2022 (7) TMI 1268 - HC - Income Tax

Rectification u/s 154 - credit of Tax deduction at source in the year - whether the assessing officer ought to have exercised his powers under Section 154 of the Act pursuant to an application filed by the assessee for rectification of a mistake? - HELD THAT - Sub-section (1) of Section 199 states that any deduction made in accordance with the other provisions of Chapter XVII of the Act and paid to the Central Government shall be treated as payment of tax on behalf of the person from whose income the deduction was made and credit shall be given to him for the amount so deducted on production of certificate furnished under Section 203 for the assessment made under the Act for the assessment year for which such income is assessable. It is not in dispute that the income was assessed for the assessment year 2005-06. If such is the case, the question would be whether the assessing officer could have ignored Section 199. If the answer to the said question is in the negative, then the next question would be whether such order of assessment made under Section 143(1) could be rectified by invoking Section 154 of the Act. In CIT Vs. Sundaram Textiles Ltd 1984 (6) TMI 49 - MADRAS HIGH COURT while considering the provisions of Section 154 of the Act it was held that the application of a wrong provision of the Act or the erroneous application of the same to the facts of the case which do not call for such application, will amount to a mistake apparent from the record for the purposes of Section 154. In T.S. Balaram ITO V. Volkart Bros. 1971 (8) TMI 3 - SUPREME COURT the Hon ble Supreme Court held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points, on which there may be conceivably two opinions. As the appeal is allowed and the order passed by the learned Tribunal as well as the order passed by the Learned Commissioner of Income Tax (Appeals) dated 18th November, 2013 are set aside and the matter is restored to the file of the first Appellate Authority who shall consider the submissions of the assessee after affording an opportunity of hearing to the authorized representative of the assessee and take a fresh decision on merits in accordance with law.

Summary

Issues:
1. Rectification of mistake under Section 154 of the Income Tax Act, 1961.
2. Application of Section 199 of the Act for giving credit of Tax Deduction at Source (TDS).
3. Interpretation of legal provisions regarding rectification of assessment orders.

Analysis:

1. The primary issue in this case revolves around the rectification of mistakes under Section 154 of the Income Tax Act, 1961. The assessee had pointed out two mistakes in the assessment order, one related to advance tax and self-assessment tax, which was rectified by the assessing officer. However, the second mistake regarding the credit of TDS of Rs.3,61,059/- was disallowed, leading to a dispute. The assessing officer contended that the TDS credit was for the previous assessment year and thus rightly disallowed for the current year. The appellate authority and the Tribunal differed in their opinions on whether this issue was debatable and if it could be rectified under Section 154.

2. The second crucial issue raised by the assessee was the application of Section 199 of the Income Tax Act for giving credit of Tax Deduction at Source (TDS). The assessee argued that the assessing officer erred in not allowing the credit of TDS on insurance commission income for the assessment year 2005-06. Section 199 states that deductions made and paid to the government shall be treated as tax payment on behalf of the individual, and credit should be given for the amount deducted. The failure to consider the effect of Section 199 led to a legal question regarding the rectifiability of the assessment order under Section 154.

3. The interpretation of legal provisions, specifically Section 154 of the Act, was crucial in determining whether the assessing officer's decision could be rectified. Citing precedents such as CIT Vs. Sundaram Textiles Ltd. and T.S. Balaram ITO V. Volkart Bros., the High Court emphasized that a mistake apparent on the record must be obvious and patent, not requiring a lengthy process of reasoning. The court highlighted the importance of raising legal questions, such as the effect of Section 199, to avoid unnecessary appeals and remands. Ultimately, the court allowed the appeal, setting aside previous orders, and remanded the matter to the first Appellate Authority for a fresh decision considering the legal implications of Section 199.

In conclusion, the judgment focused on the rectification of assessment orders under Section 154, the application of Section 199 for TDS credit, and the necessity of raising legal questions for proper consideration. The court's decision to remand the matter for a fresh decision underscores the importance of addressing legal provisions and potential mistakes in assessment orders to avoid prolonged legal disputes.