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Income Tax Appellate Tribunal, DELHI “E” BENCH: NEW DELHI
Before: SHRI KUL BHARAT & SHRI PRADIP KUMAR KEDIA
ORDER PER KUL BHARAT, JM :
This appeal filed by the assessee for the assessment year 2011-12 is directed against the order of Ld. CIT(A)-22, New Delhi dated 26.06.2018.
The assessee has raised following grounds of appeal:-
1. "On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax(Appeals) CIT(A) is bad both in the eye of law and on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the learned AO ignoring the contention of the assessee that under Section 154 only a mistake which is apparent from record can be rectified and the scope of the order passed by the AO is limited. 3. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs. 3,06,32,000/- made by AO on account of provision for leave encashment. (ii) That the said addition has been confirmed despite the fact that the amount of Rs. 17,846.14 lakhs shown by the auditor in its Audit Report as against the actual provision of Rs. 17,539.82/- is purely a typographical error and can be easily verifiable from Audited Financial Statements.
4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition by indulging in surmises and conjectures without appreciating and verifying the facts on record.
5. That the assessee craves leave to add. Amend or alter any of the grounds of appeal
.”
2. Facts giving rise to the present appeal are that in this case, the assessee had filed its return of income through e-mode, declaring loss of Rs.14,76,94,22,781/- on 29.09.2011. The case was processed u/s 143(2) of the Income Tax Act, 1961 (“the Act”) and subsequently was taken up for scrutiny assessment and the assessment u/s 143(3) of the Act was framed vide order dated 18.03.2014/20.03.2014. Thereafter, the Assessing Officer (“AO”) passed an order u/s 154 of the Act dated 07.03.2017 on the basis that the assessee had made a provision of leave encashment of Rs. 17,539.82 Lakhs in the Profit & Loss Account and the same was added back in the computation of taxable income by the assessee but the Auditor certified in the tax audit report under 3CD that the assessee had incurred an amount of Rs.17,846.14 Lakhs on leave encashment.
3. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions, confirmed the finding of the AO and dismissed the appeal.
4. Now, aggrieved against this, the assessee preferred appeal before this Tribunal.
5. A short question that arises for our consideration that whether the AO correctly exercised the jurisdiction u/s 154 of the Act under the facts and circumstances of the present case. Ld. Counsel for the assessee reiterated the submissions as made in the written synopsis. The submissions of the assessee are reproduced as under:-
“This is an appeal filed by the assessee against the order passed by the learned CIT(A) confirming the addition of Rs. 3,06,32,000/- made by the AO in the rectification order passed under section 154/250/143(3) of the Income Tax Act ("The Act").
The brief facts of the present case are that the assessee filed its original return of income declaring total loss of Rs. 14,76,94,22,781/- [PB Pg.1] Thereafter, the assessment was completed under section 143(3) of the Act vide order dated. 18.03.2014 at the net loss of Rs. 14,48,28,78,030/-. The assessee went before CIT(A) against the order passed by the AO and learned CIT(A) had given the partial relief and thereby the assessed loss was reduced to Rs. 14,72,18,51,211/-. 3. Subsequently, the learned AO passed the order under section 250/143(3) of the Act dated. 01.07.2016 giving effect to the order passed by the CIT(A). 4. Thereafter, the learned AO passed the order under section 154/250/143(3) of the Act for making rectification in the order under section 143(3) passed on 20.03.2014 and issued the notice dated. 3 | P a g e 28.02.2017 alleging that assessee had made the provision for leave encashment of Rs. 17539.82 lakhs[PB Pg.33] in the profit and loss account and the same was added back in the computation of taxable income but the tax Auditor in Tax Auditors's report has certified that the assessee had incurred an amount of Rs. 17846.14 lakhs [PB Pg.79]. The learned AO has alleged that the amount of Rs. 17,846.14 lakhs must have booked in the profit and loss account and the same should have been added back in the computation instead of Rs. 17539.82/- and hence the AO alleged that the mistake resulted in over assessment of loss of Rs. 306.32 lakhs (17846.14- 17539.82).
