AO's rectification order under section 154 substituting 269SS with 69A for unsecured loans held improper without proper verification

The ITAT Ahmedabad held that the AO's rectification order u/s 154 substituting addition u/s 269SS with 69A regarding unsecured loans was improper. The AO failed to confront the assessee regarding applicability of section 69A and made the rectification without examining evidence of loan credibility, source of funds, or identity verification of parties. Basic documents like PAN, voter card, Form 16, and Aadhaar were insufficient for the addition. The matter was remanded to AO for proper verification following natural justice principles. The appeal was partly allowed for statistical purposes.

---

---

Issues:
- Validity of invoking provisions of section 154 without notice to the appellant
- Substitution of addition under section 269SS with section 69A
- Applicability of section 115BBE for enhancing tax liability
- Rectification application by the assessee challenging the application of section 269SS
- Assessment order discrepancies and rectification process

Analysis:

1. The appeals were filed against the order passed by NFAC for the assessment year 2017-18. The first issue raised was the confirmation of Assessing Officer's action under section 154 without notice to the appellant. The appellant argued that the action was not permissible for rectification under section 154. The second issue involved the substitution of addition under section 269SS with section 69A, which the appellant contested as not satisfying the conditions of section 69A.

2. The assessee, a cooperative bank, declared total income but faced scrutiny due to cash deposits during demonetization. The Assessing Officer made additions under section 69A, which the appellant challenged through rectification applications. The CIT(A) dismissed the appeals, leading to further arguments by both parties regarding the application of different sections and tax rates.

3. The Assessing Officer's decision to invoke section 115BBE for enhancing tax liability was contested by the appellant, citing the inapplicability of the section to the income in question. The rectification application by the assessee challenged the applicability of section 269SS to cooperative banks, emphasizing the need for proper verification and evidence.

4. The Tribunal observed discrepancies in the assessment order and rectification process, noting typographical errors and lack of proper verification by the Assessing Officer. The rectification order was deemed to be based on a typographical mistake without sufficient evidence regarding the applicability of section 69A. The Tribunal directed the Assessing Officer to verify the applicability of section 69A and the credibility of the unsecured loans, ensuring the principles of natural justice were followed.

5. Consequently, one appeal was partly allowed for statistical purposes, while the other was remanded back to the Assessing Officer for further review. The Tribunal emphasized the importance of proper verification and adherence to natural justice principles in tax assessments.

6. In conclusion, the Tribunal's decision highlighted the need for thorough verification and proper application of tax provisions, ensuring fairness and adherence to legal principles in tax assessments.

---