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Facts
The assessee is challenging an order passed by the CIT(A) which dismissed their appeal due to delay. The original assessment was for AY 2009-10, and a subsequent order u/s 154 was passed without proper opportunity and was time-barred.
Held
The Tribunal condoned the delay in filing the appeal before the CIT(A) by applying the principle of substantial justice over technicalities. The matter was restored to the CIT(A) for decision on merits.
Key Issues
Whether the order u/s 154 was bad in law due to lack of opportunity, being time-barred, and passed with mala fide intention, and whether the delay in filing the appeal should be condoned.
Sections Cited
147, 143(3), 154, 250, 40(b), 154(7), 154(3)
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN
Date of Hearing 04.09.2025 Date of Pronouncement 25.11.2025 ORDER Per: SHRI. SANDEEP GOSAIN, J.M.:
The present appeals have been filed by the assessee challenging the impugned order dt. 01.05.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) / CIT(A) for the assessment year 2009-10.
From the records, I noticed that the appeal filed by the assessee before Ld. CIT(A) was dismissed by not condoning the delay in filing the appeal. Whereas, the Ld. AR relied upon the detailed submissions filed before Ld.CIT(A) by virtue of statement of facts and also affidavit which is reproduced herein below:
The appellant is a partnership firm and filed return of income for AY 2009-10 on 30.09.2009 declaring a total income of Rs. 11.35.335/-, The assessment was reopened u/s 147 and order u/s 143(3) r.w.s 147 was passed on 09.03.2015 making an addition of Rs. 4.61.491/-, In response to that the appellant preferred an appeal wherein the grounds of appeal were partly allowed and the appellant duly paid the demand amount of Rs. 108730/-. On verification of outstanding demand on 18th February 2025, the appellant came to know that for A.Y. 2009
10. Ld. AO had issued a notice on 09.03.2021 for proceeding u/s 154 wherein the Ld. AO has stated that partner's remuneration of Rs. 8,27,316/- should be disallowed since net profit shown is Rs. 9,29,040/- which consisted of fixed deposit interest and interest received. On 16.03.2021 the Ld. assessing officer passed an order u/s 154 without giving proper opportunity and hearing to the appellant. Just by issuing proceeding notice u/s 154 on 09.03.2021 and closing the assessment order on 16.03.2021 i.e. within 7 days the order u/s 154 was passed and till date i.e 26/02/2025 the order nor the computation sheet has been uploaded nor intimated to the appellant. Issuance of notice on 09.03.2021 without any intimation on mail or hard copy to the appellant for the proceedings 'suo moto' initiated under section 154 by the department and then on 16.03.2021 the order u/s 154 was passed and computation sheet prepared. Till date of this appeal it's not available online nor the appellant has got the order u/s 154 and the demand request. The unilateral action with mala fide intention and prejudiced mind without understanding the facts and giving proper opportunity to the appellant is against the spirit of law which is nothing but causing hardship to the appellant and closing the assessment proceeding u/s 154 within 7 days wihout waiting for the reply shows mala fide intention to the assessing officer. Infact we would request the Commissioner of income tax to lookinto the reasons and logic behind first of all issuance of notice u/s 154 09.03.2015 and the proceeding u/s 154 were started on 09.03.2021. after more than 4 years wherein the assessment order was passed onOrder u/s 143(3) r.w.s. 147 was passed on 09.03.2015 assessing a total amendment under this section shall be made after the expiry of 4 years income of appellant at Rs. 15.95.826/-. As per section 154(7) no from the end of the financial year in which the order sought to be amended was passed. The order was passed on 09.03.2015 and proceeding u/s 154 was initiated on 09.03.2021 i.e. exactly after 6 years which is beyond the spirit of 154(7). Thus amending an order after 6 years is bad in law and void ab initio and the same needs to be quashed and set aside since the proceedings u/s 154 are time barred. Without prejudice to our submission: In regard to the assessment order u/s 154 being time barred and as per section 154(3) the appropriate opportunity and time needs to be given to the appellant before passing the order which the assessing officer failed to do which shows that the order was passed in hast without application of mind and the order is bad in law and needs to be set aside. Now coming to the facts of the case, which has been mentioned in proceedings under section 154 dated 09.03.2021. For the calculation of book profit as per section 40(b) the assessing officer went with a wrong notion without understanding the spirit of law and understanding the Explanation 3 as stated under: Explanation 3 For the purpose of this clause, "book-profit" means the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit. Further the appellant would like to draw your attention to the following Judgments wherein it has been held that interest income and interest on fixed deposit is a part of a book profit. Additionally, we would like to statethat the interest on fixed deposit is not out of surplus funds but the fixed deposit is kept in bank for guarantees given by the appellant. In view of the above without going into the above facts the various Judgments as stated below has held that interest on deposit is a part of a book profit for computation of partner's remuneration.
1. Mac Industries V. Income Tax Officer, [2021] 124 taxmann.com 570 (Surat-Trib) whereby the Hon'ble ITAT Surat bench held that "the interest income earned by the assessee- firm from the fixed deposit receipts should not be ignored for the purpose of working-out the book profit to ascertain the ceiling of the partners' remuneration. For the purpose of calculation, profit is not to be classified in the different heads of income under section 40 of the Act. The interest income, therefore, cannot be excluded for the purposes of determining the allowable deduction of remuneration paid to the partners under section 40(b) of the Act."
2. Almac Corporation v. Deputy Commissioner of Income-tax, [2015] 60 taxmann.com 34 (Ahmedabad Trib.), whereby the Hon'ble ITAT Ahmedabad bench held that "Where Assessing Officer disallowed a part of remuneration payable by assessee firm to its partners under section 40(b)(v) on ground that interest on FDRs was to be excluded for purpose of calculation of remuneration payable to partners, since no such adjustment had been made by him while computing income from business, impugned disallowance was to be deleted. We direct the A.O to include the interest income while calculating the remuneration payable to partner u/s. 40(b)(v) of the Act."
