2019 (11) TMI 81 - AT - Income Tax

Challenges in Income Tax Assessment Jurisdiction: Section 147 vs. Section 154

The case involved challenges to the reopening of assessment under section 147 of the Income-tax Act, 1961 based on discrepancies in traveling expenses and ... Reopening of assessment u/s 147 - whether the AO could take the aid of Explanation 3 to Section 147 to make some other addition on the aspect in respect of which there is no whisper in the entire proceedings u/s 147, after the conclusion of such proceedings u/s 147 ? - Section 154 being invoked with respect to the original assessment, finalized under section 143(3) - HELD THAT:- We find it difficult to accept the argument of the learned DR that even after conclusion of the proceedings u/s 147 AO can take the aid of Explanation 3 to Section 147 of the Act to make any addition. The difficulty here is that it is not under Explanation 3 to Section 147, AO dealt with the issue of closing stock, but the AO dealt with this issue u/s 154 of the Act. In any case, it is not the case of the Ld. AO that Section 154 is being invoked with respect to the original assessment, finalized under section 143(3) of the Act. If we accept the argument of the learned DR that u/s 154 AO is empowered to deal with the escapement of income in respect of which the reasons were not recorded even after the assessment reopened under section 147 of the Act is completed, it would empower the AO to go on making one addition after the other by taking shelter of Explanation 3 to Section 147 endlessly. Such a course is not permissible. Power that is available to the AO under Explanation 3 to Section 147 of the Act, in our considered opinion, is not available to him u/s 154 of the Act, which obviously came to be exercised by the AO after the conclusion of the proceedings u/s 147 of the Act. Which shall result in quashing of the impugned order passed under section 154 of the Act, we deem it not necessary to delve deeper in to the merits of the case, and suffice it to say that the rectification proceedings assumed by the AO resulting in the second addition are beyond the jurisdiction of the learned AO and cannot be sustained. With this view of the matter, we accept the contentions of the assessee and direct the learned AO to delete the addition. - Appeal of the assessee is allowed. Issues involved:1. Reopening of assessment under section 147 of the Income-tax Act, 1961 based on discrepancies in traveling expenses and closing stock.2. Jurisdiction of the Assessing Officer (AO) to rectify mistakes under section 154 of the Act after completion of proceedings under section 147.Detailed Analysis:1. The case involved the assessee challenging the order passed by the Commissioner of Income-tax (Appeals) regarding the reopening of assessment for the assessment year 2007-08. The AO sought to reopen the proceedings based on discrepancies in traveling expenses and closing stock. The AO made additions under the head of traveling expenses and closing stock, leading to further disputes. The CIT(A) upheld the additions made by the AO, citing Explanation 3 to Section 147 empowering the AO to rectify mistakes that came to notice subsequently. The CIT(A) dismissed the appeal regarding the closing stock but directed the AO to recompute the taxable income for the next assessment year.2. The assessee contended that there was no mistake apparent on the face of the record and that the AO's conclusions did not allow for rectification under section 154. The assessee argued that the alleged discrepancy in closing stock was a result of inadvertent annexure of the initial worksheet, which was rectified after reconciliation. The AO and the Departmental Representative (DR) argued that the AO had the jurisdiction to rectify mistakes under section 154 even after the completion of proceedings under section 147. The ITAT analyzed the provisions of section 147 and section 154, concluding that the AO's power under Explanation 3 to Section 147 did not extend to rectification under section 154 post conclusion of section 147 proceedings. The ITAT held that the rectification proceedings by the AO were beyond jurisdiction and directed the AO to delete the addition made under section 154.3. The ITAT allowed the appeal of the assessee, emphasizing that the AO's actions under section 154 were not permissible after the completion of proceedings under section 147. The judgment highlighted the importance of delineating the scope of the AO's powers under different sections of the Income-tax Act to prevent unauthorized rectifications and additions post conclusion of specific proceedings.