2020 (3) TMI 538 - AT - Income Tax

Rectification of mistake u/s 154 - withdrawal of claim of deduction u/s 54 - CIT(A) did not accept the objection of the assessee and upheld the order of the AO passed u/s 154 - HELD THAT - In the case in hand, it can be a matter of lack of enquiry or lack of proper enquiry on the part of the AO while passing scrutiny assessment order u/s 143(3) of the Act but the decision taken by the AO after considering the facts and evidences produced by the assessee cannot be held as a mistake apparent and patent on the face of the record. AO while passing the order u/s 154 has stated that on perusal of the record of the assessee and specifically on perusal of the sale deed dated 24-11-2010 whereby the assessee sold the immovable property bearing No. B-277, Vigyan Nagar, Jaipur, there was nowhere mentioned about the construction of the said property. Therefore, the AO in proceedings u/s 154 of the Act has re-appreciated the evidences which was already available on record and considered by the AO while passing the scrutiny assessment order u/s 143(3) - AO has no jurisdiction u/s 154 of the Act to re-appreciate the evidences already considered by the AO during the scrutiny assessment as it would amount to review of its own order. AO has travelled beyond the jurisdiction and scope of Section 154 - Instead of sending a proposal for revision of the order u/s 263 of the Act, the AO has assumed the powers and jurisdiction u/s 154 of the Act to review the earlier order in the garb of rectification of mistake. Even otherwise, if there is an error in the earlier order for allowing deduction u/s 54 of the Act, this is a mistake of question of law and facts. The ascertainment of facts requires a proper investigation and verification of the record as well as reality on the ground. Therefore, such an exercise of investigation and examination cannot be undertaken u/s 154 - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction and scope of Section 154 of the Income Tax Act.
2. Withdrawal of the claim of deduction under Section 54.
3. Disallowance of the indexed cost of improvement.
4. Disallowance of transfer expenses.
5. Charging of interest under Section 234B.

Detailed Analysis:

1. Jurisdiction and Scope of Section 154 of the Income Tax Act:
The primary issue revolves around whether the Assessing Officer (AO) had the jurisdiction to rectify the assessment order under Section 154. The assessee contended that the AO's action of withdrawing the deduction under Section 54 and disallowing the cost of improvement and transfer expenses was beyond the scope of Section 154, which is limited to rectifying apparent and patent mistakes. The tribunal agreed, noting that the AO's actions involved re-appreciation of evidence and review of the earlier order, which is not permissible under Section 154. The tribunal emphasized that only glaring and obvious mistakes can be rectified under this section, not errors that require a long drawn process of reasoning or involve debatable points of law.

2. Withdrawal of the Claim of Deduction Under Section 54:
The assessee argued that the AO had accepted the deduction under Section 54 during the original assessment after verifying the necessary documents. The tribunal found that the AO's subsequent action to withdraw this deduction under Section 154 was inappropriate. The tribunal cited the Supreme Court's decision in T.S. Balaram, Income Tax Officer vs Volkart Brothers & Ors, which held that a decision on a debatable point of law is not a mistake apparent from the record. The tribunal concluded that the AO's action constituted a review of the original order rather than a rectification of an apparent mistake, thereby exceeding the jurisdiction conferred under Section 154.

3. Disallowance of the Indexed Cost of Improvement:
The AO disallowed the indexed cost of improvement claimed by the assessee. The tribunal noted that this disallowance also involved a re-appreciation of evidence and facts that were already considered during the original assessment. As such, it was beyond the scope of Section 154, which does not allow for re-evaluation of evidence or review of earlier decisions.

4. Disallowance of Transfer Expenses:
Similar to the indexed cost of improvement, the disallowance of transfer expenses by the AO was found to be beyond the jurisdiction of Section 154. The tribunal reiterated that Section 154 is meant for rectifying apparent mistakes and not for re-assessing or reviewing the earlier order based on the same set of facts and evidence.

5. Charging of Interest Under Section 234B:
The assessee contested the charging of interest under Section 234B. However, the tribunal's judgment primarily focused on the jurisdictional issue under Section 154 and did not provide an in-depth analysis of this specific ground. The tribunal's decision to quash the AO's order under Section 154 effectively addressed the assessee's concerns regarding the interest charged.

Conclusion:
The tribunal quashed the AO's order passed under Section 154, deeming it beyond jurisdiction and scope. The tribunal emphasized that Section 154 is limited to rectifying apparent and patent mistakes and does not permit re-evaluation or review of earlier orders. The tribunal allowed the appeal of the assessee, thereby reinstating the original assessment order.