2013 (10) TMI 923 - AT - Income Tax

Rectification of mistake u/s 154 - The assessee did not appeal against the assessment order - It though moved an application u/s. 154 of the Act on 16.06.2008, claiming a mistake in respect of the last two disallowances listed supra, i.e., interest u/s.36(1)(iii) and of rent u/s. 40A(2)(a) AO rejected the application - Held that - the A.O. has clearly and unmistakably committed a mistake in overlooking a vital fact of nearly the same sum, as it appears, having been availed of by the assessee on interest-free basis from its directors, to whom, as a class, interest-free loans had been given, and qua which the disallowance stands effected by him. It is well-settled that no prejudice could be caused to the subject (assessee) by any action or non action on the part of the court (A.O.). - The assessee s claim admitted and the matter restored back to the file of the A.O. to allow relief qua interest disallowed u/s.36(1)(iii) as exigible to the assessee on the basis of the material on record Decided in favour of Assessee. Disallowance of Rent u/s 40A(2)(a) Held that - The assessee was required to justify its claim during the assessment proceedings by the A.O., to which it responded - The disallowance has been effected upon due consideration of the assessee s explanation - No case of any mistake , much less one apparent from the record, has been made out by the assessee - the matter, as apparent from the assessee s explanation, being debatable, involving a mixed question of fact and law - no specific arguments with regard to its grievance stood raised before us during hearing by the assessee, and which the case before the authorities below - The assessee fails on this issue Decided against Assessee.

Summary

Issues:
1. Appeal against rejection of application u/s.154 of the Income Tax Act, 1961 for A.Y. 2005-06.
2. Disallowance under sec.14A, provision against bad debt, disallowance of interest relatable to interest-free loans to directors, and disallowance of rent under sec. 40A(2)(a) in the assessment.

Detailed Analysis:
1. The appellant filed an appeal against the rejection of its application u/s.154 of the Income Tax Act, 1961 for A.Y. 2005-06, challenging the order by the Commissioner of Income Tax (Appeals)-12, Mumbai. The appellant's return of income for the year was assessed under section 143(3) r/w.s. 147 of the Act, making adjustments including disallowances under various sections. The appellant moved an application u/s. 154 of the Act, which was rejected by the Assessing Officer. The appellant appealed against this rejection, but the challenge was dismissed by the ld. CIT(A). The rejection was upheld as the A.O. had taken a conscious decision after allowing the assessee to explain its case, and the plea for rectification required further verification and consideration. The appellant's case for rectification u/s.154 was deemed not maintainable, leading to the appeal in question.

2. Issue-wise Analysis:
2.1. Regarding the disallowance of interest relatable to interest-free loans to directors, a similar disallowance for A.Y. 2001-02 was deleted partly by the first appellate authority. The appellant availed interest-free loans from directors, and the interest could be disallowed for the balance amount. The A.O. overlooked the fact that the appellant had also received interest-free loans from directors, which was a vital mistake. The Tribunal admitted the appellant's claim and directed the matter to be restored back to the A.O. for allowing relief on interest disallowed u/s.36(1)(iii) based on the material on record, emphasizing the need for verification.

2.2. As for the disallowance of rent u/s.40A(2)(a), the A.O. made the disallowance after considering the appellant's explanation during the assessment proceedings. The Tribunal observed that no 'mistake' apparent from the record was demonstrated by the appellant, and the matter was debatable involving a mixed question of fact and law. The appellant failed on this issue as the grievance raised was not found to be substantial or supported by specific arguments.

In conclusion, the appeal by the appellant was partly allowed for statistical purposes, with the Tribunal providing detailed reasoning and analysis for each issue raised in the case.