2020 (12) TMI 225 - AT - Income Tax

Appellate Tribunal rules in favor of assessee on jurisdiction and disallowance issues under Income Tax Act

The Appellate Tribunal ITAT Kolkata ruled in favor of the assessee in a case involving jurisdiction under Section 154, a mistake apparent on record, and ... Rectification u/s 154 - AO states that the assessee has violated the provisions of Section 197(1B) as he did not deduct TDS from the payment of interest to loan creditors and hence she is liable for disallowance u/s 40(a)(ia) - this disallowance was not done in the assessment order passed u/s 143(3) of the Act on 29.12.2009, the same requires rectification u/s 154 - HELD THAT:- The issue is highly debatable. Hence, no disallowance can be made in this case without verification. This is not a mistake apparent on record. Thus we agree with the submission of the assessee that the issue is highly debatable and that an order could not have been passed under those circumstances u/s 154 of the Act on the ground that, a mistake apparent on record has crept into the assessment order and the same is being rectified. A mistake apparent on record should be one which is on the face of the record and which does not require consideration of fresh facts. In this case the ld. CIT(A) has directed the AO to take into account a number of facts and then arrive at the question of disallowance. This cannot be done in a proceeding u/s 154. Issues:Jurisdiction to invoke powers u/s 154 of the Income Tax Act, 1961 - Mistake apparent on record - Disallowance u/s 40(a)(ia) of the Act - Highly debatable issue.Analysis:1. Jurisdiction to Invoke Powers u/s 154:The appeal was filed against the order of the CIT(A) under Section 250 of the Income Tax Act, 1961. The AO passed an order under Section 143(3) on 29.12.2009 and another order under Section 154 on 28.02.2011, alleging a violation of Section 197(1B) by the assessee for not deducting TDS from interest payments to loan creditors. The AO claimed that this violation led to disallowance u/s 40(a)(ia) of the Act. The assessee contended that the issue was not a mistake apparent on record and was highly debatable. The CIT(A) directed the AO to verify if recipients had declared the interest received in their income tax returns. The assessee argued that Form No.15G from loan creditors exempted TDS deduction, citing the Supreme Court's decision in Hindustan Coca Cola Beverage (P.) Ltd. vs. CIT. The Tribunal held that the issue was debatable, and the order under Section 154 was not valid as it required consideration of fresh facts, thus allowing the appeal.2. Mistake Apparent on Record:The AO's order under Section 154 claimed that the assessee's failure to deduct TDS on interest payments led to a disallowance under Section 40(a)(ia) of the Act. The CIT(A) found the issue debatable, citing the Supreme Court's decision in Hindustan Coca Cola Beverages vs. CIT. The Tribunal concurred that the issue was highly debatable and not a mistake apparent on record. The order under Section 154 was canceled as it required consideration of various facts and was not solely based on the face of the record. The Tribunal emphasized that a mistake apparent on record should not necessitate fresh facts consideration, leading to the allowance of the assessee's appeal.3. Disallowance u/s 40(a)(ia) of the Act - Highly Debatable Issue:The dispute centered around the disallowance u/s 40(a)(ia) of the Act due to the alleged failure of the assessee to deduct TDS on interest payments to loan creditors. The assessee argued that Form No.15G from loan creditors exempted TDS deduction, supported by the Supreme Court's precedent in Hindustan Coca Cola Beverage (P.) Ltd. vs. CIT. The CIT(A) directed the AO to verify recipients' income tax returns for interest disclosure. The Tribunal agreed with the assessee that the issue was highly debatable, as seen in the CIT(A)'s findings and the need for verification, leading to the allowance of the appeal.In conclusion, the Appellate Tribunal ITAT Kolkata, in the cited judgment, addressed the issues of jurisdiction under Section 154, the concept of a mistake apparent on record, and the highly debatable nature of the disallowance u/s 40(a)(ia) of the Income Tax Act, 1961. The Tribunal ruled in favor of the assessee, emphasizing the debatable nature of the issue and the need for verification, ultimately allowing the appeal.