Rectification order u/s 154 revising NP rate on the basis of previous year’s chart was beyond the scope of rectification of mistake and amounted to change of the decision – ITAT
ABCAUS Case Law Citation:
ABCAUS 2786 (2019) (02) ITAT
The assessee had challeneged the rectification order passed by the CIT (A) u/s 154/250 of the Income Tax Act, 1961 (the Act) alleging it to be illegal & bad in law.
The Assessing Officer during the assessment proceeding U/s 143(3) of the Act rejected the books of accounts of the assessee by invoking the provisions of section 145(3) of the Act and consequently estimated the income of the assessee by adopting the net profit at 15% before depreciation and interest/remuneration to partners.
The assessee challenged the said order of the AO before the CIT(A). The CIT(A) restricted the net profit adopted by the AO to 10% before depreciation and interest/remuneration to partners. Since, there was no addition to the total income of the assessee after the order of the CIT(A), the assessee did not challenge the said order, however, the Revenue challenged the order before the Tribunal on the ground that the CIT(A) was not justified in restricting the net profit from 15% to 10% which resulted in determination of income less than the return income.
The Tribunal observed that net profit adopted by the CIT(A) would not affect the returned income of the assessee and therefore, the impugned order of the CIT(A) was not found to be illegal on that ground though the appeal of the Revenue was dismissed due to low tax effect in view of the CBDT Circular No. 3/2018.
Subsequently after the order of the Tribunal, the CIT(A) had passed the impugned order U/s 154 of the Act and revised the net profit from 10% before the depreciation and interest to partners to 5% after depreciation and interest to partners which resulted an addition to the total income of the assessee.
The assessee contended that the CIT(A) travelled beyond the jurisdiction U/s 154 of the Act.
The Tribunal observed that the question was whether the revision of N.P. passed U/s 154 of the Act would fall in the category mistake apparent on record which can be rectified U/s 154 of the Act or it would amount to revision/review of the order decision of the CIT(A).
It was noted that while passing the original order the CIT(A) had considered the issue of estimation of income of the assessee. The CIT(A) had analyzed the past history of the assessee and taken into account the N. P. rate declared in the preceding two years. After considering of these facts as well as the decision of the Tribunal wherein the CIT(A) had held that the N.P. estimated as 10% shall be reasonable in view of the books of accounts rejected by the AO.
Whereas the CIT(A) while passing the impugned order U/s 154 of the Act, had estimated the revised N.P. after again analysing the chart of the previous year profits and the profit percentage returned
The Tribunal therefore opined that it was nothing but revision of earlier decision on the point of estimation of income by taking percentage of net profit. The earlier CIT(A) had modified the N.P. adopted by the AO at 15% to 10% though the AO has accepted the said N.P. before the depreciation and interest/remuneration to partners. However, in the impugned rectification order, the CIT(A) had revised the N.P. from 10% to 5% but after depreciation and interest/remuneration to partners therefore, it was change the decision and not rectification of mistake on the part of the CIT(A).
Accordingly, the Tribunal held that the impugned order u/s 154 passed by the CIT(A) was beyond the scope of rectification of mistake U/s 154 of the Act and set it aside.