In this regard, assessee submitted before the AO that provision for leave encashment of Rs. 17,539.82 lakh was made in the Profit & loss account and the same was added back in the computation of taxable income by the assessee. The said amount is as per the audited Balance sheet and the same has been correctly taken into account while filing the income tax returns. However, due to some clerical typographical error, the Tax audit report depicted an amount of Rs. 17,846.14 lakh on account of Leave Encashment and hence there is a difference of Rs. 306.32 lakh (17846.14 -17539.82) on this account. The assessee further submitted that there was no intention of the assessee company to evade tax payment through over assessment of loss as the correct amount of Leave encashment, as per the audited accounts is Rs. 17,539.82 lakh and the same has been correctly added in the computation of taxable income.
6. In total disregard to the submissions and explanations given by the assessee, the learned AO passed the rectification order under section 154 of the Act and made the disallowance of Rs. 3,06,32,0001- to the net loss of Rs. 14,72,18,51,211/- assessed under section 154/250/143 of the Act on account of typographical error made by the Tax Auditor in the value of provisions for leave encashment.
7. Aggrieved by this, assessee filed an appeal before the learned CIT(A) and learned CIT(A) confirmed the addition made by the AO 4 | P a g e ignoring the contention of the assessee that the correct amount has been claimed by the assessee in the profit & loss account which is also disallowed in the return of income thus, there is no mistake apparent on record in the order passed under section 143(3) of the Act sought to be rectified by the AO.
8. Now the assessee is in appeal before this Hon'ble Tribunal.
It is a well settled law that for rectification of the mistake under section 154 of the Act shall be the 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 conceivably be two opinions.
10. The AO passed the original assessment order after scrutiny under section 143(3) of the Act after examining the books of account produced before him. AO did not dispute the mismatch of the figures of provisions of leave encashment at the assessment stage.
In this regard it is submitted that the learned AO made the addition on the basis of the mismatch of figures in the Tax Audit report and audited financial statements. The assessee has number of times submitted before AO and CIT(A) that there is a typographical error in tax audit report and there is no error in the financial statement of the assessee. The assessee submitted that whatever claimed by the assessee is already disallowed in the computation of income.
It is pertinent to mention here that the Tax Audit Report as well as the Financial statements were audited by the same auditors and therefore the AO cannot made the addition only on the basis presumptions without rebutting the submissions made by the assessee that the actual figure is Rs. 17,539.82 and not Rs. 17,846.14 as alleged by the AO.
Further, the issue raised by the AO in proceeding under section 154 of the Act was highly debatable and AO has no power to review his entire assessment order and to make certain additions by passing the order under section 154 of the Act.
Your Honors, it is humbly submitted that the impugned rectification order passed u/s 154 of the Act is absolutely bad in law and liable to be quashed. Your Honors, the powers conferred upon the Ld. AO u/s 154 of the Act are only w.r.t 'mistakes apparent from record' in any order/ intimation passed by him under the Act. In this regard, relevant excerpts of Section 154 of the Act are also reproduced below: "154. (1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may,- (a) amend any order passed by it under the provisions of this Act; (b) amend any intimation or deemed intimation under sub- section (1) of section 143; (c) amend any intimation under sub-section (1) of section 200A; (d) amend any intimation under sub-section (1) of section 206GB."
This issue came up before Hon'ble Supreme Court in the case of CIT vs Keshri Metal Pvt. Limited, 1999 (3) TMI 11-Supreme Court ,Dated-18 March 1999 wherein Hon'ble Apex Court held that: "We have heard learned counsel. We do not agree that the question raises a pure question of fact; to that extent, the High Court was in error. But it was not in error in coming to the conclusion that there was no occasion for rectification. Under the provisions of section 154 there has to be a mistake apparent from the record. In other words, a look at the record must show that there has been an error and that error may be rectified. Learned counsel for the Revenue has not been able to satisfy us that it shows any apparent error upon the record. Reference to documents outside the record and the law is impermissible when applying the provisions of section 154. The appeal is dismissed. No order as to costs.
