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Income Tax Appellate Tribunal, LUCKNOW BENCH “B”, LUCKNOW
Before: SHRI A.D JAIN & SHRI T.S. KAPOOR
O R D E R PER T.S. KAPOOR, A.M.
This appeal has been filed by the assessee against the order of the ld. CIT(A)-IV, Lucknow, dated 25.03.2019 for Assessment Year 2008-09. The grounds of appeal taken by the assessee are reproduced below: “01. Because there being no mistake apparent from the ground of order passed u/s. 154 of the Act, is bad in law and be quashed.
02. Because the mistake as pointed out by the Assessing Officer is not a mistake apparent from record and is beyond the purview of the provisions of section 154 of the Act, the order passed by the Assessing Officer under section 154 and upheld by the CIT(A) is bad in law and be quashed.
03. Because on a proper consideration of facts and circumstances of the case it would be found that when the entire expenditure as claimed by the assesses on software development has been disallowed while framing the assessment under section 143(3), question of disallowance of any depreciation on the same would not arise. The reasoning given by the Assessing Officer and upheld by the CIT(A) is misconceived, the addition made be deleted.
Because the CIT(A) has erred on facts and in law in arbitrarily upholding that the expenditure claimed by the assessee on software development is not an aflpwabie expenditure. 05. Because the ITAT having granted registration u/s 12A of the Act, 1961 for Asstt. Year 2009-10 vide order dated 21/03/2016 and the same being applicable to pending proceedings, in terms of the proviso to section 12A, the income of the assessee would be .exempt u/s 11 of the Act, the addition made by the Assessing Officer and upheld by the CIT(A) be deleted, and the order passed by the Assessing Officer u/s 154 and upheld by the CIT(A) be quashed.” 2. At the outset, the ld. AR invited our attention to copy of paper book pg.67 where a petition for admission of additional ground was placed and wherein the assessee has raised the ground that in view of specific provisions of Section 154(1A) the order passed by AO u/s. 154/143(3) rectifying the order passed u/s. 143(3) is contrary to the provisions of law and be quashed. The ld. AR submitted that since this is a legal issue and is coming out of the material already existing on record the same may be admitted and adjudicated. Reliance in this respect was placed on the judgment of the Hon'ble Supreme Court in the case of ‘NTPC Ltd. vs. CIT’ 229 ITR 383. 3. The ld. DR did not object to the admission of additional ground of appeal
and therefore the ld. AR was directed to proceed with his argument.
4. The ld. AR submitted that in this case, the assessment order u/s. 143(3) was passed on 30.12.2010 and the matter was contested before ld. CIT(A) and such appeal was dismissed vide order 09.11.2012 and therefore the assessment order passed u/s. 143(3) dated 30.12.2010 cannot be rectified as specific provision of Section 154(1A) specifically exclude such orders for being liable for rectification u/s. 154 of the Act and therefore, it was prayed that the assessment order passed u/s. 154/143(3) dated 14.10.2013 rectifying the order passed u/s. 143(3) dated 30.12.2020 be quashed as void ab initio.
5. The ld. DR, on the other hand, argued that the original order passed u/s. 143(3) dated 30.12.2010 did not relate to the rectification passed u/s. 154 of the Act and it was submitted that the provisions of Section 154(1A) are applicable only where the subject matter in the assessment order and the issue of rectification u/s. 154 are same and therefore it was prayed that the additional ground taken by the assessee may be dismissed.
6. We have heard rival parties and have gone through the material placed on record. We find that it is a fact that the original order u/s. 143(3) was passed on 30.12.2010 and such order was challenged before ld. CIT(A) who vide order dated 09.11.2012 dismissed the appeal of the assessee. Vide assessment order dated 14.10.2013, the Assessing Officer passed order u/s. 154 with the following findings:
We find that Assessing Officer in the order passed u/s. 154 disallowed the depreciation on software development. In the original assessment order, the entire software development expenses were disallowed u/s. 40(a)(ia) of the Act due to non deduction of TDS. The matter in the original assessment related to disallowance of software development expenses u/s. 40(a)(ia) of the Act, whereas the matter in the 154 proceedings related to depreciation on software development. The provisions of Section 154(1A) clearly states that where any matter has been considered and decided in any proceeding by way of appeal or revision that matter will not be subject to the provisions of Section 154 of the Act. In the present case, we find that the issue in the original proceedings and in the proceedings u/s. 154 are different therefore the ground of appeal
taken by the assessee as additional ground of appeal is rejected and the ld. AR was asked to proceed with his regular grounds of appeal.
8. The ld. AR submitted that it is undisputed fact that in the original assessment proceedings, the software development expenses were disallowed keeping in view the fact that assessee had not deducted TDS and the rectification u/s. 154 has been done by disallowing the depreciation on such software development expenses. It was submitted that for rectification u/s. 154, it is necessary that the mistake should be apparent from record which is not the case in the present case. The Assessing Officer in the original assessment proceedings had disallowed the software development expenses for non deduction of tax and not for non-proving the genuineness of expenses. As such, the action of the Assessing Officer in the proceeding u/s. 154, disallowing depreciation on such software development expenses, cannot be sustained. Therefore, it was prayed that the rectification u/s. 154 is not justified and therefore, it was prayed that appeal of the assessee may be allowed.
9. The ld. DR, on the other hand, relied on the orders of the authorities below.
10. We have heard rival parties and have gone through the material placed on record. We find that in the original order dated 31.12.2020 the Assessing Officer had disallowed an expenditure of Rs.16,52,800/- for violation of provisions regarding tax deduction at source and the disallowance was made u/s. 40(a)(ia) of the Act.
11. In the assessment completed u/s. 154, the Assessing Officer has made a further disallowance of Rs.9,91,680/- being the depreciation on such software development expenses. We find that since the disallowance of software development expenses in the original assessment was made on account of non deduction of TDS, which is a specific provision in the shape of a penal provision whereby the disallowance is made if the assessee fails to deduct TDS at source. The Assessing Officer did not make the addition on account of doubtful natur or non genuineness of the expenditure, therefore, the depreciation on such expenditure disallowed by passing u/s. 154 is not justified as there was no mistake apparent from record found in the original assessment order. Had it been a case of disallowing expenditure of software development due to the findings that such expenditure was not genuine then the issue of disallowance of depreciation would have become an issue of rectification u/s. 154 of the Act.
12. In view of the above Ground Nos. 1 to 4 are allowed and Ground No.5 is dismissed as not pressed.
In the result, the appeal of the assessee is partly allowed.