2017 (10) TMI 1601 - AT - Income Tax

Rectification of application u/s 154 - AO has assumed jurisdiction u/s 154 for making the disallowance under section 14A of the Act to the book profits computed under section 115 JB - debatable issue - HELD THAT - The question as to whether 14A disallowance can be made to the book profits or not is a debatable issue and it our considered opinion that the AO has got no jurisdiction to make such an addition while resorting to the provision of section 154 of the Act as the scope of said section is very limited. As relying on various diversifies decisions it is concluded that the issue is quite debatable and under such circumstances in our view it was beyond the powers of the AO exercisable under section 154 to make an addition on a debatable issue as the original assessment in this case had been completed under section 143(3) of the Act. Merely because another view is possible cannot be a ground to rectify the order under section 154 of the Act as the same cannot be said to be a mistake apparent on record. ITAT Mumbai Bench has also taken a similar view in the case of Beekaylon Synthetics Pvt. Ltd v. ACIT 2015 (7) TMI 1401 - ITAT MUMBAI which we respectfully follow and hold that the AO had no power to make a disallowance u/s 14A of the Act to the book profits computed u/s 115JB by resorting to section 154 proceedings. We accordingly quash the order passed by the AO u/s 154. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer (AO) under section 154 of the Act to make additions to book profits computed under section 115JB.

Detailed Analysis:
Issue 1: The appeal was filed against the order upholding the disallowance of Rs. 10,39,543 made by the AO under section 14A of the Income Tax Act, 1961. The AO had issued a notice under section 154 and subsequently made an ex parte order adding the disallowance to the book profit. The assessee challenged this disallowance on grounds of lack of jurisdiction and non-receipt of the notice. The CIT (Appeals) dismissed the appeal, leading the assessee to approach the ITAT to challenge the assumption of jurisdiction by the AO under section 154.

Issue 2: The ITAT considered the jurisdiction of the AO under section 154 to make additions to book profits under section 115JB. It was observed that the AO's power to make such additions is limited, and the applicability of disallowance under section 14A to book profits is a debatable issue. The ITAT referred to various judgments, including those by ITAT Mumbai Bench, ITAT Delhi Bench, and ITAT Bangalore Bench, which presented differing views on whether the disallowance under section 14A should be added while computing book profits under section 115JB. The ITAT concluded that since the issue was debatable and the original assessment was completed under section 143(3), the AO exceeded his powers under section 154 by making an addition on a debatable issue. Relying on precedents, the ITAT held that the AO lacked the authority to make a disallowance under section 14A to book profits computed under section 115JB through section 154 proceedings, ultimately quashing the order passed by the AO under section 154.

In the final result, the ITAT allowed the appeal of the assessee, emphasizing the limitations on the AO's jurisdiction under section 154 and the debatable nature of the issue regarding the applicability of disallowance under section 14A to book profits under section 115JB.