Original Assessment order merged with CIT order passed u/s 264. AO could not have rectified its original order passed u/s 147 – ITAT
ABCAUS Case Law Citation:
ABCAUS 1174 (2017) (03) ITAT
Assessment Year : 1999-2000
Date/Month of Pronouncement: March, 2017
Important Case Laws Cited/relied upon:
ITO Vs. Vokart Bros
ITC Limited vs Inspecting ACIT and Others
Shri Hanuman Sugar vs ACIT
Brief Facts of the Case:
The appellant assessee was a partnership firm. The return of income of the firm for the year under consideration declared income from business, house property and other sources. The return was processed u/s 143(1) of the Income Tax Act, 1961 (‘the Act’) and the refund was granted. Subsequently the notice was issued u/s 148 of the Act and assessment was framed u/s 147 after making certain additions/disallowances to the total income of the assessee.
The assessee, inter alia was deriving rental income from properties which was offered to tax under the head “house property” besides the rental income, the assessee received property tax from the tenants which was deposited with the Municipal Authorities. The assessee, in his returned of income had neither shown any income of such amount nor claimed any deduction in his income tax computation. However, the Assessing Officer (‘AO’) treated the same as income from other sources and added to the total income of the assessee.
Aggrieved, the assessee preferred a revisionary application u/s 264 to the Commissioner of Income Tax who deleted the addition. Accordingly, the AO passed the order by deleting the addition as directed by the CIT u/s 264. However, subsequently the AO observed that while giving effect to the order of CIT u/s 264 of the Act, a mistake apparent from record has occurred i.e. not adding the municipal taxes in the annual value of both the properties. Accordingly, the AO issued notice u/s 154 for rectifying the order of the CIT u/s 264. Finally, the AO added the municipal taxes in the annual value of both the properties which were let out during the year and added to the total income of the assessee.
Aggrieved, the assessee preferred an appeal to the CIT(A). However the CIT(A) after considering the submissions of the assessee confirmed the addition.
Being aggrieved by the order of CIT(A) the assessee was in second appeal before the Tribunal.
Contentions of the Appellant assessee:
It was submitted that the AO had erred in treating the amounts of municipal taxes received from the tenants as income from other sources. In the order passed u/s 147 of the Act there was no whisper whether such receipt was house property income or other sources. The issue was raised before the CIT u/s 264 and in accordance with order u/s 264, the AO deleted the municipal taxes as income from other sources. As such, there was no mistake apparent from record in the order of CIT u/s 264. Therefore order cannot be rectified u/s 154 of the Act.
It was further submitted that order of the AO passed u/s 147 of the Act got merged with the order u/s 264 of the Act passed by the CIT and therefore the same cannot be rectified u/s 154 of the Act.
Without prejudice to the above, it was also submitted that if the original order was to be rectified then the period of four years which should be counted from the date of the original order. Thus, the period for rectifying the order had already ended at the time when the notice for rectification u/s 154 of the Act was issued which was against the provision of law.
Observations made by the Tribunal:
The ITAT found that in the order of the CIT u/s 264 there was no direction for adding the municipal taxes in the annual value of the properties. When there was no such direction then the view of the AO assuming the apparent mistake in the order of the CIT u/s 264 was not sustainable in the eyes of law.
The Tribunal observed that the provisions of section 154 of the Act are very clear and the same can be resorted by the AO only in a case where the mistake is apparent from the records. The ITAT placed reliance on the judgment of the Hon’ble Supreme Court in which it was held as under :-
“A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may conceivably be two opinions. A decision on a debatable point of law is not a mistake apparent from the record. The power of the officers mentioned in s. 154 of the IT Act, 1961 to correct “any mistake apparent from the record” is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an “error apparent on the face of the record.”
The Tribunal also observed that the AO could not have rectified its original order passed u/s 147 of the Act as the same had been merged with the order of the CIT passed u/s 264.
The ITAT further observed that in case the AO wished to rectify its original order u/s 147 then also the same needed to be rectified within four years as contemplated under the provision of section 154 of the Act. In the instant case the AO had rectified the order after the expiry of four years which was also not valid in the eyes of law
It was held that the order passed u/s 154 was not maintainable in the eyes of law.