2017 (2) TMI 274 - AT - Income Tax

Scope of rectification of mistake orders - Disallowance made u/s. 40(a)(ia) in the proceedings u/s. 154 - Held that - We find that the AO had merely sought to investigate in detail the basic facts as to whether the assessee had indulged in making purchase of printing material for the purpose of its business or had engaged contractors and have the printing job done in tune with its requirements in the proceedings initiated u/s. 154 of the Act. We hold that the same ought to have been carried out by the AO only in the assessment proceedings u/s. 143(3) of the Act or if necessary, avenues open to the revenue are by either resorting to section 263 of the Act (revision proceedings) by the Ld. CIT or by reopening the assessment u/s. 147 of the Act. We hold that the issue being squarely debatable cannot be carried out u/s. 154 of the Act. We also hold that what could be rectified u/s. 154 of the Act are mistakes that are patent, glaring and apparent from record. Mistake, if any, which has to be discovered by a long drawn process or reasoning or examination of arguments on points where there may conceivably be two opinions cannot be said to be mistake or error apparent from record.We also appreciate the circular of CBDT No. 715 is binding only on the tax authorities and not on the assessee as admittedly the circular cannot detract from the provisions of the Act. Addition made on account of closing stock - Held that - Necessity of making such addition had been understood and accepted as a dispute and the said dispute has reached the corridors of the various High Courts hence, the same would make the issue debatable.Since the subject mentioned issue also is debatable the same cannot be adjudicated in section 154 proceedings. Hence, the grounds raised by the revenue are dismissed

Summary

Issues:
1. Justification of deleting disallowance u/s. 40(a)(ia) in proceedings u/s. 154.
2. Whether payments were for purchases or job work under section 194C.
3. Addition on account of difference in closing stock.

Issue 1:
The primary issue in this case was whether the CIT(A) was correct in deleting the disallowance made under section 40(a)(ia) in the proceedings under section 154 of the Income-tax Act. The AO had noticed that the assessee made payments towards printing charges without deducting tax at source. The CIT(A) found this to be a debatable issue requiring detailed investigation of facts, concluding that it did not warrant rectification under section 154. Various court decisions were cited to support this conclusion.

Issue 2:
The second issue revolved around whether the payments made by the assessee were towards purchases or job work under section 194C of the Act. The AO contended that the payments fell under the ambit of works contract, justifying the disallowance under section 40(a)(ia). However, the CIT(A) disagreed, stating that this issue was debatable and required detailed investigation of facts, hence not suitable for rectification under section 154. The arguments of both parties were thoroughly examined, with the CIT(A) ultimately relying on the debatable nature of the issue.

Issue 3:
The third issue concerned the addition on account of the difference in closing stock. The AO argued that the closing stock submitted to the bank did not match the figures in the books of account, necessitating rectification under section 154. However, the CIT(A) found this to be a debatable issue, citing various High Court decisions to support the conclusion that no addition could be made solely based on the stock statement submitted to the bank without discrepancies in the books of account. The issue was deemed unsuitable for rectification under section 154.

In the final judgment, the Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision. The Tribunal emphasized that issues requiring detailed investigation and involving debatable points of law could not be rectified under section 154. Citing legal precedents, the Tribunal clarified that rectification under section 154 was reserved for obvious and patent mistakes, not issues that required extensive reasoning or multiple opinions. The Tribunal also highlighted that circulars issued by authorities were binding only on tax officials, not on taxpayers. Ultimately, the Tribunal found that the issues raised by the revenue were debatable and dismissed the appeal, refraining from giving an opinion on the merits of the case.