Case Law Details
JBJ Technologies Ltd. Vs DCIT (ITAT Delhi)
Introduction: The Income Tax Appellate Tribunal (ITAT) in Delhi, in the case between JBJ Technologies Ltd. and the Deputy Commissioner of Income Tax (DCIT), deliberated upon the applicability of Section 154 of the Income Tax Act in the adjustment of prior period expenses.
Background of the Case: The appeal was initiated by JBJ Technologies Ltd. against the decision of the Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi, which emerged from the order passed by the Assessing Officer (AO) under Section 154 of the Act, 1961, specifically for AY 2015-16.
Delay in Filing: On commencement, the legal counsel for JBJ Technologies Ltd. acknowledged a delay of 381 days in presenting the appeal. The delay was attributed to severe health complications of a significant director of the company. After considering the circumstances, ITAT condoned the delay and proceeded to evaluate the case on its merits.
The Core of the Dispute: The main contention was the addition of Rs.16,05,191 on account of prior period expenses, which were added during rectification proceedings under Section 154. The assessee’s representation argued that the initial assessment was of limited scope, focusing solely on the ‘mismatch in custom duty payment’. Given this limited scope, the adjustment for prior period expenses was not justified. Moreover, the allowability of these expenses is a factual matter, making it unsuitable for rectification under Section 154.
Revenue’s Defense: Contrastingly, the Department of Revenue supported the CIT(A)’s order, emphasizing that since the mistake was apparent – the adjustment was necessary.
ITAT’s Verdict: Upon thorough review, the ITAT sided with JBJ Technologies Ltd. It was clarified that the initial assessment had a limited mandate, making it inappropriate to adjust prior period expenses under Section 154. The Tribunal also acknowledged that the decision on prior period expenses depends on specific circumstances and cannot be universally applied. Therefore, such decisions are beyond the scope of Section 154.
Conclusion: The ITAT Delhi, in the case of JBJ Technologies Ltd. Vs DCIT, set a precedent on the use of Section 154 of the Income Tax Act. It was ruled that prior period expenses, due to their nature, should not be adjusted under this section. The decision serves as a reminder that the nuances of each case must be considered before invoking rectification proceedings.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi (‘CIT(A)’ in short) dated 28.09.2021 arising from the order dated 13.09.2019 passed by the Assessing Officer (AO) under Section 154 of the Act, 1961 (the Act) concerning AY 2015-16.
2. As per the grounds of appeal, the assessee has challenged the addition of Rs.16,05,191/- on account of prior period expenses in rectification proceedings under Section 154 of the Act.
3. When the matter was called for hearing, the ld. counsel for the assessee at the outset submitted that there is a delay of 381 days in filing the appeal before the Tribunal. The ld. counsel adverted to the application filed for condonation of delay and submitted that in view of serious health issues of the key director of the assessee-company, it was not in a position to prefer the appeal in time. The ld. counsel submitted that no serious prejudice has caused to the Revenue by such delay and thus urged for benign consideration of the request for condonation of delay.
4. Having regard to the contents of the application and the circumstances narrated in this regard, we find merit in the plea of the assessee for condonation of delay particularly where the appeal arises from rectification proceedings, where the dispute hinges around mistake of apparent nature. Accordingly, the delay is condoned and the matter is proceeded on merits.
5. On merits, the ld. counsel pointed out that the assessee for Assessment Year 2015-16 was subjected to limited scrutiny assessment under Section 143(3) of the Act on the limited point of ‘mismatch in custom duty payment’. The Assessing Officer while framing the limited scrutiny assessment order under Section 143(3) of the Act dated 06.11.2017, found no error or mismatch in such payment and accordingly accepted the income returned by the assessee at Rs.77,40,970/-. Thereafter, the rectification proceedings were initiated under Section 154 of the Act on the ground that while framing the original assessment order under Section 143(3) of the Act, the Assessing Officer has failed to make additions by disallowance of Rs.16,05,191/- incurred by way of ‘prior period expenses’. On being confronted to the assessee, the assessee challenged the rectification proceedings on the ground that the issue involved is not only debatable but also, this issue was not subject matter of assessment under Section 143(3) of the Act. The Assessing Officer however declined to agree with the contention of the assessee and enhanced the assessed income by Rs. 16,05,191/- by passing order under Section 154 of the Act dated 13.09.2019. The ld. counsel thereafter referred to first appellate order under challenge and submitted that the CIT(A) also reiterated the findings of the Assessing Officer and declined to interfere without appreciating the facts in perspective. The ld. counsel thus made two fold submissions before the Tribunal.
(i) The original assessment framed was limited in its sweep and scope on account of limited scrutiny where the Assessing Officer was not authorized to engage in any other issues other than specified for the purpose of limited scrutiny. The prior period expense in question was not subject matter of limited scrutiny and therefore, there was no error in the original assessment which was sought to be rectified under Section 154 of the Act.
(ii) The allowability of prior period expenses is essentially a question of fact and dependent upon attendant circumstances attributable to each case. It is not the abstract rule of law to out rightly reject the prior period expenses dehors the facts of the case. The issue, at times, is quite debatable and therefore, the Assessing Officer has no jurisdiction under Section 154 of the Act to rectify and make additions on this count.
6. The ld. DR for the Revenue, on the other hand, relied upon the order of the CIT(A) and submitted that the mistake being of apparent nature in not making adjustment towards prior period expenses declared by the assessee himself as relatable to the preceding assessment years, the action of the Revenue cannot be interfered.
7. We have considered the rival submissions and perused the assessment order as well as the rectification order and also the first appellate order.
8. We straightaway find merit in the plea of the assessee on both counts. From the case records, it is apparent that the original assessment which was subject matter of rectification was limited in its mandate. The case was selected under limited scrutiny scheme and therefore, the Assessing Officer was not entitled to look into any other aspect of the assessment other than specified issues. Thus, in the absence of any error in the action of the Assessing Officer, the resort to Section 154 could not have been taken at the first place. Secondly, the plea on behalf of the assessee that allowability or otherwise of prior period expense requires factual examination and thus cannot be accepted or rejected without understanding the underlying facts and hence such adjustments are outside the ambit of provisions of Section 154 of the Act.
9. Hence, we set aside the action of the CIT(A) and direct the Assessing Officer to reverse the disallowance on account of prior period expenses carried out under Section 154 of the Act.
10. In the result, the appeal of the assessee is allowed.
Order dictated and pronounced in the open Court on 25/07/2023
