2023 (7) TMI 993 - AT - Income Tax

Rectification order upheld but appellant's right to be heard violated resulting in successful appeal.

The New Vikash Co-op. House Building Society Ltd., Adv. Vijay Kumar Gupta Versus ITO, Ward-II (4), Faridabad.

The Tribunal found that the rectification order issued by a lower-ranking officer was valid due to the Income Tax Department's system of concurrent ... Rectification u/s 154 - Disallowance of interest expenses u/s 36(1)(iii) - AO giving a single opportunity of being heard to the assessee - HELD THAT:- As per section 154 of the Act, the AO is empowered to amend any order passed by it under the provision of Act. With a view to rectifying any mistake apparent from record but where such amendment has effect of enhancing assessment, shall not be made unless the assessment authority concerned, has given notice to the assessee of its intention so to do and allow the assessee a reasonable opportunity of being heard. From the records available, it is seen that the assessee was not provided reasonable opportunity of being heard by the AO. Assessee has relied upon the judgement of Hero Cycle Pvt.Ltd. [1997 (8) TMI 6 - SUPREME COURT] & Shri Harinder Singh vs ITO & Others [2011 (12) TMI 223 - ITAT CHANDIGARH] Considering the totality of the facts, invocation of provision of section 154 is not justified under the facts of the present case since the addition made by the AO has resulted into enhancing of assessed income without giving adequate opportunity to the assessee, deserves to be quashed. Therefore, impugned addition is hereby, deleted. Issues Involved:1. Jurisdiction of the officer passing the rectification order.2. Opportunity of being heard before passing the rectification order.3. Timeliness of the rectification order.4. Scope of rectification under Section 154 concerning interest income.5. Disallowance of interest under Section 36(1)(iii).6. Consideration of written submissions and documents by the First Appellate Authority.Summary:1. Jurisdiction of the Officer Passing the Rectification Order:The appellant contended that the rectification order dated 16/03/2018 by Shri Yog Raj, ITO, Ward II[4], Faridabad was invalid as he was lower in rank compared to the original assessing officer, Shri Bhopal Singh, IRS, Dy. CIT, Circle-I, Faridabad. The Tribunal noted the Income Tax Department's system of concurrent jurisdictions, where cases can be assessed by officers of varying ranks, and thus, the rectification order was deemed correct.2. Opportunity of Being Heard:The appellant argued that the rectification order was passed without providing an opportunity of being heard, as the notice issued for 12/03/2018 was not communicated. The Tribunal found that although a notice under Section 154 was issued on 07/03/2018, no reply was filed by the appellant, leading to the passing of the rectification order. The Tribunal concluded that the AO did not provide adequate opportunity to the appellant, which was required under the law.3. Timeliness of the Rectification Order:The appellant claimed that the rectification order was time-barred. The Tribunal noted that the notice under Section 154 was issued within the permissible time frame, and the order was passed within the statutory limit.4. Scope of Rectification Under Section 154 Concerning Interest Income:The appellant argued that the issue of interest income of Rs. 41,64,620 was neither discussed nor decided in the original assessment order dated 06/11/2013, and therefore, could not be rectified under Section 154. The Tribunal observed that the Revenue Audit Party had raised an objection regarding the interest income, leading to the issuance of the notice under Section 154. However, the Tribunal held that the invocation of Section 154 was not justified since the addition resulted in enhancing the assessed income without adequate opportunity being given to the appellant.5. Disallowance of Interest Under Section 36(1)(iii):The appellant contended that the disallowance of Rs. 34,39,460 under Section 36(1)(iii) was incorrect as no such expenses were claimed. The Tribunal noted that the AO had added this amount based on the interest income discrepancy identified by the Revenue Audit Party. However, the Tribunal found that the AO's action was not justified due to the lack of adequate opportunity provided to the appellant.6. Consideration of Written Submissions and Documents by the First Appellate Authority:The appellant argued that the First Appellate Authority did not consider the written submissions and supporting documents adequately. The Tribunal noted that the First Appellate Authority had reproduced the submissions but did not appreciate them properly, leading to the confirmation of the addition made by the AO.Conclusion:The Tribunal concluded that the AO did not provide reasonable opportunity of being heard to the appellant, and the invocation of Section 154 was not justified. The impugned addition was quashed, and the appeal of the appellant was allowed.Order Pronounced:The appeal of the appellant was allowed, and the order was pronounced in the open Court on 21st July, 2023.