Rajkamal Overseas, Delhi V. ITO, Ward 63(1), New Delhi

ITA 38/DEL/2023

AI Insights

The case involves Rajkamal Overseas, the appellant, who filed an appeal against the order of the Commissioner of Income Tax (Appeals) which arose from the assessment order passed by the Assessing Officer under Section 154 of the Income Tax Act, 1961 for the Assessment Year 2020-21. The dispute centered on the disallowance of partners' remuneration amounting to Rs. 10,50,000, which was initially processed under Section 143(1) of the Act. The assessee contended that the disallowance was made without issuing any notice or obtaining a response, and the adjustments were based on incorrect figures reported in the tax audit due to an inadvertent error by the tax auditor. The Tribunal found merit in the assessee's arguments, noting the lack of opportunity given to the assessee and the apparent mistake in the figures used for the assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 121760 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-04-2023
• Assessment Year: 2020-2021
• Appeal Filed On: 03-01-2023
• Other Referred Cases: Kalpesh Synthetics (P) Ltd. vs. D CIT (Mum) 137 Taxmann.com 475
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 12; 154; 15; 40(b); 143(1); 44AB; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “SMC” DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A No.38/DEL/2023 Assessment Year 2020-21 Rajkamal Overseas, 409, Ist Floor, Kata Maidgran, Khari Baoli, Delhi. v. ITO, Ward-63(1), New Delhi. TAN/PAN: AAKFR7324Q (Appellant) (Respondent) Appellant by: Shri Pratap Gupta, CA Respondent by: Shri Om Parkash, Sr.DR Date of hearing: 18 04 2023 Date of pronouncement: 26 04 2023 O R D E R PER PRADIP KUMAR KEDIA, A.M.: T he capti oned app eal has b ee n f il ed b y the A sse ssee a gainst the order of t he C ommi ss ione r of Income T ax (A ppea ls) NFA C, D elhi (‘ C IT (A )’ in s h ort ) da ted 04. 12.2 022 aris ing from the assess me nt orde r dat ed 17. 11. 20 22 pass ed by th e Assessing O fficer (A O ) unde r Sect ion 15 4 o f the Income Ta x A ct, 196 1 ( the A ct) c onc er ning A Y 2020- 21. 2. Br ie fl y sta ted, t he assess ee filed r et ur n of inco me decla ri ng inco me a t ‘N il ’ a lo ng w ith the ta x audit report. The re t urn f ile d by the assess ee w as processe d un der Se cti on 1 43(1) o f t he A ct da te d 25. 11.2021 w he re in addi t ion/d isal lowa nce of pa rt ne rs re munerat ion am ount i ng t o Rs. 10, 50, 000/ - was ma de whi le I.T.A No.38/Del/2023 2 processin g the re tur n. Agai ns t the adj us t me nt so made, the assessee e-fi le d app li cat i on unde r S ect io n 154 dated 17. 11. 20 22 seeking re cti fic at ion of mi sta ke w hil e process ing in ti matio n unde r Sect ion 143(1) a nd revers al o f t he di sallow a nce. T he re cti ficat ion under Secti on 154 w as how ever passed b y th e A O (CPC) re it erating t he adju st ments and w it ho ut a ny r el ief. 3. A gg rieve d b y t he de nial of rec tific at ion, the ass essee prefe rr ed a ppea l before t he CIT (A ). T he C IT (A), i n turn, passe d order dat ed 04. 12. 2022 agai nst the impugned rect ifica t io n o rde r passed by the A ss essing O ffic er und er Sect io n 15 4 of the A ct for the Assess me nt Y ear 2 020-21 i n q uesti on. T he C IT (A ) broadl y obs erve d tha t as p er c lause no. 21 (c ) to F or m 3CD , i. e. , the Tax A udi t Report states that amount admissi bl e un der Secti on 40(b) sta nds at Rs. 1, 50, 00 0/ - onl y as a gai nst the remune ra tion act uall y paid t o t he as sessee pa rtner at R s. 12 la kh. T he C I T(A ) thus obs erve d t hat the i nt imat i on has bee n drawn i n tune w i t h ta x audit re por t and therefore, the rect ific at ion applicati on ha s be en ri gh tl y rejec te d by the C PC. The CIT (A ) thus decl in ed t o inte rfe re w ith the rec ti ficat ion or der in q uest ion. 4. A gg rieve d, t he assesse e p ref er re d appeal bef ore th e Trib una l. 5. We ha ve hea rd t he ri va l sub mi ssions on the iss ue and also pe rus ed the s ub missio ns made bef ore the CIT (A ), re cti ficat ion appl icati on b efore A ssessi ng O ff ic er and ot he r documents as place d in t he pape r bo ok and re fer re d to i n t he course of hea ri ng by the assessee under Ru le 18(6) o f the Inc ome Ta x (A ppella te Trib una l) R ules, 19 63. T he ass essee has ra ised fo llow i ng obj ecti ons/ submiss ions; I.T.A No.38/Del/2023 3 (i) t he disa ll ow ance of partners hi p remune ra tion w as carr ie d out unde r Secti on 14 3(1) w ithout i ssui ng a ny not ice to the A ssessing Of fice r in th is regard and w it ho ut obta i ni ng res ponse of the assessee the reon whil e ma king suc h adj us t ments and t he re fore, t he adj ust ments so ma de b y the A ssessing O f fice r un der Se ction 14 3(1) wit hout a ny oppor tu nit y is i mpermissi ble in l aw . (ii ) w itho ut prej udice to t he aforesa id c ontention, t he A O CPC indulged in maki ng adj us t me nt w i thout appre cia ting the cor re ct fac ts of the case and summar il