2024 (9) TMI 350 - AT - Income Tax

Rectification u/s 154 - addition u/s 36(1)(va) - delay in deposit of EPF ESI - HELD THAT - We are of the considered view that the quarrel is not much in respect of the merits of the addition but whether the AO can exercise powers u/s 154 of the Act drawing support from the subsequent judgment of the Hon ble Supreme Court when, at the time of framing the assessment order, there were judgments galore in favour of the assessee. The question of relying on any judgment in favour of the revenue to invoke powers u/s 154 of the Act has not manifested from order u/s 154. Thus, both the lower authorities erred in rectifying the assessment order on the basis of case of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT . As contended that once the issue is decided by the Hon'ble Supreme Court against an assessee, the action on the part of AO in invoking section 154 of the Act rectifying the mistake in wrongly granting the benefit to assessee in the original assessment order could always be withdrawn. The assessee submitted that the law laid down in N.C. Budharaja Co. case 1993 (9) TMI 6 - SUPREME COURT was prospective in nature, therefore, the same would not apply to this case because, on the date when AO granted relief to assessee, the issue in relation to claiming of investment allowance on drilling activity was a debatable one. The Tribunal allowed assessee's appeal on the ground that in N. C. Budharaja Co. (supra) was not available on the date of rectification, i.e., on 19/10/1992, therefore, the same could not be made a basis for withdrawing the investment allowance. Hon'ble High Court held that as on the date, when the assessee claimed the benefit of investment allowance, i.e., on 31/3/1989, the issue in regard to its claim was debatable one as there was cleavage of judicial opinion between several High Courts. On the date of rectification i.e., on 19/10/1992, the decision in N. C. Budharaja Co. (supra) was not rendered by the Supreme Court, therefore, invocation of provisions of section 154 was not justified. Appeal of the assessee is allowed.

Summary

Issues:
1. Rectification of assessment order under Section 154 of the Income Tax Act.
2. Authority of the Assessing Officer to rectify orders based on subsequent judgments.
3. Applicability of judgments in rectification proceedings.

Analysis:

The appeal pertains to an order dated 14/05/2024 by NFAC Delhi concerning AY 2017-18. The grievance of the assessee is the confirmation of the addition of Rs. 2,76,953 made under section 36(1)(va) of the Act by the AO in the order passed under section 154. The AO rectified the alleged mistake apparent from the records based on a Supreme Court decision, resulting in the addition. The assessee contended that there was no mistake apparent from the record at the time of the original assessment order, challenging the jurisdiction under section 154.

The Tribunal deliberated on whether the AO can exercise powers under section 154 based on subsequent judgments when there were judgments in favor of the assessee at the time of the original assessment order. It was concluded that the lower authorities erred in rectifying the assessment order solely based on a subsequent judgment of the Supreme Court. The Tribunal referenced the case of CIT vs. Mahavir Drilling Co. where it was held that rectification based on a subsequent Supreme Court decision is not justified if the issue was debatable at the time of the original assessment.

Based on the analysis and legal precedents, the Tribunal set aside the findings of the CIT(A) and directed the AO to delete the impugned addition/disallowance. Consequently, the appeal of the assessee was allowed, emphasizing the importance of the timing and clarity of legal judgments in rectification proceedings.

The judgment highlights the significance of legal clarity and timing in rectification proceedings under the Income Tax Act, emphasizing that rectifications based on subsequent judgments should be carefully evaluated, especially if the issue was debatable at the time of the original assessment. The Tribunal's decision underscores the need for a robust legal foundation and clear jurisdiction for rectification actions by the Assessing Officer.