Section 154 of the Act cannot be invoked to make adjustments on debatable issues: ITAT

In this case, the Assessing Officer has enhanced the assessed income on account of the claim of prior period expenses of Rs.3,81,716/- by invoking Section 154 of the Act.

In this context, the plea of the assessee was that there is no bar per se for the claim of prior period expenses as revenue expenditure in the appropriate factual matrix in the light of the decision of the Hon’ble Supreme Court in the case of CIT vs. Hero Cycles Pvt. Ltd. (1997) 94 Taxman 271 (SC). The Hon’ble Delhi High Court in the case of CIT vs. Jagjit Industries Ltd. (2010) 194 Taxman 158 (Del.) has held that the claim of prior period expenses is permissible in the given factual matrix.

The Hon’ble Gujarat High Court in the case of CIT vs. Indian Petrochemical Corporation Ltd. (2016) 74 taxmann.com 163 (Guj) have expressed their view in favour of the assessee with respect to prior period expenses allowable as business expenditure in the relevant assessment year in the factual matrix.

Therefore, on a broader reckoning, it is plain and simple that mere claim of prior period expenses in a relevant assessment year cannot be disallowed outright without examining the factual matrix. The Hon’ble High Court in the case of Hero Cycle (supra) has inter alia observed in paragraph 3 of the judgment that “Rectification under section 154 of the Act can only be made when glaring mistake of fact or law has been committed by the officer passing the order becomes apparent from the record. Rectification is not possible if the question is debatable. Moreover, the point which was not examined on facts or in law cannot be dealt as mistake apparent on the record. The dispute raised a mixed question of fact and law.”

In the light of the legal position noted above, the action of the Assessing Officer is clearly without jurisdiction to invoke Section 154 of the Act with a view to engage in making adjustments on such debatable issues in an abstract manner. The action of the Assessing Officer is thus without sanction of law and requires to be reversed.

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