2019 (7) TMI 693 - AT - Income Tax

Rectification u/s 154 - mistake committed in the original Order of the Ld.AO passed U/s. 143(3) - treatment in the statement of affairs of the assessee company by excluding the profit derived from the sale of old machinery while computing the MAT U/s. 115JB - HELD THAT - From the facts of the case it is apparent that the various Higher Judiciaries have taken divergent view on the issue where certain Capital loss are directly entered in the balance sheet without routing it through P L Account. Though the Companies Act, 1956 mandates any Profits and Loss to be routed through P L Account, the issue with respect to computation of MAT in such circumstance as admitted by both the parties is not settled by the decision of the Hon ble Apex Court. In this situation it cannot be said that there is an apparent mistake in the original order of the AO passed U/s. 143(3) of the Act which is required to be rectified. In this circumstance the AO has jurisdiction only to reopen the case of the assessee U/s. 147 148 and pass speaking order after hearing both sides. In the case of the assessee the AO has invoked the provisions of section 154 and passed Order without affording the assessee an opportunity of being heard which is erroneous. Therefore, the CIT (A) has also erred in confirming the order of the Ld. AO passed U/s. 154 of the Act. Hence, we hereby set-aside the order of the Ld. CIT (A) and further quash the order of the Ld. AO who had erroneously invoked the provisions of section 154 of the Act. Since we have decided the appeal of the assessee in its favour by setting aside the order of the Ld. CIT (A) and quashing the order of the Ld. AO, the Stay Application filed by the assessee does not survive.

Summary

Issues:
Rectification of mistake under Section 154 of the Income Tax Act - Treatment of profit from sale of old machinery in balance sheet for computation of Minimum Alternate Tax (MAT).

Analysis:
The appeal was filed against the order of the Ld. CIT(A) confirming the rectification order passed by the Ld. AO under Section 154 of the Income Tax Act. The crux of the issue was the treatment of profit derived from the sale of old machinery in the balance sheet for computing MAT. The Ld. AO rectified the original assessment order under Section 143(3) as he believed the profit was erroneously entered directly in the balance sheet instead of routing it through the Profit & Loss Account.

The Ld. CIT(A) upheld the rectification order, stating that the profit from the sale of old machinery did not fall under the items for deduction under Section 115JB of the Act. The appellant argued that the issue was debatable and not a clear mistake, citing various decisions supporting both sides. The Higher Judiciaries had differing views on the treatment of such capital loss directly in the balance sheet without routing through the Profit & Loss Account.

The Tribunal noted that the issue was unsettled by the Hon’ble Apex Court and deemed it not a clear mistake but a debatable issue. The Ld. AO, by invoking Section 154 instead of Sections 147 & 148, had passed the order without giving the assessee an opportunity to be heard, which was deemed erroneous. Consequently, the Tribunal set aside the order of the Ld. CIT(A) and quashed the order of the Ld. AO under Section 154.

As the appeal was decided in favor of the assessee, the Stay Application filed by the assessee was dismissed as not maintainable. The Tribunal allowed the appeal of the assessee and set aside the orders of the lower authorities, emphasizing the importance of following due process and providing a fair hearing before passing rectification orders under the Income Tax Act.