3. S. P. Equipment & Services v. Assistant Commissioner of income-tax, [2010] 36 SOT 325 (JP.), whereby the Hon'ble ITAT Jaipur bench held that - "Whether in view of aforesaid legal position, Assessing Officer was required to compute book profit as per specific definition given under Explanation 3 to section 40(b) and, therefore, interest income could not be excluded from net profit as declared by assessee" Further the appellant would like to draw your attention in case of 154(7) which is beyond 4 years from the date of original assessment year. The various Judgments are attached herewith for your perusal.
1. Principal Commissioner of Income-Tax v. Godrej Industries Ltd. [2023] 153 taxmann.com 529 (Bombay), whereby the Hon'ble High Court of Bombay held that "Whether since order passed in 2004 could not be rectified after a period of 4 years, impugned order passed under section 154 dated 29-3-2014 was barred by limitation as per section 154(7)."
2. Vodafone Mobile Service Ltd v. Union of India, [2013] 31 taxmann.com 213 (Delhi), whereby the Hon'ble High Court of Delhi held that "demand raised pursuant to order under section 154 was time barred. Since as per section 154(7), limitation period for rectification is four years from end of financial year in which assessment is completed".
3. Liberty Pesticides & Fertilizer Ltd. v. Assistant Commissioner of Income-Tax, [2013] 35 taxmann.com 431 (Ahmedabad - Trib.), whereby the Hon'ble ITAT Ahmedabad Bench held that – “the AO is also not empowered to pass an order u/s.154 after the expiry of four years from the end of the financial year in which the order sought to be amended was passed". Further for the adequate opportunity to represent the appellant's case was not given, thus order u/s 154 cannot be passed by issuance of notice and closing the assessment u/s 154 within 7 days and till date the order u/s 154 and computation sheet has not been uploaded nor the appellant received nor the appellant was aware of the demand being raised. All the above facts show that the order u/s 154 if any passed is bad in law since till date the appellant has not received it nor has been uploaded on the portal and the exercise done is beyond the period stipulated under 154(7) and is bad in law and the same has been done by the erstwhile assessing officer with mala fide intention to harass the appellant for reasons best known to the assessing officer. All the above facts shows that the order u/s 154 supposed to be passed, is bad in law with mala fide intention and needs to be quashed and the reason for the same needs to be looked into by Commissioner of income tax. Therefore, the disallowance of partners remuneration of Rs. 8,27,316/-based on book profit is fair and proper as per the section 40(b) of the Income Tax Act' 1961 and thus the disallowance made by the Learned Assessing officer are bad in law and need to be quashed.y 3. In the above circumstances, Ld. AR specifically pleaded:
Further for the adequate opportunity to represent the appellant's case was not given, thus order u/s 154 cannot be passed by issuance of notice and closing the assessment u/s Kshipra Enterprises, Mumbai. 154 within 7 days and till date the order u/s 154 and computation sheet has not been uploaded nor the appellant received nor the appellant was aware of the demand being raised. All the above facts show that the order u/s 154 if any passed is bad in law since till date the appellant has not received it nor has been uploaded on the portal and the exercise done is beyond the period stipulated under 154(7) and is bad in law and the same has been done by the erstwhile assessing officer with mala fide intention to harass the appellant for reasons best known to the assessing officer.
Whereas on the contrary Ld. DR relied upon the orders passed by Ld. CIT(A) and submitted that intimation letter regarding order passed u/s 154 of the Act is on record, which proves that department is not at all fault in intimating the decision to the assessee and if the assessee had not checked its portal then it was assessee’s fault, therefore Ld. CIT(A) rightly dismissed the appeal filed by the assessee as the same was not filed within the period of limitation.
After having gone through the facts of the present case and also hearing the parties at length, I noticed that assessee has taken a specific stand that proper and sufficient opportunity was not given and assessee was not aware about the passing of the issuance of notice on 09.03.2021 without any intimation mail or hardcopy to the assessee for proceeding “suo-moto” initiated u/s 154 of the Act by the department and subsequently passing order. Even otherwise the revenue has not placed on record anything to rebut or counter the allegation of personal Kshipra Enterprises, Mumbai. services effected upon the assessee regarding passing of order u/s 154 of the Act. On the contrary Assessee had supported his submissions by filing an affidavit, which went un-rebutted.
Considering the entire factual position as explained before me and also keeping in view the principles laid down by Hon’ble Supreme Court in the case of Land Acquisition Collector Vs. Mst. Katiji& Ors., [1987] AIR 1353 (SC), wherein it has been held that where substantial justice is pitted against technicalities of non-deliberate delay, then in that eventuality substantial justice is to be preferred. In my view the principals of advancing substantial justice is of prime importance. Hence considering the explanation put forth by the Assessee by justifiably and properly explaining the delay which occurred in filing the appeal and construing the expression "sufficient cause" liberally I am inclined to condone the delay in filing the appeal before the Tribunal.
Since we have already condoned the delay in filing the appeal before Ld. CIT(A) therefore we restore the matter back to the file of Ld.CIT(A) for deciding the same on merits after providing adequate opportunity of hearing to both the parties. The assessee shall not seek any adjournment on frivolous grounds and shall remain cooperative during the course of proceedings.
Kshipra Enterprises, Mumbai. 8. Before parting, I make it clear that our decision to restore the matter back to the file of the Ld. CIT(A) shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the Ld. CIT(A) independently in accordance with law.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 25/11/2025