2024 (7) TMI 346 - AT - Income Tax

Rectification of mistake u/s 154 - disallowing provision for loss in investment while assessing the income is a mistake apparent on record - whether disallowance of provision for loss in investment is a debatable issue? - whether non-disallowance of such provision is apparent on the face of the record so has to fall within the ambit of section 154? - HELD THAT - Item of provision for loss in investment is not a revenue obligation incurred for the year under consideration and therefore finds no place in the list of deductions enumerated u/c IV-D of the Act. Secondly since the investment by and large is capital in nature but not falling within the ambit of block of asset as defined by section 2(11) of the Act so does also not entitle for deduction in the form of depreciation. And lastly impugned item not an expenditure deductible under general deduction 37(1) of the Act for the vanilla reasons that such provision fails to pass the litmus test prescribed therein. Once it so then there is no provision in the law conferring any discretion to tax authorities to allow deduction. On the contrary impugned item calls for disallowance in-limine without requiring any examination. By application of stricter interpretation of law in view of the ratio laid down in CoC Vs Dilip Kumar Co 2018 (7) TMI 1826 - SUPREME COURT the impugned item provision for loss in investment representing portion of investment held by the assessee being not falling any of the deduction enumerated u/c IV-D of the Act and further not eligible for deduction u/s 37(1) of the Act does not in our considered view is debatable under the Act. Hence there is much less reason to countenanced the view of Ld. first appellate authority. The impugned item i.e. provision for loss in investment was appearing glaringly on the face of financial statement which travelled to computation of income - AO however lost sight of impugned item while framing the assessment u/s 143(3) of the Act. The audit objection notified the mistake of allowing the impugned item which was obvious patent and not something which can be established by a long-drawn process of reasoning on points on which there may be two opinions. In the event after following the due process according reasonable opportunity to the assessee Ld. AO reversed the impugned allowance by an order passed u/s 154 of the Act. In the event of effective failure on the part of assessee to dislodge the authority and jurisdiction of Ld. AO the impugned rectification was carried out. It is well settled law that any item of allowance/deduction or disallowance which requires no examination or verification of facts falls within the ambit of mistake apparent on record for the purpose of section 154 of the Act. The obvious mistake glaring or appearing on the face of the record and requiring no examination or verification whatsoever by long-drawn process can be rectified in view of the ratio laid down in TS Balram (ITO) Vs M/s Volkart Bros. 1971 (8) TMI 3 - SUPREME COURT We find no fault in reversing the inadvertent allowance of impugned item provision for loss in investment by way of rectification u/s 154 of the Act by the Ld. AO - The impugned order tearing down the rectification cannot continue to stand; thus set-aside and the order of rectification is restored.

Summary

Issues:
1. Rectification of assessment order under section 154 of the Income Tax Act.
2. Disallowance of provision for loss in investment.
3. Debatable nature of the provision for loss in investment.
4. Mistake apparent on the face of the record for rectification under section 154 of the Act.

Issue 1: Rectification of assessment order under section 154 of the Income Tax Act:
The case involved an appeal challenging the rectification order passed under section 154 of the Income Tax Act by the Income Tax Officer. The rectification was carried out after a statutory notice was issued to the assessee for scrutiny of the filed return. The rectification involved disallowance of an amount representing provision for loss in investment, which was added to the total income/loss. The CIT(A) had initially struck down the rectification, stating that the provision for loss in investment was a debatable point and not a mistake apparent on the face of the record. The Revenue appealed this decision.

Issue 2: Disallowance of provision for loss in investment:
The tribunal analyzed the nature of provisions in accounting, distinguishing between provisions for expenses, depreciation, and regulatory provisions. It highlighted that not all provisions created in books are deductible under the Act. The provision for loss in investment, in this case, was deemed not deductible under the Act as it did not meet the conditions required for deductibility. The tribunal concluded that the provision for loss in investment was not a revenue obligation for the year under consideration and was not eligible for deduction under any relevant section of the Act.

Issue 3: Debatable nature of the provision for loss in investment:
The tribunal determined that the provision for loss in investment was not a debatable issue under the Act, based on a strict interpretation of the law and precedent set by the Supreme Court. It clarified that the provision did not fall under any deduction enumerated in the Act and was not eligible for deduction under section 37(1). Therefore, the tribunal found no reason to support the view of the CIT(A) that the provision was debatable.

Issue 4: Mistake apparent on the face of the record for rectification under section 154 of the Act:
The tribunal held that the rectification made by the Income Tax Officer to disallow the provision for loss in investment was justified. It emphasized that any item not requiring examination or verification of facts and appearing on the face of the financial statement could be rectified under section 154 as a mistake apparent on the record. Citing relevant judicial precedents, the tribunal concluded that the rectification was valid, and the order of rectification was restored, allowing the Revenue's appeal.

This detailed analysis of the judgment provides insights into the issues of rectification, disallowance of provisions, debatable nature of provisions, and the criteria for a mistake apparent on the face of the record for rectification under the Income Tax Act.