Your Honors, reliance in this regard is also placed on the following judgments- • Balaram, Income-Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers and Others,- 1971 (8) TMI 3 - Supreme Court, Dated: - 05 August 1971 • "From what has been said above, it is clear that the question whether Section 17(1) of the Indian Income-tax Act, 1922 was applicable to the case of the first respondent is not free from doubt. Therefore the Income-tax Officer was not justified in thinking that on that question there can be no two opinions. It was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under Section 154 of the Income-tax Act, 1961. 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 conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Hegde and Ors. v. Millikarjun Bhavanappa Tirumale this Court while spelling out the scope of the power of a High Court under Article 226 of the Constitution ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record-see Sidhramappa v. Commissioner of Income-tax, Bombay. The power of the officers mentioned in Section 154 of 7 | P a g e
the Income- tax Act, 1961 to correct "any mistake apparent from the record" is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an "error apparent on the face of the record". In this case it is not necessary for us to spell out the distinction between the expressions "error apparent on the face of the record" and "mistake apparent from the record". But suffice it to say that the Income-tax Officer was wholly wrong in holding that there was a mistake apparent from the record of the assessments of the first respondent. " • . The above judgement was followed by Hon'ble Delhi Court in the case of COMMISSIONER OF INCOME TAX VERSUS MR. FEDDERS LLOYED CORPN. (P) LTD.- 2010 (9) TMI 63 - DELHI HIGH COURT Dated, 01.09.2010 wherein Hon'ble Court has held as under: 2. This reference pertains to the assessment year 1980-81. The assessee company is the manufacturer of air-Conditioners and refrigerators. It claimed investment allowance under Section 32A of the Act which was allowed by the Assessing officer in the original assessment. However, later on, the Assessing Officer issued a notice under Section 154 of the Act asking the assessee to show cause as to why the investment allowance already allowed be not withdrawn, and ultimately the Assessing Officer passed the orders withdrawing it. In exercise of its power under Section 154 of the Act, in appeal CIT (A) held that the issue was debatable and hence action under Section 154 of the Act was not warranted. The ITAT has upheld the decision of the CIT (A). We are of the opinion that ITA T rightly held that the issue was debatable. It rightly observed that it was not concerned with the merits of the matter but the question was as to whether such an action could be taken by the Assessing Officer in 154 proceedings. Since the dispute, whether the Air- conditioners and refrigerators were articles falling in the list of Schedule-XI, namely, whether they were domestic or electric appliances or it was a controversial question, rectification proceedings under Section 154 could not be initiated. This is so held by the Supreme Court in T.S. Balram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers And Others, 82 ITR 50 in the following manner:- "From what has been said above, it is clear that the question whether Section 17(1) of the Indian Income-tax Act, 1922 was applicable to the case of the first respondent is not free from doubt. Therefore the Income-tax Officer was not justified in thinking that on that question there can be no two opinions. It was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under Section 154 of the Income-tax Act, 1961. 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 conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Hegde and Ors. v. Millikarjun Bhavanappa Tirumale this Court while spelling out the scope of the power of a High Court under Article 226 of the Constitution ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record-see Sidhramappa v. Commissioner of Income-tax, Bombay. The power of the officers mentioned in Section 154 of the Income- tax Act, 1961 to correct "any mistake apparent from the record" is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an "error apparent on the face of the 9 | P a g e record". In this case it is not necessary for us to spell out the distinction between the expressions "error apparent on the face of the record" and "mistake apparent from the record". But suffice it to say that the Income-tax Officer was wholly wrong in holding that there was a mistake apparent from the record of the assessments of the first respondent.”
We, thus, answer the question in favour of the assessee and against the revenue. " • The Kerala High Court in its yet another decision in the case of K.K.J. Foundations Vs The Assistant Director of Income Tax -2015 (9) TMI 612-Kerala High Court, Dated-08 September 2015,has relied upon the land mark judgments of Apex Court in the case of' S. Nagaraj v. State of Karnataka' [(1993) Supp. 4 SCC 595] and 'Ammonia Supplies Corporation Pvt. Ltd. v. Modern Plastic Containers Pvt. Ltd.' [AIR 1998 SC 3153], to conclude that: "11. In our view, the power conferred under Sec. 154 is something akin to the power of review conferred on a Civil Court under Sec.114 of the Code of Civil Procedure. By invoking the power of rectification, the ultimate conclusion of a decision cannot be changed. So also, the employment of the words phraseologies in Sec. 154 shows that by rectification it intended only to correct any mistake and amend the same accordingly. It is a settled proposition of law that rectification is a process by which a mistake is set at right. It thus means correcting an error which was apparent from record and not deciding the matter over and again on merits and that the rectified order does not supersede the original order but continues with the incorporated changes.
