2013 (3) TMI 288 - HC - Income Tax

Rectification u/s 154 - provision for gratuity amounting was added back in the computation of taxable total income which according to the respondent had been omitted to be disallowed while processing the return under Section 143(1) and the consquential levy of additional tax confirmed - Held that - A notice was issued to the assessee under Section 154 calling upon the assessee to file their objections for the proposed revision but the assessee did not file any objection to the said revision and on the other hand, the disallownace of the gratuity provision was accepted by the assessee. Therefore, the levy of additional tax is only a consequential event to the prima facie adjustment, which was carried out through the order passed under Section 154. The Assessing Authority had rightly levied the additional tax by his order under Section 154 as when the rectification of mistake was carried out by making disallowance of gratuity provision and the same has not been objected by the appellant, the consequential levy of additional tax, which is only a sequence to the prima facie adjustment also cannot be objected by them. It is not the case of the appellant that the rectification of the mistake was carried out solely for the purpose of levying additional tax. As in ACIT Vs. Saurashtra Kutch Stock Exchange Ltd. (2008 (9) TMI 11 - SUPREME COURT) the scope and meaning of the words mistake apparent on the face of the record was considered & a patent, manifest and self-evident error which does not require elaborate discussion of evidence or argument to establish it, can be said to be an error apparent on the face of the record. Thus applying the said principle of law to the case on hand no merits in the appeal filed by the assessee challenging the order imposing additional tax liability which came to be levied only as a consequential event of the disallowance of the provision for gratuity which admittedly was accepted by the assessee and not challenged - against assessee.

Summary

Issues:
1. Whether the Tribunal correctly confirmed the rectification order disallowing provision for gratuity and imposing additional tax?
2. Whether rectification proceedings under Section 154 can result in the payment of additional tax?
3. Whether the rectification order under Section 154 was valid after the notice under Section 143(2) was issued?

Analysis:

Issue 1:
The assessee, a government undertaking, filed the return for the assessment year 1992-93. The Department made adjustments in the intimation under Section 143(1)(a), revising it later. The rectification order disallowed the provision for gratuity under Section 40A(7) and imposed additional tax. The Commissioner of Income Tax (Appeals) and the Tribunal upheld the additional tax levy, considering it a sequel to the rectification. The Tribunal noted the inadmissibility of the gratuity provision under Section 40A(7) and the rectification's necessity. The appellant contended that the levy of additional tax was not automatic without objection. However, the Revenue argued that accepting the disallowance precludes contesting the tax levy.

Issue 2:
The appellant argued that the rectification under Section 154 should not automatically result in additional tax without an apparent error. The Revenue contended that the accepted disallowance justifies the tax levy. The court observed that the rectification was justified due to the omitted disallowance, and the appellant's acceptance precluded challenging the tax levy.

Issue 3:
The appellant challenged the rectification order under Section 154, arguing against the consequential tax levy. The court noted the rectification was proposed after the intimation and the appellant's non-objection. The court referenced a Bombay High Court case where the disallowed amount wasn't considered for tax. However, in this case, the disallowance was included in the revised total, justifying the tax levy. The Supreme Court's decision on rectification emphasized correcting errors apparent on record, supporting the tax levy in this case.

In conclusion, the court dismissed the appeal, upholding the rectification order and the consequential tax levy. The court found no merit in challenging the tax levy as it stemmed from the accepted rectification. The principles of rectification to correct errors apparent on record were applied, affirming the additional tax liability.