2013 (12) TMI 60 - AT - Income Tax

Tribunal upholds rectification under Income Tax Act, emphasizes limited scope

The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection regarding rectification proceedings under Section 154 of the Income Tax ... Rectification of mistake u/s 154 - Fair market value - Held that:- The non-issue of notice u/s. 154(3) by the A.O. under the circumstances is relevant for procedure. The same is, however, not a jurisidictional notice, and is therefore curable - Following Honda Siel Power Products Ltd. v. CIT [2007 (11) TMI 8 - Supreme Court of India] - The assessing authority has an inherent jurisdiction, subject of course to the time limitation provided by law in its respect, to rectify mistakes inasmuch as no court or authority can by its action or non-action cause prejudice to any party before it - The apex court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) has laid down a four-way test toward an order being erroneous. Succinctly put, these are: incorrect assumption of facts; incorrect application of law; without applying the principles of natural justice; and without application of mind - The issue was restored for fresh decision. Following CIT vs. M. R. M. Plantations Pvt. Ltd. [1998 (6) TMI 35 - MADRAS High Court] - The 'record' would be that available with the A.O. at the time of initiation of the rectification proceedings, and not merely the record available at the time of passing the original order - As per Board Circular No. 689 dated 24.09.1994 the A.O. is permitted to admit subsequent material brought on record and to rectify the assessment consistent with such evidence, except where statutory evidence required to be submitted had not been submitted. The assessment as made in the instant case would tantamount to it being made subject to the result of the reference as made during the course of assessment to the valuation officer, and thereby exceeding the time limitation prescribed by law - A subsequent report at a variance may, in the facts and circumstances of a case, exhibit the assessment as framed to be erroneous and prejudicial either to the Revenue or the assessee, validating action u/s. 263 or, as the case may be, sec. 264, but would not by itself make the order 'mistaken', so as to be liable for rectification u/s. 154 - Decided against Revenue. Issues Involved:1. Legality of rectification proceedings under Section 154 of the Income Tax Act, 1961.2. Compliance with principles of natural justice.3. Definition and scope of 'record' for rectification purposes.4. Applicability of Section 155 of the Income Tax Act, 1961.5. Validity of reference to the Valuation Officer under Section 55A.Issue-wise Detailed Analysis:1. Legality of rectification proceedings under Section 154 of the Income Tax Act, 1961:The Revenue appealed against the CIT(A)'s decision to allow the assessee's appeal contesting the rectification of its assessment under Section 154. The Tribunal found that the rectification was not unsustainable in law for the reasons cited by CIT(A). The Tribunal held that the non-issue of notice under Section 154(3) did not result in a breach of natural justice because the assessee had been given due opportunity to state its case before the Valuation Officer (VO). The Tribunal relied on the precedent that procedural defects are curable and do not render the assessment null and void.2. Compliance with principles of natural justice:The Tribunal examined whether the non-issue of notice under Section 154(3) resulted in a breach of natural justice. It concluded that substantial compliance with the procedure was achieved as the assessee had been given an opportunity to present its case before the VO. The Tribunal referenced Section 16A of the Wealth Tax Act, 1957, and relevant case law to support its view that the non-issue of notice did not vitiate the proceedings. The Tribunal emphasized that the Assessing Officer (AO) had limited discretion in the matter and was bound to accept the VO's report.3. Definition and scope of 'record' for rectification purposes:The Tribunal disagreed with the CIT(A)'s view that the valuer's report, not being available at the time of the original assessment, could not form part of the record. It held that the 'record' for rectification purposes includes material available at the time of initiating rectification proceedings, not just at the time of the original order. The Tribunal cited the case of CIT vs. M. R. M. Plantations Pvt. Ltd. and a Board Circular to support its view that subsequent material could be considered for rectification.4. Applicability of Section 155 of the Income Tax Act, 1961:The Tribunal rejected the CIT(A)'s reliance on the absence of a provision in Section 155 to set aside the rectification. It clarified that Section 155 is an enabling provision for amendments based on subsequent developments, not for rectifying mistakes per se. The Tribunal found that the AO's call for the valuer's report was part of the verification process and not a subsequent development warranting inclusion under Section 155. It held that the AO's action was misconceived in law and could not be sustained.5. Validity of reference to the Valuation Officer under Section 55A:The assessee's cross-objection challenged the reference to the VO under Section 55A, claiming it did not meet mandatory conditions. The Tribunal dismissed this challenge, stating that the scope of Section 154 is limited to apparent mistakes and does not cover debatable issues. It noted that the assessee could have challenged the reference through the appellate procedure but did not do so. The Tribunal concluded that the assessee's action failed on this ground.Conclusion:Both the appeal by the Revenue and the cross-objection by the assessee were dismissed. The Tribunal found that the rectification proceedings were not invalidated by procedural defects and that the assessee had been given due opportunity to present its case. The Tribunal emphasized the limited scope of Section 154 and the curable nature of procedural defects. The order was pronounced in open court on November 20, 2013.