Rectification Under Section 154 Cannot Be Invoked for Debatable TDS Disallowance Issues: ITAT Delhi

Case Reference

Maya Buildcon Pvt. Ltd Vs DCIT (ITAT Delhi)
Assessment Year: 2017-18
Order Date: 5th June, 2026

Background of the Dispute

The Income Tax Appellate Tribunal, Delhi Bench, recently adjudicated a significant matter concerning the permissible scope of rectification proceedings initiated under Section 154 of the Income-tax Act, 1961. The case arose out of a rectification order dated 21.03.2024, passed by the Assessing Officer, which was subsequently upheld by the Commissioner of Income Tax (Appeals)/Addl./JCIT(A), Gwalior, vide order dated 19.11.2025.

At the heart of the controversy was a disallowance of ₹26,56,715/- invoked under Section 40(a)(ia) of the Income-tax Act, 1961, on the ground that the assessee had allegedly failed to deduct tax at source on interest payments made to a Non-Banking Financial Company (NBFC). The Assessing Officer sought to introduce this disallowance through the mechanism of rectification under Section 154, despite the fact that the original scrutiny assessment under Section 143(3) had already been completed on 25.12.2019.

The central question that the Tribunal was called upon to examine was:

Whether a disallowance under Section 40(a)(ia) on account of non-deduction of TDS — being a matter that inherently involves detailed inquiry and is susceptible to debate — can legitimately be the subject matter of rectification proceedings under Section 154 of the Income-tax Act, 1961?

This question strikes at the fundamental distinction between what constitutes a "mistake apparent from the record" — the foundational requirement for invoking Section 154 — and what constitutes a debatable or complex issue that requires independent application of mind, examination of facts, and detailed enquiry.

Arguments Advanced by Both Parties

Both the assessee and the Revenue presented their respective positions before the Tribunal with considerable emphasis:

  • Assessee's Stand: The assessee contended that the rectification order was legally unsustainable because the issue of TDS deduction on interest payments made to an NBFC cannot be treated as a simple arithmetic or clerical error. It necessarily involves a contested determination, making it wholly impermissible to address through Section 154 proceedings after the scrutiny assessment under Section 143(3) had already been finalized.