2023 (4) TMI 1106 - AT - Income Tax

Tribunal Partially Allows Appeal, Directs Reconsideration of Interest Levy & TDS Credit

M/s. EY Global Delivery Services India LLP (earlier known as EY Global Delivery Services India Private Limited) Versus The Deputy Commissioner of Income-tax, Circle 5 (1) (1) Bangalore.

M/s. EY Global Delivery Services India LLP (earlier known as EY Global Delivery Services India Private Limited) Versus The Deputy Commissioner of ... 1. ISSUES PRESENTED AND CONSIDERED 1. Whether an appeal against an assessment order passed under section 143(3) can be dismissed in limine on the ground that the assessment order has 'merged' into a subsequent rectification order under section 154 so that the cause of action no longer subsists. 2. Whether grounds in an appeal that were not the subject-matter of the section 154 rectification proceeding (specifically: (a) levy of interest under section 234C as alleged to be incorrectly computed, and (b) non-grant of interest under section 244A) are extinguished by the rectification order or must be adjudicated by the appellate authority. 3. Whether grounds in an appeal that were in fact the subject-matter of the section 154 rectification (specifically non-grant of TDS credit to the extent claimed) are merged into the rectification order and therefore not maintainable as a separate appeal unless and until further rectification is sought. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legitimacy and scope of 'merger' of assessment order into a section 154 rectification order and its effect on appellate cause of action Legal framework: Principles governing rectification under section 154 and appellate rights: a rectification under section 154 may modify an earlier assessment order; the question is whether and to what extent the earlier order 'loses its individual identity' and whether appeals against the original order remain maintainable. Precedent Treatment: The parties referenced tribunal precedent on related assessment/interest issues (referred by the assessee), but the Tribunal's decision evaluates the factual scope of the rectification order rather than adopting or overruling doctrinal precedent. Interpretation and reasoning: The Tribunal examined the rectification order to determine its subject matter. It held that the doctrine of merger may apply to those matters actually addressed and decided in the section 154 order; however, the doctrine does not automatically extinguish independent issues that were not the subject matter of the rectification. The Court emphasized that an appellate authority cannot dismiss an appeal in limine by broadly declaring that the original assessment has merged with a section 154 order unless the specific ground of appeal was in fact rectified or determined in the section 154 order. Ratio vs. Obiter: Ratio - the rectification order merges only those issues that were actually dealt with in the section 154 order; issues not considered in the section 154 order are not extinguished by merger and remain open to appellate adjudication. Obiter - general statements about the effect of merger beyond the factual confines of the order are not adopted. Conclusions: Appeal dismissal in limine on the sole basis that the assessment 'merged' with a section 154 order is impermissible where the appeal raises distinct issues that were not subject to the rectification. The appellate authority must examine whether each ground was addressed by the rectification before dismissing corresponding grounds as merged. Issue 2: Whether interest under section 234C (alleged incorrect levy) and interest under section 244A (non-grant of interest) were merged into the section 154 order or must be adjudicated by the appellate authority Legal framework: Section 234C relates to interest for deferment of advance tax; section 244A provides for interest on refunds. Appeal rights under the IT Act permit challenge to incorrect levy or non-grant of statutory interest unless rectification has dealt with those issues. Precedent Treatment: The assessee relied on a tribunal decision on computation of interest (cited by AR), but the Tribunal did not rest its determination on that precedent. Instead the Tribunal focused on whether the section 154 proceeding addressed these interest issues. Interpretation and reasoning: The Tribunal found on factual review of the rectification order that the only issue raised and decided in section 154 was non-grant of TDS credit; the rectification did not consider or decide the levy of interest under section 234C nor the claim for interest under section 244A. Consequently, those grounds were not merged by the section 154 order. The Tribunal held the appellate authority (CIT(A)) was not justified in treating those grounds as merged and dismissing them without consideration on merits. Ratio vs. Obiter: Ratio - where a rectification order does not adjudicate particular grounds (e.g., incorrect levy of section 234C interest; non-grant of interest under section 244A), those grounds are not merged and must be adjudicated by the appellate authority after affording a hearing. Obiter - treatment of how interest should be computed (e.g., assessed income vs. income as disclosed) was mentioned by the AR but not finally adjudicated by the Tribunal; that substantive question is remitted for consideration by CIT(A). Conclusions: Grounds challenging levy under section 234C and denial of section 244A interest were restored to the CIT(A) for adjudication. The CIT(A) must decide those issues on merits after providing a reasonable opportunity of hearing; dismissal on the basis of merger was improper. Issue 3: Whether non-grant of claimed TDS credit (amount specified) having been the subject-matter of the section 154 rectification order is merged and not maintainable as part of the original appeal Legal framework: Rectification under section 154 may alter tax computations, including grant of TDS credit; where the rectification has considered and decided the TDS credit claim, the earlier assessment order's identity regarding that issue is merged with the rectification order. Precedent Treatment: The Tribunal applied the merger principle factually to the rectification order rather than invoking or distinguishing broader precedents; it noted that if the rectification did not fully grant the claimed credit, the remedy lies in filing a fresh rectification if so advised. Interpretation and reasoning: On examination of the rectification order, the Tribunal found that the AO enhanced TDS credit but still did not grant the full claimed amount (short by a specified sum). Because the TDS credit issue was the subject of the section 154 proceeding, that ground in the appeal was deemed merged into the rectification order and therefore not tenable as a separate challenge to the original assessment order. The Tribunal observed that if the assessee remains aggrieved by the residual non-grant, the correct procedural remedy is to file a fresh rectification application rather than pursue the same ground as part of the appeal against the original assessment order. Ratio vs. Obiter: Ratio - where a rectification order addresses a ground (here, TDS credit), that ground merges into the rectification and cannot be separately maintained against the original assessment; procedural remedy for any residual grievance is fresh rectification. Obiter - none beyond procedural guidance. Conclusions: Ground challenging non-grant of TDS credit to the extent actually considered in section 154 was held to have merged into the rectification order and was rejected by the Tribunal; the assessee may pursue fresh rectification if so advised. Issue 4: Miscellaneous - treatment of general ground and appellate disposal Legal framework: General or omnibus grounds require specification to call for adjudication. Interpretation and reasoning: The Tribunal found the first ground to be general in nature and not requiring specific adjudication, and accordingly rejected it. Procedurally, the appeal was partly allowed for statistical purposes by restoring specific grounds (2 and 3) to the CIT(A) while rejecting the TDS-credit ground that had been before the AO in the section 154 order. Ratio vs. Obiter: Ratio - general/unspecified grounds do not merit separate adjudication. Obiter - procedural direction to CIT(A) to afford hearing on restored grounds. Conclusions: General ground dismissed; appeal partly allowed to the limited extent that non-rectified issues (sections 234C and 244A interest claims) are remitted for adjudication, while issues actually dealt with in the section 154 rectification (TDS credit) are treated as merged and not entertained in the present appeal.