2025 (3) TMI 42 - AT - Income Tax

Rectification u/s 154 - Disallowance contemplated u/s 14A r.w. Rule 8D - Suo-motto disallowance made by assessee - HELD THAT -In the absence of recording any dissatisfaction invocation of sec 14A read with Rule 8D of the Rules is jurisdictionally defective and legally unsustainable as held in judgements delivered in the case of U K Paints India Pvt. Ltd 2024 (12) TMI 650 - DELHI HIGH COURT and H. T. Media Ltd. 2017 (8) TMI 962 - DELHI HIGH COURT Sec 154 of the Act empowers the AO to rectify the mistake of apparent nature. A mistake if any which requires long drawn process of reasoning or involves any kind of debate is ousted from the jurisdiction available u/s 154 of the Act. In the instant case suo-motto disallowance carried out u/s 14A of the Act by the assessee was sought to be modified and enhanced in the proceedings u/s 154 of the Act. Such disallowance on the face of it cannot be regarded as apparent mistake contemplated under s. 154 of the Act. The first appellate order thus requires to be set aside and the rectification order passed u/s 154 is liable to be quashed. Appeal of the assessee is allowed

Summary

The Appellate Tribunal considered the appeal filed by the assessee challenging the rectification carried out by the Assessing Officer under section 154 of the Income Tax Act, 1961, seeking to enhance the total income assessed in the assessment order framed under section 143(3) of the Act. The issue revolved around the disallowance under section 14A read with Rule 8D of the Income Tax Rules, 1962. The assessee had initially provided information regarding exempt income earned from investments in Mutual Funds during the original assessment proceedings, and the Assessing Officer did not make any disallowance under section 14A at that stage. However, a notice was later issued under section 14A proposing a disallowance, which was eventually rectified to make the disallowance. The assessee contended that the rectification was a review of the assessment order in the guise of rectification and that the invocation of section 14A without recording express dissatisfaction with the initial disallowance was legally unsustainable.The Tribunal agreed with the assessee's contentions, stating that section 154 of the Act allows rectification of mistakes of an apparent nature, and issues requiring a detailed process of reasoning or debate fall outside the scope of section 154. The Tribunal held that the modification and enhancement of the suo-motto disallowance under section 14A in the proceedings under section 154 did not constitute an apparent mistake under section 154. Therefore, the Tribunal set aside the first appellate order and quashed the rectification order passed under section 154, thereby allowing the appeal of the assessee.In conclusion, the Tribunal determined that the rectification carried out by the Assessing Officer under section 154 to enhance the disallowance under section 14A was not a mistake apparent from the record and, therefore, the rectification order was deemed void ab-initio. The Tribunal ruled in favor of the assessee, allowing the appeal and setting aside the rectification order.