y rejec te d t he re cti fi cati on appl icatio n e ma na ting fro m t he appa rent e rror i n the acti on of the A O (C PC ) w hi le p rocess ing the retur n. O n facts, the assessee f ir m fi led its ret urn of income dec la ring t he i ncome at R s.1,66, 50, 27 6/- b efore se t off of earlie r yea rs b us ines s losses and dep reciati on loss to the extent of t axa ble income of R s.1,66, 50, 27 6/- for t he year under c onside rat ion. A f te r setti ng of t he l osse s of earl ier yea rs, ba lance depreci at ion loss o f R s.3,49, 998 /- re mained to be ca rried forward for set of f i n subs eq uent yea rs. A s co ntended, t he i mpugne d adj ustment unde r Sect ion 40b(v) t ow ar ds deductibi lit y o f pa rt ne rs remune ra tion has been made b y CPC ow ing t o gross mi sr ep ort ing of fa cts in the t ax audit r ep ort w he rein the tax audi tor has inadv ertentl y c opie d the fi gures of t he precedi ng assessment ye ar in respect of s ubj ec t mat ter of re ct i fi cation in pla ce of current year fi gur es. A certif icate to t his ef fect was obtaine d from the tax au di tor modi fying t he a dmis sibl e pa rt ne r remune ra tion and bri ng ing correct pictu re t o the fore havi ng regard to t he acc ounts of assessee. N otw it hs ta nding t he error i n tax audit repo rt, the asses see has cor rectl y c lai med the admis si bl e deduct i on und er Sec tion 40(b) (v). 6. T he l d. counsel thus ess enti al l y conte nds that the dete rminat i on of t otal income is req ui re d to be done in accor da nce w ith law as done b y the assessee in its R OI. Th e a dmissibi lit y of cla im of e xpendi ture is thus not solel y de pe ndent upon the obs erva tio ns of the tax a udit or. In the abs ence of op port un it y t o the assess ee a t t he ti me of process ing the retur n, the c orrect fa cts coul d n ot be brou ght to t he knowle dge o f the Revenue A uthori t ies and the recti fica t io n proc eedi ngs have been decided adverse to the I.T.A No.38/Del/2023 4 assessee on technical grounds des pite clea r fa cts avail ab le on reco rd in this regard. T he ass essee further cont ends that au di te d balance-sheet a nd profit and l oss accou nt annexed with the retu rn are t he pri ma r y docu me nts a nd depicts t ha t the cor rect figure re munerat ion paid to the pa rtners at Rs. 24 lak h and not Rs. 12 l akh as w rong ly reporte d by t he audi t or i n point no. 21 of t he ta x au dit re por t w hic h w as the fi gure of earl ie r year. T he incorre ct assu mpt ion of fact s contrar y to acco unts of as sessee has res ul te d in er ror in the tax a udit re por t and as sessee should not be penal ize d for s uch i na dve rtent mi s take in t ax audi t report. A re fe re nce was made the decis ion of c o-ordi nate Be nch of ITA T i n the c ase of K al pesh Syn thet ics (P ) Ltd. vs. D CIT (Mum ) 1 37 Taxmann. com 475. T hus, t he cl eric al and bona fi de mistake of apparen t nature deserves t o be rect ified to s hun mis car riage of justi ce. 7. We fi nd fo rc e i n the pl ea of the as sessee. A dmi tte dl y, the fi gur es entered to wards pa rt ner re muner at ion i n t he P &L account are inconsi ste nt with the tax audi t rep ort due to hu ma n error w hi le ma ki ng r epo rt under Se ct ion 44AB of t he A ct. The cer ti ficate of the tax auditor p resenti ng correc t po s it ion w as also mad e availa ble to the low e r authori ties. O n the fa ce of inacc urac y i n adopt ing the co rrect fi gur e of re muner at ion fro m aud ited financial sta tement, an appar ent mis t ake has bee n c ommitt ed. In the absence o f opportunit y to the assessee c ontemp lat ed i n pr ovis o t o Secti on 143(1)(a) of t he Act t he d if ficult y has be en compounde d. The mi stake cou ld ha ve bee n a voi ded whil e pr oces si ng the return its elf. T he mist ake in adopting incorrect figure without opportunit y mand ated i n law des pite availabil it y of cor rect pos it ion is a mist a ke of ap paren t nat ur e an d espouses t he purpose I.T.A No.38/Del/2023 5 rect ifica t io n proceed in gs unde r Se cti on 15 4 of t he A ct. The pedan ti c a pproac h adopted b y the CIT (A ) does not take into account the de nial of opportuni t y to assessee in this rega rd and thus cannot be counte nance d. 8. We thus se t as ide the i mpug ne d order pas sed by the CIT (A ) in q uest ion and re s to re t he ma tt er back to the fi le of the Assessi ng O fficer for re de terminat ion o f the issue afte r ta king note of co rrect facts. T his w il l adva nce t he p ri nci ples of nat ur al jus tic e expl ici t i n Se ction 143 (1) of t he Act. N eedless t o say, opport uni t y sha ll be given t o t he asses see to p res ent c orrec t factual pos it ion on the a dmiss ible partne r re munerati on eli gible f or deduc tion unde r Sect ion 40(b ) of the Act. 9. In the r esu lt, the appeal of t he a ssessee is allow ed f or sta tis ti ca l purpos es . Order pronounced in the open Court on 26/04/2023. Sd/- Sd/- [KUL BHARAT] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /04/2023 Prabhat