Disallowance of Expenditure is not Mistake Apparent on Record, Outside Purview of Section 154 of Income Tax Act: ITAT [Read Order]

The Jaipur Bench of Income Tax Appellate Tribunal (ITAT), held that the expenditure in relation to increase in authorized share capital is of capital expenditure or revenue expenditure is out of the purview of Section 154 of the Act because this issue is not a mistake apparent on record.

The assessee Dhabriya Polywood Limited is a company engaged in the business of manufacturing of extruded PVC profile section etc  filed its return of income for the assessment year 2015-16 declaring a total income at Rs. 4,65,30,280/-.

The Assessing Officer (AO) completed the assessment under Section 143(3) of the Income Tax Act,1961 at a total income of Rs. 4,67,04,130/- by disallowing expenses of Rs. 1,73,849/-.Thereafter, AO invoked the provisions of Section 154 of the Income Tax Act, disallowed expenditure of Rs. 9,54,000 and computed total income of Rs. 4,76,58,130.

The assessee company filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], against the order passed by the AO, under Section 154 of the Income Tax Act, The first appellate authority dismissed the appeal of the assessee company.Further aggrieved the assessee filed an appeal before the Tribunal.

The Authorised Representative of the assessee submitted that CIT(A) has erred in confirming the action of AO, in passing the rectification order under Section 154 of the Income Tax Act on debatable issues which are outside the purview of section 154 of the Income Tax Act and further contended that Submission for ROC Filing Fee amounting to Rs. 9,38,000 is outside the purview of Section 154 of the Income Tax Act.

DR supported the order of the CIT(A) and replied that The contention of the assessee is not acceptable as the issue on which addition were made in the order passed under Section 154 of the Income Tax Act are not debatable. Further he added that CIT(A) while passing order observed that ‘’it is a settled position of law that any expenditure incurred which relates to increase in authorized capital are not allowable as revenue expenditure and I am of the considered view that the AO has rightly allowed the same under the provision of Section 154 if the Act.’’.

The Bench comprising of DR. S. Seethalakshmi, Judicial Member and Rathod Kamlesh Jayantbhai, Accountant Member observed that whether to disallow or not the expenditure named ROC ((Registrar of Companies) filing fee amounting to Rs.9,38,000/- is outside the purview of Section 154 of the Act as provisions of Section 154 of the Income Tax Act for rectifying the order can be invoked only for making mistake apparent on record.

The Tribunal further stated that invocation of section 154 of the Income Tax Act as made by the AO in the case of the assessee is not justifiable because Section 154 of the Income Tax Act talks about mistake apparent on record that has to be a mistake which is apparent on the face of the record without involving any debatable question of law

Hence taking into consideration the entire facts of the case, the Bench did not concur with the findings of the CIT(A) and the Grounds of the appeal of the assessee was allowed.

To Read the full text of the Order CLICK HERE

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