AO cannot rectify assessment order u/s 154 by increasing commission rate from 2% to 8% based solely on internal audit objections

ITAT Hyderabad remanded matter to CIT(A) regarding validity of rectification order u/s 154 where AO modified commission rate from 2% to 8% based on internal audit report. The assessee consistently showed 2% commission in previous years but failed to respond to notices. ITAT noted that rectification based solely on internal audit objections is prima facie impermissible in law. Given assessee's willingness to produce records, CIT(A) was directed to examine whether AO can rectify assessment order by increasing commission rate and pass detailed speaking order after considering assessee's contentions.

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Issues involved:
The appeal arises from the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi u/s 154 of the Income Tax Act, 1961.

Delay Condonation:
The appeal filed by the assessee was barred by limitation by 257 days, but the delay was condoned after considering the reasons given in the petition.

Assessment and Rectification u/s 154:
The Assessing Officer rectified the assessment u/s 143(3) by increasing the rate of profit from 2% to 8% for commission income from jaggery business. The ld.CIT(A) confirmed the rectification order u/s 154, which led to the dismissal of the assessee's appeal.

Contentions:
The assessee contended that the assessment order was erroneously modified u/s 154, as the commission income had been consistently shown at 2% in previous years. The ld. AR argued that the assessee should be given a chance to explain the discrepancy.

Decision and Remand:
The Tribunal noted that the assessee had not responded to notices served during the proceedings. However, considering the willingness of the assessee to produce records, the matter was remanded back to the ld.CIT(A) for further examination. The Tribunal found that the basis for rectification by the Assessing Officer was not permissible in law and directed the ld.CIT(A) to decide the issue in accordance with law.

Conclusion:
The appeal of the assessee was allowed for statistical purposes, and the matter was remanded back to the ld.CIT(A) for fresh adjudication in light of the directions provided by the Tribunal.

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