The Amritsar Bench of Income Tax Appellate Tribunal (ITAT) has held that the assessee should be given reasonable opportunity before making addition under Section 40A (7) of the Income Tax Act, 1961 before processing the rectification application.
During processing the returns under Section 143(1) of the Income Tax Act, the provision for payment of gratuity under Section 40A(7) of the Income Tax Act was rejected. The assessee, Nakodar Primary Cooperative Agriculture Development Bank Ltd filed a rectification petition before the Centralised Processing Centre (CPC) under Section 154 of the Income Tax Act. However, the CPC rejected the rectification petition and the payment of gratuity was added back with total income by contravening Section 40A (7) of the Income Tax Act.
The assessee submitted that the adjustment relating to disallowance of expenditure under Section 40A(7) of the Income Tax Act indicated in the Audit Report was not made in the intimation under Section 143(1)(a) of the Income Tax Act was a mistake apparent from record which can be rectified under Section 154 of the Income Tax Act.
Vedanshu Tripathi, who appeared on behalf of the revenue contented that the CPC had a power to disallow the amount on the basis of the tax audit report, which did not come under purview of mistake apparent from the record under the Section 154 of the Income Tax Act.
The Two-member Bench of M.L.Meena (Accountant Member) and Anikesh Banerjee (Judicial Member) observed that the Section 154 of the Income Tax Act was not applicable in this case. But the assessee prayed that a reasonable opportunity was denied by the revenue authorities. The bench remitted back the issue to AO and directed for further adjudication.
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