2013 (4) TMI 224 - HC - Income Tax

Rectification of mistake - Whether ITAT was right in setting aside order of CIT(A), who restored the matter to the file of AO for passing fresh orders u/s 154 after allowing opportunity of being heard to the assessee - Held that - The order passed by the AO on 31.12.1990 leaves no manner of doubt that an amount of Rs.40,29,208/- was disallowed by the AO by detailed discussion. It was only while computing the total disallowances, an amount of Rs.40,29,208/- was left from the final calculations. Such mistake could very well be corrected by the AO in exercise of the powers conferred under Section 154. The only procedural irregularity can be said to be of not granting any opportunity of hearing to the parties. Though, it is doubtful that any opportunity was required for correction of such inadvertent and clerical mistake, but since the CIT (A) has granted such opportunity, we restrain ourselves to opine any further on the issue. Therefore, Tribunal is not right in setting aside the order passed by the CIT (A), which only contemplated that an opportunity of hearing should be provided to the assessee.

Summary

Issues:
1. Interpretation of Section 154 of the Income Tax Act, 1961 regarding rectification of mistakes in assessment orders.
2. Validity of the order passed by the Assessing Officer under Section 154 to rectify an omission in the assessment order.
3. Whether an opportunity of being heard is necessary for rectifying clerical mistakes in assessment orders.

Analysis:

1. The primary issue in this case revolves around the interpretation of Section 154 of the Income Tax Act, 1961, which empowers the Income Tax Authority to rectify any mistake apparent on the record in an assessment order. The case involves a substantial question of law regarding the correctness of the ITAT's decision to set aside the order of the CIT(A) and the validity of the Assessing Officer's action under Section 154 for adding back an omitted disallowance amount of Rs.40,29,208.

2. The Assessing Officer had disallowed expenditures, including Rs.40,29,208, in the assessment order for the year 1988-89. However, this disallowance was inadvertently left out in the final calculations. Subsequently, the Assessing Officer rectified this mistake under Section 154 of the Act. The High Court held that the Assessing Officer was well within his rights to rectify such a mistake, and the omission of the disallowance amount could be corrected through the provisions of Section 154.

3. Another crucial aspect of the case was whether an opportunity of being heard is necessary when rectifying clerical mistakes in assessment orders. The High Court acknowledged that while there may have been a procedural irregularity in not granting an opportunity of hearing to the parties, the correction of such inadvertent and clerical mistakes does not necessarily require a formal hearing. Despite this, the CIT(A) had granted the opportunity of hearing, and the High Court refrained from delving further into this issue.

In conclusion, the High Court ruled in favor of the Revenue, emphasizing that the Assessing Officer's action under Section 154 to rectify the omission was valid. The decision highlighted the importance of rectifying mistakes in assessment orders and the discretionary power granted to tax authorities under the relevant provisions of the Income Tax Act.