AO can’t review own decision by rectification u/s 154 to disallow late deposit of PF
In a recent judgment, the ITAT Delhi has held that when Assessing Officer consciously allowed deduction of late deposit of PF, subsequently, by relying on the judgment of the Hon’ble Supreme Court he can not review his own decision by way of rectification u/s 154
ABCAUS Case Law Citation:
4261 (2024) (09) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the rectification order u/s 154 of the Income Tax Act, 1961 (the Act) passed by the Assessing Officer (AO).
The case of the assessee was selected for complete scrutiny and notice u/s. 143(2) was issued. All the details of the case, as sought by the AO during assessment proceedings, were duly submitted from time to time.
One of the queries which the AO had raised during the course of assessment proceedings was the reasons for delay, beyond the due date as per ESI and EPF Acts, in deposit of ESI and EPF dues of Employees’ share with respective authorities.
In response, the assessee submitted a written reply stating that though such dues had been deposited beyond the due dates prescribed under ESI and EPF Acts but nevertheless such dues have been paid during the financial year itself or within the due date of filing of return of income, therefore are allowable. In support of its contentions, the assessee submitted a copy of CIT(A) order for earlier AY decided in the case of the assessee in which the CIT(A) following decision of the Jurisdictional High Court, had allowed the Employees’ share of ESI and EPF which were deposited beyond the dates prescribed under respective Acts but before the due date of filing of return of income.
Since the matter was covered by the CIT(A) order in the earlier year of the same assessee and for which the department had not filed any further appeal, thereby it attained the finality. In view of the above, the AO formed his conscious opinion about the allowability of such expenditure, and accordingly allowed the same and passed the assessment order.
Subsequently, the AO in view of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd, issued a notice u/s 154 of the Act alleging that the Employees’ share of ESI and EPF had been deposited late as per information available in form 3CD of tax audit report, hence, the deposit of such dues after such delay has not been disallowed by the AO, accordingly treated this as a mistake apparent from records and invoking the provisions of Section 36(1)(va) added it in the total income of the assessee.
The Tribunal observed that Assessing Officer had duly verified the claim of the assessee relating to ESI/PF and allowed the same in regular assessment. Subsequently, by relying on the decision of Checkmate Services Pvt. Ltd. he issued rectification notice u/s 154 of the Act and without giving opportunity to make the objections/submissions of the assessee, he disallowed the claim of the assessee by passing rectification order u/s 154 of the Act.
The Tribunal opined that in view of the varous judgments, wherever there is scope for debate, the same cannot be rectified under section 154, it is more or less settled issue. Therefore, Assessing Officer cannot review his own order after duly verifying the same in regular assessment.
The Tribunal noted that under the similar facts, the Co-ordinate Bench had held that the Question of delay in deposit of the employees’ contribution was very much in the assessment records upon which the intimation u/s 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 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.
Following the said decision, the ITAT opined that subsequent development on the issue of allowability of employees share of respective contribution was unsettled for the issue which was more or less settled in allowed the appeal in favour of the assessee of the assessee and the same was accepted by the AO in the regular assessment in this case and even the revenue had not proceeded with the appeal in any of the appellate forum, which showed that the issue at the time of passing the order was settled and for the same issue, the AO cannot invoke the rectification proceeding in such debatable issue.
Accordingly, the appeal filed by the assessee was allowed.
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