya Pradesh High Court to argue against withdrawing benefits granted to the assessee by invoking Section 154.

3. The Bench concluded that the issue was not about the merits of the addition but whether the learned AO could make such addition under Section 154. The assessee had already benefitted from the allowance in the assessment under Section 143(1), and the delay in depositing employees' contribution was known at the time of assessment. Therefore, the learned AO was not justified in substituting his opinion under Section 154 based on a judgment favoring the Revenue.

4. Citing a similar case of CIT Vs. Mahavir Drilling Co., where the issue of investment allowance was debated, it was held that the decision of the Hon'ble Supreme Court was not available at the time of rectification, thus the invocation of Section 154 was not justified. Similarly, in the present case, the order of the Ld. CIT(A) could not be sustained, and the appeal of the assessee was allowed.

Judgment: The appeal of the assessee was allowed, and the order of the Ld. CIT(A) regarding the disallowance of EPF and ESI was not sustained. The issue was not about the merits of the addition, but the jurisdiction of the learned AO to make such addition under Section 154.