Application though named as rectification but if tax is not legitimate, it also touches merit: HC

Application though named as rectification but if tax imposed is not legitimate then it also touches upon the merit – High court remitted the case to ITAT

In a recent case, the Hon’ble High Court remitted the case to ITAT holding that though the application was filed under the nomenclature of rectification but if certain amount on which the tax is imposed is not legally recoverable then it also touches upon the merit.

ABCAUS Case Law Citation:
ABCAUS 3980 (2024) (04) HC

Important Case Laws relied upon:
Akbar Mohammad vs. ACIT, CPC, Bangalore

the assessee was an individual. His return of income was processed as such u/s 143(1) of the Income Tax Act, 1961 (the Act)wherein after making disallowing u/s 36(1)(va) r.w.s. 43B of the Act towards deduction of the delayed deposit of employee’s share of contributions towards ESI/PF.

Aggrieved the assessee filed an rectification application u/s 154 of the Act with the AO/CPC, Bengaluru seeking rectification of the disallowance of his claim for deduction of the delayed deposit of employee’s share of contributions towards ESI/PF. However, the aforesaid application filed by the assessee seeking rectification was rejected by the CPC.

The assessee feeling aggrieved with the order passed by the A.O/CPC, Bengaluru u/s 154 of the Act carried the matter in appeal before the CIT(Appeals) who affirmed the view taken by the A.O/CPC, Bengaluru and dismissed the appeal.

On second appeal by the assessee, the ITAT opined that under the provisions of section 154 the settled position of law is that only in a case where an order passed by the A.O is found to be suffering from a mistake which is glaring, patent, apparent and obvious from record that a recourse can be sought for rectification of the same u/s 154 of the Act.

The Tribunal was of the view that as the issue involved i.e. disallowance u/s 36(1)(va) of the Act of the assessee’s claim for deduction of the delayed deposit of employees share of contribution towards ESI/PF at the relevant time was not free from doubts and debate, therefore, the same could not have been brought within the realm of rectification u/s.154 of the Act.

The Tribunal therefore opined that the application filed by the assessee before the AO/CPC for rectification u/s 154 of the Act was in itself not maintainable. Accordingly, the Tribunal choose to refrain from dealing with contentions advanced by the assessee on the merit of the case and dismissed the appeal of the assessee.

Aggrieved by the order by the the assessee filed an appeal before the Hon’ble High Court challenging the order passed by the ITAT rejecting the rectification application and not addressing the contentions raised on merits of the case.

The assessee further submitted that the application was filed under the nomenclature which is embodied in Section 154 of the Act but the issue touches upon the merit of disallowance made was otherwise available and when the issue travelled up to the Tax Appellate Tribunal, the Tribunal instead of deciding the case on merits has simply adjudicated the issue on the ground that the rectification application was not maintainable.

The assessee further submitted that it is a settled proposition that the assessee cannot be a taxed on the amount on which the tax is not legally imposable, therefore, apparently it would be a mistake which also touches upon the merit.

The Hon’ble High Court opined that it appeared that though the application was filed under the nomenclature of rectification but if certain amount on which the tax is imposed is not legally recoverable then it also touches upon the merit.

Consequently, the Hon’ble High Court set aside the order of the ITAT and remitted back the same to the Income Tax Appellate Tribunal to adjudicate the same on merits.

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