12. Moreover, we have come across two judgments of the Hon'ble Apex Court in 'S.Nagaraj v. State of Karnataka' [(1993)
Supp. 4 SCC 5951 and 'Ammonia Supplies Corporation Pvt. Ltd. v. Modern Plastic Containers Pvt. Ltd.' [AIR 1998 SC 3153]. by which it was held in the former judgment that rectification of an order stems from fundamental principle that justice is above all. It is exercised to remove the error and not for disturbing finality. In the latter judgment, it was held that rectification connotes something what ought to have been done but by error is not done and what ought not to have been done was done requiring rectification. Rectification, in other words, is the failure to comply with the directions under the Act. Therefore, it is apposite and clear that the power under Sec. 154 can be invoked only to correct an error and not to disturb a conclude finding.
13. Therefore, on a perusal of the facts, the orders rendered by the statutory authorities and the Tribunal and appreciating the pleadings put forth, we are of the considered opinion that the question raised for invoking Sec. 154 of the Act was a question ought to have been raised in a regular appeal and the same has nothing to do with rectification of any mistake apparent from the record. The findings entered by the Assessing Authority was based clearly on facts which was susceptible to an appeal. We also did not find any error apparent from the record which enabled the assessee to invoke the said provision." • JMD Auto India Pvt. Ltd. Vs. Assistant Commissioner Of Income Tax-15 (2) (2) , Mumbai, 2020 (7) TMI 642 -ITAT MUMBAI, Dated:17July, 2020 The power of rectification u/s 154 of the Act can be exercised only if there is a mistake apparent from the record of the assessment of the assessee. In other words, in order to attract the power to rectify u/s 154, it is not sufficient, if there is merely a mistake in the order sought to be rectified. The mistake could be rectified must be one apparent from the record. The plain meaning of the word "apparent" is that it must be something which appears to be so ex facie and is incapable of 11 | P a g e argument or debate. It, therefore, follows that a decision on a debatable point of law or fact or failure to apply the law to a set of facts, which remain to be investigated, cannot be corrected by way of rectification. In T.S. Balaram v. Volkart Bros. (1971) 82 ITR 50 (SC), their Lordships of the Hon'ble Supreme Court have 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; a decision on a debatable point of law is not a mistake apparent from record.
Thus, in the present case, the AO has passed the order despite there being no mistake apparent on record and therefore the rectification order passed by the AO is liable to be quashed and addition made by the AO and confirmed by the learned CIT(A) is liable to be deleted.”
Further, Ld. Counsel for the assessee placed reliance on the various case laws. Ld. Counsel for the assessee vehemently argued that the action of the AO is beyond the scope of section 154 of the Act. In support of this contentions, Ld. Counsel for the assessee placed reliance on the judgement of the Hon’ble Supreme Court in the case of CIT vs Keshri Metal Pvt. Ltd. [1999] (3) TMI 11 (SC). Further, reliance was placed on the judgment of Hon’ble Supreme Court in the case of TS Balaram, ITO Company Circle IV, Bombay vs Volkart Brothers and Others [1971] (8) TMI 3 (SC). Ld. Counsel for the assessee also placed reliance on the judgement of Hon’ble Delhi High Court in the case of CIT vs Mr. Fedders Lioyed Corpn. (P.) Ltd. [2010] (9) TMI 63 (Del.). To buttress the contention that the action of the assessing authority is beyond the scope of section 154 of the Act.
On the contrary, Ld. Sr. DR opposed these submissions and supported the orders of the authorities below. Ld. Sr. DR submitted that there is no dispute with regard to the fact that there was discrepancy regarding the figure disclosed in Profit & Loss Account regarding leave encashment and the figure stated and certified by the Auditor in his audit report. Ld. Sr. DR submitted that case laws as relied by the Ld. Counsel for the assessee are not applicable under the facts and circumstances of the present case. She further submitted that in the case of CIT vs Keshri Metal Pvt.Ltd. (supra), the facts were different as in that case, there were references outside the record wherein the Hon’ble Supreme Court held that such approach of AO was not permissible under the law. However, in the case in hand, the AO has unequivocally pointed out discrepancy in the figure disclosed by the assessee and certified by the Tax Auditor. Ld.Sr.DR submitted that both these figures are part and parcel of records.
