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2015 (10) TMI 2300 - AT - Income TaxRectification of mistake - excise duty provision remained allegedly unpaid before the due date of filing of the return of income - Held that - As per S. 154, the Assessee is entitled to satisfy the act of payment by furnishing evidences when opportunity is afforded to him. The assertions made tax audit report can not necessarily be taken as gospel truth. The Assessee has attempted to avail the opportunity before the CIT(A) to which coterminous powers are extended without success. The Assessee has attempted to lend support to eligibility of deduction with reference to tax audit report and return of income of subsequent assessment for the contention that claim for deduction has not been made in the next year while the Assessee was eligible for it in terms of S. 43B. Hence, having regard to the fact situation, we consider it expedient that the issue is set-aside to the file of the Assessing Officer to afford one more opportunity to the Assessee to place on record the evidences of actual payment of outstanding excise liability. The AO shall determine the quantum of deductions towards impugned excise duty provisions available to the Assessee for the relevant assessment year 2005-06 in accordance with law. The issue is therefore remitted to the file of AO in terms of above observations. Disallowance of warranty provision by way of rectification while computing the income under the normal provision of the Act - Held that - AO has rejected the aforesaid amount of ₹ 1.49 cr. in order u/s 154 on the ground that it is contingent in nature based on tax audit report which is ex facie found to be based on incorrect presumption and thus wrong premise. Therefore, the entire amount would stand allowed on this score alone. Secondly, the entire argument is based on the acquisition of liability in slump sale which involves examination of the records of the transferor co. qua the issue and such exercise is not amenable to S. 154. Thirdly, the Assessee has not claimed any expenditure on this payment in the books. It has simply reduced the outstanding liability on payment. Therefore, the issue, if at to be examined, involves obvious complexity and cannot be said to be emanating apparently from records. The text and tenor of the Ld. DR itself suggests so. The facts marshaled by the Ld. DR on the other hand seeks to enlarge the reasonings of the AO which is not permissible in so far as exercise of jurisdiction under 154. These reasons apart, the contention of the Assessee that set off of the impugned warranty payments of ₹ 1.49 cr. against the gross liability of ₹ 1.51 cr. was express and explicit in the original assessment order dated 31/12/ 2007 after due deliberation has not been rebutted by the Revenue. Therefore, there is no justification to exercise power under section 154 concerning the issue. Addition towards warranty provision to the book profits computed under section 115JB on the ground that the liabilities are of presumably of contingent nature as reported in the tax audit report and not ascertained liability - Held that - The relevant facts and tax audit report were available to the Revenue for its verification, if considered expedient. It will be far fetched to conclude on the basis of such remarks that the warranty provisions are in the nature of contingent liability particularly when the assessee is making specific denial. The possible difference in opinion can not be branded as mistake apparent from record . As stated, the records says exactly opposite to the version of the AO which is the foundation of this addition. In the light of aforesaid observations, we do not consider it necessary to deal with the various citations made during the course of hearing. Once the report itself has been blatantly misread which triggered an ab-initio perverse conclusion, all other incidental arguments on merits are rendered extraneous. Therefore, order of the CIT(A) on the issue deserves to be vacated and as a consequence, the addition to the book profit on this score stands deleted. Provision of doubtful debts while computing the book profits under section 115JB - Held that - It is the case of the assessee as per clarification reply dated 6/03/2009 placed before AO that similar to the impugned provisions for doubtful debts substracted which has been disallowed by the Assessing Officer holding the same to be provision in the nature of unascertained liability, the assessee has also simultaneously added back provision of the similar nature to the extent of ₹ 2,51,53,409/- in the books which has resulted in substantial increased in the books profits. This aspect has not been dealt with by the Revenue. We find that the Assessing Officer could not have rectified the impugned amount debited to the Profit & Loss Account toward doubtful debts without applying the same yardstick to the credit amounts emerging from the same records. Therefore, the contention of the assessee deserves to be accepted on this count also and addition to the book profit requires to be deleted - Decided in favour of assessee as directed.
Issues Involved:
1. Validity of rectification order under section 154 of the Income-tax Act, 1961. 2. Disallowance of excise duty provision of INR 8,082,905. 3. Disallowance of warranty liability payment of INR 14,985,639. 4. Addition of provision for warranties of INR 15,197,332 under section 115JB. 5. Addition of provision for doubtful debts of INR 4,064,469 under section 115JB. Detailed Analysis: 1. Validity of Rectification Order Under Section 154: The assessee challenged the rectification order passed by the Assessing Officer (AO) under section 154 of the Income-tax Act, 1961, arguing that the issues involved were debatable and had already been examined in the original assessment order. The Tribunal noted that section 154 permits correction of mistakes that are apparent and patent. An error must be self-evident and not require elaborate discussion or argument to establish it. The Tribunal concluded that the AO's rectification order did not meet these criteria, as the issues were complex and required detailed examination. 2. Disallowance of Excise Duty Provision of INR 8,082,905: The AO disallowed the deduction of the excise duty provision, stating that it remained unpaid before the due date of filing the return, as per the tax audit report. The assessee contended that the excise duty was actually paid before the due date, and the tax audit report was erroneous. The Tribunal found that the evidence of payment was not considered by the AO and remitted the issue back to the AO to verify the payment details and determine the allowable deduction. 3. Disallowance of Warranty Liability Payment of INR 14,985,639: The AO disallowed the payment towards warranty liability, arguing that it pertained to a division acquired by the assessee on a slump sale basis, and no evidence was provided that the provision was disallowed in the earlier years. The Tribunal noted that the AO had explicitly allowed the deduction in the original assessment order and concluded that the AO's attempt to review this decision under section 154 was not permissible. The Tribunal reversed the disallowance. 4. Addition of Provision for Warranties of INR 15,197,332 Under Section 115JB: The AO added the provision for warranties to the book profit under section 115JB, considering it a contingent liability. The Tribunal found that the tax auditor's report had been misinterpreted by the AO, as it stated that the provision was not a contingent liability. The Tribunal concluded that the addition was based on a misreading of the report and deleted the addition. 5. Addition of Provision for Doubtful Debts of INR 4,064,469 Under Section 115JB: The AO added the provision for doubtful debts to the book profit under section 115JB, treating it as an unascertained liability. The assessee argued that a similar provision amounting to INR 2,51,53,409 was reversed in the same year, resulting in an increase in book profit. The Tribunal found that the AO had not considered this reversal and concluded that the addition was not justified. The Tribunal deleted the addition. Conclusion: The Tribunal allowed the appeal of the assessee, setting aside the rectification order under section 154 and deleting the disallowances and additions made by the AO. The Tribunal remitted the issue of the excise duty provision back to the AO for verification of payment details.
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