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Income Tax Appellate Tribunal, DELHI BENCH “C” DELHI
Before: SHRI CHANDRA MOHAN GARG & SHRI PRADIP KUMAR KEDIA
The captioned appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi (‘CIT(A)’ in short) dated 28.09.2021 arising from the order dated 13.09.2019 passed by the Assessing Officer (AO) under Section 154 of the Act, 1961 (the Act) concerning AY 2015-16.
As per the grounds of appeal, the assessee has challenged the addition of Rs.16,05,191/- on account of prior period expenses in rectification proceedings under Section 154 of the Act.
When the matter was called for hearing, the ld. counsel for the assessee at the outset submitted that there is a delay of 381 days in filing the appeal before the Tribunal. The ld. counsel adverted to the application filed for condonation of delay and submitted that in view of serious health issues of the key director of the assessee-company, it was not in a position to prefer the appeal in time. The ld. counsel submitted that no serious prejudice has caused to the Revenue by such delay and thus urged for benign consideration of the request for condonation of delay.
Having regard to the contents of the application and the circumstances narrated in this regard, we find merit in the plea of the assessee for condonation of delay particularly where the appeal arises from rectification proceedings, where the dispute hinges around mistake of apparent nature. Accordingly, the delay is condoned and the matter is proceeded on merits.
On merits, the ld. counsel pointed out that the assessee for Assessment Year 2015-16 was subjected to limited scrutiny assessment under Section 143(3) of the Act on the limited point of ‘mismatch in custom duty payment’. The Assessing Officer while framing the limited scrutiny assessment order under Section 143(3) of the Act dated 06.11.2017, found no error or mismatch in such payment and accordingly accepted the income returned by the assessee at Rs.77,40,970/-. Thereafter, the rectification proceedings were initiated under Section 154 of the Act on the ground that while framing the original assessment order under Section 143(3) of the Act, the Assessing Officer has failed to make additions by disallowance of Rs.16,05,191/- incurred by way of ‘prior period expenses’. On being confronted to the assessee, the assessee challenged the rectification proceedings on the ground that the issue involved is not only debatable but also, this issue was not subject matter of assessment under Section 143(3) of the Act. The Assessing Officer however declined to agree with the contention of the assessee and enhanced the assessed income by Rs. 16,05,191/- by passing order under Section 154 of the Act dated 13.09.2019. The ld. counsel thereafter referred to first appellate order under challenge and submitted that the CIT(A) also reiterated the findings of the Assessing Officer and declined to interfere without appreciating the facts in perspective. The ld. counsel thus made two fold submissions before the Tribunal.
(i) The original assessment framed was limited in its sweep and scope on account of limited scrutiny where the Assessing Officer was not authorized to engage in any other issues other than specified for the purpose of limited scrutiny. The prior period expense in question was not subject matter of limited scrutiny and therefore, there was no error in the original assessment which was sought to be rectified under Section 154 of the Act.
(ii) The allowability of prior period expenses is essentially a question of fact and dependent upon attendant circumstances attributable to each case. It is not the abstract rule of law to outrightly reject the prior period expenses dehors the facts of the case. The issue, at times, is quite debatable and therefore, the Assessing Officer has no jurisdiction under Section 154 of the Act to rectify and make additions on this count.
The ld. DR for the Revenue, on the other hand, relied upon the order of the CIT(A) and submitted that the mistake being of apparent nature in not making adjustment towards prior period expenses declared by the assessee himself as relatable to the preceding assessment years, the action of the Revenue cannot be interfered.
We have considered the rival submissions and perused the assessment order as well as the rectification order and also the first appellate order.
We straightaway find merit in the plea of the assessee on both counts. From the case records, it is apparent that the original assessment which was subject matter of rectification was limited in its mandate. The case was selected under limited scrutiny scheme and therefore, the Assessing Officer was not entitled to look into any other aspect of the assessment other than specified issues. Thus, in the absence of any error in the action of the Assessing Officer, the resort to Section 154 could not have been taken at the first place. Secondly, the plea on behalf of the assessee that allowability or otherwise of prior period expense requires factual examination and thus cannot be accepted or rejected without understanding the underlying facts and hence such adjustments are outside the ambit of provisions of Section 154 of the Act.
Hence, we set aside the action of the CIT(A) and direct the Assessing Officer to reverse the disallowance on account of prior period expenses carried out under Section 154 of the Act.
In the result, the appeal of the assessee is allowed. Order dictated and pronounced in the open Court on 25/07/2023