2017 (5) TMI 154 - AT - Income Tax

Tax Appeal: Tribunal Overturns CIT(A) Decision, Emphasizes Natural Justice

M/s Sonata Realty Pvt. Ltd. Versus ACIT, CC – 38, Mumbai

The CIT(A) confirmed the rectification order under section 154 of the Income-tax Act, 1961, finding the amounts in the tax audit report to be ... Validity of rectification order - prayer for one more opportunity of being heard - The assessee has claimed that reply was duly filed before the AO in rectification proceedings u/s 154 of 1961 Act, which was brushed aside and not considered by AO before passing rectification orders dated 04-05- 2012 u/s 154 of 1961 Act. The assessee also produced detailed reply on merits before the learned CIT(A) in the appellate proceedings and requested for remanding the matter before the AO for consideration of its reply on merits, which again was not considered by learned CIT(A) on merits and order of the AO was merely confirme - Held that: - The taxes can only be collected as per authority of law and if any mistake has crept in the tax-audit report and the assessee comes forward with a bonafide reply, it is the bounden duty of the authorities to consider such reply on merits so that correct taxes can be collected from assessee. It cannot be simply brushed aside at threshold itself without considering the same on merits - the issues under this appeal need to be set aside and restored to the file of the A.O. for de novo determination of the issues on merits after considering the explanations and evidences submitted by the assessee on merits - appeal allowed by way of remand. Issues:1. Confirmation of rectification order u/s. 154 of the Income-tax Act, 1961 by the CIT(A).2. Consideration of detailed reply by the assessee in rectification proceedings.3. Opportunity granted to the assessee by the Assessing Officer and the CIT(A) for presenting evidence and explanations.4. Application of principles of natural justice in the assessment proceedings.Analysis:1. The appeal was against the rectification order dated 4th May, 2012 passed by the Assessing Officer (AO) u/s 154 of the Income-tax Act, 1961, for the assessment year 2008-09. The CIT(A) confirmed the rectification order, stating that the amounts mentioned in the tax audit report were inadmissible and constituted a mistake apparent from the record. The CIT(A) upheld the AO's decision, considering it a correct rectification based on the tax audit report, which was certified and signed by auditors. The CIT(A) found that the AO rectified the assessment order correctly as per provisions of the Act, leading to the confirmation of the rectification order.2. The assessee contended that detailed replies were submitted before the AO in the rectification proceedings, but were not considered. The assessee argued that errors in the tax audit report were unintentional and requested a remand to present evidence. However, the CIT(A) did not consider the detailed reply on merits and merely confirmed the AO's order. The Tribunal noted that if a mistake occurred in the tax audit report and the assessee provided a genuine reply, authorities should consider it on merits. The Tribunal found that the explanations and evidences submitted by the assessee were not adequately reviewed by the authorities before passing the rectification order.3. The Tribunal observed that the AO invoked section 154 to correct mistakes in the assessment order, but the assessee's contentions and evidence were not thoroughly examined by the authorities. Therefore, the Tribunal set aside the matter to the file of the AO for a fresh determination of the issues on merits. The Tribunal directed the assessee to appear before the AO, provide all necessary evidence, and granted an opportunity to be heard in accordance with principles of natural justice before re-evaluating the issues on merits.4. In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the importance of considering the assessee's submissions on merits and granting a fair opportunity for defense. The Tribunal highlighted the necessity of following principles of natural justice in assessment proceedings to ensure correct tax collection based on a thorough examination of all relevant evidence and explanations provided by the assessee.