CPC making adjustment u/s 143(1)(a) without giving opportunity despite availability of correct position was a mistake of apparent nature – ITAT
ABCAUS Case Law Citation:
ABCAUS 3725 (2023) (04) ITAT
Important Case Laws relied upon:
Kalpesh Synthetics (P) Ltd. vs. DCIT 137 Taxmann. com 475
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming rectification order u/s 154 of the Income Tax Act, 1961 (the Act) passed by the CPC.
The appellant assessee was a partnership firm. It filed return of income declaring Nil income along with the tax audit report.
The return was processed under Section 143(1) of the Act by the CPC by making addition/ disallowance of partners remuneration.
Against the adjustment made by the CPC, the assessee e-filed an application for under Section 154 seeking rectification of mistake while processing intimation u/s 143(1) and reversal of the disallowance.
However, the CPC passed the rectification order u/s 154 reiterating the adjustments and without giving any relief.
The CIT(A) broadly observed that the CPC had made adjustment as per clause no. 21(c) of Tax Audit Report in Form 3CD in which the auditor had stated the amount admissible under Section 40(b) as against the remuneration actually paid.
The CIT(A) held that the rectification application had rightly been rejected by the CPC.
Before the Tribunal the assessee raised the ground that the disallowance was made u/s 143(1) without issuing any notice in this regard and without obtaining response of the assessee thereon which amounted to denying opportunity which is impermissible in law.
It was also contended that the impugned adjustment u/s 40b(v) of partners remuneration was made by CPC on gross misreporting of facts in the tax audit report wherein the tax auditor had inadvertently copied the figures of the preceding assessment year.
The assessee also produced a certificate from chartered accountant (tax auditor) modifying the amount of remuneration admissible.
The Tribunal observed that the figures entered towards partner remuneration in the P &L account were inconsistent with the tax audit report due to human error while making report under Section 44AB of the Act. The certificate of the tax auditor presenting correct position was also made available to the lower authorities.
The Tribunal opined that on the face of inaccuracy in adopting the correct figure of remuneration from audited financial statement, an apparent mistake had been committed.
The Tribunal opined that in the absence of opportunity to the assessee contemplated in proviso to Section 143(1)(a) of the Act the difficulty was compounded. The mistake could have been avoided while processing the return itself.
The Tribunal observed that the mistake in adopting incorrect figure without opportunity mandated in law despite availability of correct position was a mistake of apparent nature and espouses the purpose rectification proceedings under Section 154 of the Act. The pedantic approach adopted by the CIT(A) did not take into account the denial of opportunity to assessee in this regard and thus cannot be countenanced.
Accordingly, the Tribunal set aside the impugned order passed by the CIT (A) and restored the matter back to the file of the Assessing Officer for re determination of the issue after taking note of correct facts.
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