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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI ANIL CHATURVEDI & SHRI ANUBHAV SHARMA
The assessee has come in appeal against the order dated 07.11.2022 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre
(NFAC), (hereinafter referred as “learned First Appellate Authority” or in short “FAA”) in Appeal no. NFAC/2018-19/10043670, for the assessment year 2019-20, arising out of the rectification order 27.07.2020 u/s 154 of the Income-tax Act, 1961 (hereinafter referred as the “Act”), passed by the ADIT, CPC, Bengaluru(hereinafter referred in short as “Ld. AO”).
Heard and perused the record.
Facts in brief are in regard to disallowance made on account of EPF and ESI amounting to Rs. 73,18,988/- by learned AO vide order dated 27.07.2020 u/s 154 of the Act the assessee had claimed before the learned CIT(A) that it was beyond the jurisdiction and powers under Section 154 of the Act to make an addition for which expenditure was allowed in assessment u/s 143(1) of the Act. It is claimed that the same cannot be considered to be an error apparent on record to exercise rectification powers u/s 154 of the Act, because when such powers were exercised on 27.07.2020, there were judgments both favouring the Revenue and the assessee and the Hon’ble Supreme Court judgment giving conclusive finding in favour of Revenue in Checkmate Services Pvt. Ltd. Vs. CIT, Civil Appeal No. 2833 of 2016 was pronounced on 12.10.2022, by which the disallowance of employees’ contribution to EPF and ESI have been sustained, if the same are not deposited before the due date prescribed in the respective statutes.
Learned AR has placed reliance on Instruction No. 1814 dated 4.4.1989 of the Board to submit that even the Board discourages adjustments u/s 143(1) of the Act where there are conflicting views of Hon’ble High Court or the Tribunal.
Learned AR specifically relied on the judgment of the Hon’ble Madhya Pradesh High Court in the case of CIT Vs. Mahavir Drilling Co. (2005) 142 Taxman 663 (MP) to submit that Hon’ble M.P. High Court has held that any benefit granted cannot be withdrawn by taking recourse to Section 154.
On the other hand, learned DR supported the orders of learned tax authorities below and submitted that the learned CIT(Appeals) has duly taken note of the judgment of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. case (supra) to sustain the order u/s 154 of the Act.
After giving thoughtful consideration to the material on record the Bench is of the considered opinion that the issue involved in the appeal is not with regard to merits of addition but whether such addition could be made by learned AO by exercising powers u/s 154 of the Act. The matter of fact is that learned AO had accepted the return filed u/s 139 of the Act vide intimation u/s 143(1) of the Act dated 24.11.2019. The same was based on the tax audit report in form no. 3CB and 3CD. Thus, the question of delay in deposit of the employees’ contribution was 143(1) was served upon the assessee. As at relevant time there was law in favour of assessee allowing such expenditure so it has to be concluded that assessee was benefited by same and failure to follow a divergent view in favour of Revenue cannot be considered to be an error apparent on record and thus learned AO was not justified to substitute his opinion by invoking provision of Section 154. The question of relying any judgment in favour of Revenue to invoke section 154 powers is not manifested from the order u/s 154 and thus the learned CIT(Appeals) too erred to sustain the order on the basis of the judgment of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. case (supra).
In the case of CIT Vs. Mahavir Drilling Co. (supra), investment allowance 6. claimed by the assessee on drilling machines was granted by the AO. The AO later realised that the investment allowance could not have been claimed by the assessee on the drilling machine or in other words, it was noticed that the same was wrongly granted. However by order dated 19-10-1992, the AO withdrew the benefit of investment allowance by taking recourse to the provisions of rectification. The revenue submitted that in the light of law laid down by Supreme Court in the case of CIT v. N. C. Budharaja & Co. (1993) 204 ITR 412 (SC) the issue in relation to claiming of investment allowance in the activity of drilling stood decided in favour of revenue. It was 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 Budharaja’s case (supra) 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 the Hon’ble Supreme Court’s decision in N.
C. Budharaja (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 (supra) was not rendered by the Supreme Court, therefore, invocation of provisions of section 154 was not justified.
Thus in the case in hand also order of Ld. CIT(A) cannot be sustained.
Ground no. 1 raised in the additional grounds, which goes to the root of erroneous exercise of jurisdiction, stands allowed in favour of appellant and remaining grounds are left academic. Thus, the appeal of the assessee is allowed.
Order pronounced in open court on 21.06.2023.