2015 (9) TMI 1165 - AT - Income Tax

Maintainability of the invocation of section 154 - rectification of mistake - Held that - These are section 154 proceedings, scope of which is limited to mistakes apparent from record, so that issues that admit of debate stand excluded at the threshold. The discharge of the liability, implying payment to the beneficiaries, the employees to whom it is due/payable, and for payment to whom the sum/s is set aside, either by the assessee or on its behalf by the transferee company, has not been shown or even claimed, much less during the relevant previous year, which alone is relevant for claiming or being allowed deduction u/s. 43B, i.e., the provision under which the allowance had been earlier made, and stands reversed subsequently through recourse to s. 154. The primary condition of s. 43B, thus, stands not met - a fact which is not denied and, besides, is borne out of the record. A mistake, rectifiable u/s. 154, it is trite, could be either of fact or of law. The allowance of deduction of the impugned sums u/s. 43B was thus clearly a mistake apparent from record, liable to be rectified u/s. 154. This, quite simply, is the only issue relevant and, in any case, represents the core of the matter; the various aspects discussed being only to address the various arguments/contentions raised, and which again clarify an undisputed state of affairs, both on facts and in law. The deduction, therefore, could only be claimed in the year of payment. As clarified in Mysore Spg. & Mfg. Co. Ltd. v. CIT 1966 (2) TMI 82 - BOMBAY HIGH COURT , we may further add, it is not necessary that the particular business, to which the deduction (in computing its business income) relates, is carried out by the assessee during the relevant year. We decide accordingly. - Decided against assessee.

Summary

Issues:

1. Maintainability of invoking section 154 of the Income Tax Act by the Assessing Officer.
2. Disallowance of certain expenses under section 43B in computing business income.
3. Transfer of liabilities on sale of undertaking and its impact on statutory obligations.
4. Constitutional validity of section 43B(f) regarding deduction of leave encashment salary.

Issue 1: Maintainability of invoking section 154:
The appeal questions the invocation of section 154 of the Income Tax Act by the Assessing Officer and the subsequent order by the first appellate authority. The core issue is whether the rectification of the assessment under section 154 was valid in the given circumstances.

Issue 2: Disallowance under section 43B:
The case involves disallowance of certain expenses, including ESIC payment, bonus, gratuity, and leave encashment, under section 43B in computing the business income for Assessment Year 2004-05. The dispute arises from the treatment of these expenses and their disallowance by the Assessing Officer.

Issue 3: Transfer of liabilities on sale of undertaking:
The judgment delves into the transfer of liabilities, along with assets, on the sale of the undertaking and its impact on the statutory obligations of the assessee. The argument revolves around whether the liabilities were effectively discharged upon the sale of the undertaking on a 'as is where is basis'.

Issue 4: Constitutional validity of section 43B(f):
The constitutional validity of section 43B(f) regarding the deduction of leave encashment salary is discussed. Reference is made to the decision in Exide Industries Ltd. v. Union of India and the implications of the pending appeal on the allowability of such deductions.

The judgment ultimately dismisses the appeal, emphasizing that the deduction of the impugned sums under section 43B could only be claimed in the year of payment. It clarifies that the rectification under section 154 was valid as the primary condition of section 43B was not met, making it a mistake apparent from the record. The judgment provides detailed analysis on each issue raised, focusing on legal interpretations and factual considerations to arrive at the final decision to dismiss the appeal.