2025 (3) TMI 871 - AT - Income Tax

Tribunal rules Section 154 proceedings invalid; disallowance of director remuneration in cash deemed debatable, not rectifiable.

MC Mowjee & Co. Private Limited Versus ITO Ward-4 (1), Kolkata

MC Mowjee & Co. Private Limited Versus ITO Ward-4 (1), Kolkata - TMI ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment was whether the disallowance of director remuneration paid in cash, amounting to 31,35,000/-, could be rectified under Section 154 of the Income-tax Act, 1961. The issue centered on whether this constituted an 'apparent mistake' that could be corrected through rectification proceedings.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework involved Section 154 of the Income-tax Act, 1961, which allows for rectification of mistakes apparent from the record. The Tribunal referenced precedents, notably the Supreme Court's decision in CIT vs. Hero Cycles (P). Ltd., which established that rectification under Section 154 is permissible only when a glaring mistake of fact or law is apparent from the record. The Calcutta High Court's decision in Md. Serajuddin & Bros. vs. CIT further clarified that debatable issues cannot be rectified under Section 154.Court's Interpretation and ReasoningThe Tribunal interpreted Section 154 as applicable only to non-debatable, clear mistakes. It reasoned that the disallowance of director remuneration in this case involved interpretation of the law, making it a debatable issue. Consequently, it could not be rectified under Section 154. The Tribunal emphasized that the jurisdiction exercised under Section 154 was inappropriate in this context.Key Evidence and FindingsThe Tribunal noted that the Assessing Officer (AO) initiated rectification proceedings and disallowed the director remuneration paid in cash. However, the Tribunal found that such disallowance was not an apparent mistake on the record. The Tribunal highlighted inconsistencies in the age of Mr. Sajid Mowjee as noted by the CIT(A), but these were not central to the legal issue at hand.Application of Law to FactsThe Tribunal applied the legal principles from the cited precedents to the facts of the case. It determined that the disallowance of director remuneration involved interpretation of the provisions of the Income-tax Act, thus constituting a debatable issue. As a result, the Tribunal concluded that the AO's rectification order under Section 154 was invalid.Treatment of Competing ArgumentsThe Tribunal considered the arguments presented by both the assessee and the revenue. The assessee contended that the issue was debatable and not subject to rectification under Section 154. The revenue argued for the validity of the rectification proceedings. The Tribunal sided with the assessee, finding the issue to be debatable and beyond the scope of Section 154.ConclusionsThe Tribunal concluded that the rectification proceedings initiated by the AO were invalid due to the debatable nature of the issue. It set aside the order of the CIT(A) and directed the AO to delete the addition related to director remuneration.SIGNIFICANT HOLDINGSThe Tribunal held that rectification under Section 154 is limited to non-debatable, clear mistakes apparent from the record. It reinforced the principle that debatable issues, involving interpretation of law, cannot be rectified under this provision. The Tribunal's final determination was to allow the appeal of the assessee, setting aside the CIT(A)'s order and directing the AO to delete the addition.Core Principles EstablishedThe judgment reaffirmed the principle that Section 154 cannot be used to rectify debatable issues. It emphasized the need for clear, non-debatable mistakes for rectification under this provision, aligning with precedents set by higher courts.Final Determinations on Each IssueThe Tribunal's final determination was that the rectification proceedings under Section 154 were invalid, leading to the allowance of the assessee's appeal and the deletion of the addition made by the AO.