We have heard the rival submissions and perused the material available on records. The undisputed facts in this case are that the AO carried out rectification on the basis that the assessee made provision for leave encashment of Rs17,539.82 Lakhs but the Auditor certified in the tax audit report a sum of Rs.17846.14 Lakhs on account of leave encashment. Hence, there was mismatch between the figure claimed by the assessee and certified by the Tax Auditor. Admittedly, the assessee did not file any clarification by the Tax Auditor in this regard. In this back drop, we need to examine the correctness of action of Assessing Officer for making rectification order u/s 154 of the Act. For the sake of clarity, section 154 of the Act is reproduced herein below:-
Rectification of mistake. 154. (1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may,— (a) amend any order passed by it under the provisions of this Act ; (b) amend any intimation or deemed intimation under sub- section (1) of section 143; (c) amend any intimation under sub-section (1) of section 200A; (d) amend any intimation under sub-section (1) of section 206CB. (1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided. (2) Subject to the other provisions of this section, the authority concerned— (a) may make an amendment under sub-section (1) of its own motion, and (b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee or by the deductor or by the collector, and where the authority concerned is the Commissioner (Appeals), by the Assessing Officer also. (3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee or the deductor or the collector, shall not be made under this section unless the authority concerned has given notice to the assessee or the 14 | P a g e deductor or the collector of its intention so to do and has allowed the assessee or the deductor or the collector a reasonable opportunity of being heard. (4) Where an amendment is made under this section, an order shall be passed in writing by the income-tax authority concerned. (5) Where any such amendment has the effect of reducing the assessment or otherwise reducing the liability of the assessee or the deductor or the collector, the Assessing Officer shall make any refund which may be due to such assessee or the deductor or the collector. (6) Where any such amendment has the effect of enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee or the deductor or the collector, the Assessing Officer shall serve on the assessee or the deductor or the collector, as the case may be a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this Act shall apply accordingly. (7) Save as otherwise provided in section 155 or sub-section (4) of section 186 15 no amendment under this section shall be made after the expiry of four years from the end of the financial year in which the order sought to be amended was passed. (8) Without prejudice to the provisions of sub-section (7), where an application for amendment under this section is made by the assessee or by the deductor or by the collector on or after the 1st day of June, 2001 to an income-tax authority referred to in sub-section (1), the authority shall pass an order, within a period of six months from the end of the month in which the application is received by it,— (a) making the amendment; or (b) refusing to allow the claim.”
9. As per above provision, the Assessing Officer is empowered to amend any order passed by him under the Act with a view for rectifying the mistake apparent from record. Therefore, for exercising power under section 154 of the Act, there should exist a mistake apparent from record.
In the present case as per Assessing Officer, the assessee failed to furnish any evidence with regard to its contention that the mismatch of amount on account of leave encashment as per books and as per tax audit report occurred due to clerical/typographical error made in the tax audit report.
Moreover, the assessee failed to furnish any certification from the Tax Auditor certifying that there was clerical/typographical error in the tax audit report. So far question of rectification of mistake under the facts and circumstances of the case in hand is concerned, the case laws as relied by the Ld. Counsel for the assessee do not support the case of the assessee, the same are distinguishable. However, looking to the finding of the AO that no certificate by the Tax Auditor was furnished to state true and correct fact, in our considered view, the AO himself ought to have made inquiry from the Tax Auditor of the assessee. Undisputedly, it is the Assessing Officer who wanted to amend the concluded assessment.
Therefore, he was required to verify the facts by making requisite inquiry.
We, therefore, set aside the impugned order and direct the AO to decide the issue afresh after making necessary inquiry and verification of facts related to issue under consideration. The grounds raised by the assessee are allowed for statistical purposes only.
In the result, the appeal of assessee is allowed for statistical purposes.
Order pronounced in the open Court on 10th February, 2022.