2025 (1) TMI 1477 - AT - Income Tax

Rectification u/s 154 - Addition for provisions for expenses - basic accounting principles - CIT(A) deleted addition - HELD THAT - As submitted to the AO that the issue has already been heard by the Jaipur Bench of ITAT and decided in favour of the assessee and further it was also explained that the assessee has not separately claimed Provision of Expenses in the income tax return AO without considering the order of the Coordinate Bench of ITAT on the same issue passed an order u/s 154 making an addition which shows the high handedness of the AO to interfere in the already concluded proceedings. At this point we note the observation of the apex court in the case of Parashuram Pottery Works Co. Ltd. 1976 (11) TMI 1 - SUPREME COURT wherein noted that At the same time we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity . Bench also that the Association filed an appeal before the Ld CIT(Appeals) against the order passed by the AO where ld. CIT(A) allowed the appeal in the favor of the Association by holding at last the order that It appears that the A.O. has not perused the above documentary evidences filed by the appellant at various stages and the computation of income and the financials of the appellant which would be available in the assessment record and after giving the appeal effect of order of CIT(A) which has also been confirmed by the Hon ble ITAT has made the order u/s. 154 withdrawing the appeal effect/making addition of Rs. 2, 30, 26, 342/- without an iota of verification or application of mind about the issue and the facts involved . Thus we feels that there is no ambiguity in the order of the ld. CIT(A) and we do not incline to interfere in the order of the ld CIT(A). Hence the appeal of the Revenue is dismissed.

ISSUES PRESENTED and CONSIDERED

The primary issue considered in this case was whether the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition of Rs. 2,30,26,342/- for provisions for expenses, which the Revenue argued was incorrectly allowed as it was not incurred during the year. The Tribunal also considered whether the Assessing Officer (AO) was right in rectifying the order under Section 154 of the Income Tax Act, 1961, by adding back the provision for expenses on the grounds of absence of supporting evidence.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents: The case primarily revolves around the interpretation and application of Sections 143(3), 147, and 154 of the Income Tax Act, 1961. Section 145(1) of the Act, which allows income to be computed either on a cash or mercantile system of accounting, was also relevant. The Tribunal referred to precedents where the policy of law emphasized finality in legal proceedings and discouraged reopening settled issues without substantial grounds.

Court's interpretation and reasoning: The Tribunal upheld the CIT(A)'s decision, emphasizing that the provision for expenses was not claimed as applied income during the year, and thus, its disallowance did not arise. The Tribunal noted that the AO's rectification under Section 154 was inappropriate as it was based on a mere change of opinion rather than a mistake apparent from the record.

Key evidence and findings: The Tribunal considered the appellant's submissions, including ledger accounts and computation of income, which demonstrated that the provision for expenses was not included as applied income. The Tribunal also noted that the AO had not provided any new evidence or identified any apparent mistake that justified the rectification under Section 154.

Application of law to facts: The Tribunal applied the principles of finality in legal proceedings, as highlighted in the Parashuram Pottery Works Co. Ltd case, to conclude that the AO's action to rectify the order was unwarranted. The Tribunal found that the CIT(A) had correctly allowed the appeal by the assessee, as the provision for expenses was not claimed in the income tax return.

Treatment of competing arguments: The Tribunal dismissed the Revenue's argument that the provision should be disallowed due to lack of evidence, noting that the CIT(A) had already provided the AO an opportunity to verify the claim. The Tribunal found that the AO's subsequent action under Section 154 was an attempt to review the order based on a change of opinion, which is not permissible under the said section.

Conclusions: The Tribunal concluded that the CIT(A)'s order was justified and that the AO's rectification under Section 154 was not supported by evidence of any apparent mistake. Consequently, the appeal by the Revenue was dismissed.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The Tribunal reiterated, "It appears that the A.O. has not perused the above documentary evidences filed by the appellant at various stages and the computation of income and the financials of the appellant which would be available in the assessment record and after giving the appeal effect of order of CIT(A) which has also been confirmed by the Hon'ble ITAT, has made the order u/s. 154 withdrawing the appeal effect/making addition of Rs. 2,30,26,342/- without an iota of verification or application of mind about the issue and the facts involved."

Core principles established: The Tribunal reinforced the principle that rectification under Section 154 cannot be used to review an order based on a change of opinion. It also emphasized the importance of finality in legal proceedings and the need for substantial grounds to reopen settled issues.

Final determinations on each issue: The Tribunal determined that the CIT(A) correctly deleted the addition of Rs. 2,30,26,342/- for provisions for expenses, as the provision was not claimed as applied income. The Tribunal also concluded that the AO's rectification under Section 154 was improper and dismissed the Revenue's appeal.

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