2014 (3) TMI 177 - AT - Income Tax

Rectification petition u/s 154 of the Act Facts properly not appreciated Held that - The decision in ITO vs. Volkat brothers 1971 (8) TMI 3 - SUPREME Court followed - a decision on debatable point of law is not a mistake apparent from record and that a mistake apparent on record must be obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinion - In the original order the CIT(A) has taken note of the fact that notice under section 133(6) of the Act could not be served to Shyam Agro Industries - CIT(A) was of the view that the assessee could not substantiate existence of the said party - whether ld. CIT(A) reached this conclusion rightly or wrongly and whether balance sheet entry itself was sufficient to dislodge this conclusion is beyond the inherently limited scope of mistakes which can be rectified under section 154 of the Act - The scheme of section 154 of the Act does not permit correction of such errors, even if there is any error the order of the CIT(A) upheld Decided against Assessee.

Summary

Issues:
1. Dismissal of rectification petition under section 154 of the Income Tax Act, 1961 by the ld. CIT(A) for the A.Y. 2008-09.
2. Invocation and application of provisions of section 41(1) of the Income Tax Act.
3. Rejection of rectification petition by the ld. CIT(A) based on the failure to establish trading liability and existence of liability.

Issue 1: Dismissal of Rectification Petition:
The appeal was filed by the assessee against the order passed by the ld. CIT(A) dismissing the rectification petition under section 154 of the Income Tax Act, 1961 for the A.Y. 2008-09. The assessee contended that the ld. CIT(A) erred in dismissing the application without appreciating the correct facts regarding the outstanding opening balance of M/s Shyam Agro Industries. The assessee argued that the provisions of section 41(1) were wrongly invoked and applied. The ld. CIT(A) upheld the dismissal based on the failure of the assessee to bring material on record supporting the subsistence of the liability, leading to the invocation of section 41(1).

Issue 2: Invocation of Section 41(1) Provisions:
During the assessment proceedings, the Assessing Officer (A.O.) made an addition of Rs.2,08,400/- concerning the opening balance of M/s Shyam Agro Industries. The A.O. observed that the assessee failed to provide evidence to prove the genuineness of purchases made from M/s Shyam Agro Industries. Despite the assessee's explanation that the balance represented old purchases and remained payable from the previous year, the A.O. added the amount to the income of the assessee under section 41(1) as trading liability was not established. The ld. CIT(A) affirmed this addition, stating that the A.O. rightly invoked the provisions of section 41(1) as the liability's subsistence was not proven by the assessee.

Issue 3: Rejection of Rectification Petition:
The assessee moved a rectification petition before the ld. CIT(A) arguing that the liability still subsisted as evidenced by the balance sheet. However, the ld. CIT(A) rejected the rectification petition, emphasizing that the decision taken by the predecessor based on the interpretation of section 41(1) could not be considered a mistake apparent from the record. The ld. CIT(A) held that rectification under section 154 was not applicable as the decision was based on examination of facts and interpretation of the law, which could be challenged through an appeal to the ITAT. The Tribunal, after considering the rival contentions and applicable legal principles, upheld the rejection of the rectification petition, emphasizing that the subjective conclusion reached by the ld. CIT(A) was beyond the scope of rectifiable mistakes under section 154.

In conclusion, the Tribunal dismissed the appeal filed by the assessee against the rejection of the rectification petition, affirming the well-reasoned action of the ld. CIT(A) in declining to interfere in the matter. The Tribunal highlighted the limited scope of rectifiable mistakes under section 154, emphasizing that errors of judgment, even if present, cannot be rectified under this provision.