KAUSHIKBHAI NARSINHBHAI PATEL,BHARUCH vs. ITO WARD 1(1), BHARUCH

The assessee has raised the following grounds of appeal: “1. The Ld AA grossly erred on facts and in law in upholding that the action of the Ld AO allowing the Leave Encashment claim 1 of the Appellant on superannuation not exceeding RS 3 lakhs only and making the addition of RS 502333 to the determined income is as per law. 2 Your appellant craves leave to add amend alter withdraw any ground of appeal 3 The Commissioner of Income tax Appeal ADDL JCIT A 1 Visakhapatnam Ld Appeal Authority AA grossly erred on facts and in law in dismissing the raised ground in appeal that the Assistant Director of Income tax CPC Bengaluru Ld AO did not issue and serve the statutorily required notice u s 154 3 of the Income tax Act 1961 the Act before making the addition of RS 502333 u s 154 of Rectification Order dated 01 11 2021 appealed against. 4 The Ld AA grossly erred on facts and in law in dismissing the raised Modified Ground No 2 in appeal that the Ld AO has grossly erred in law by exercising the powers conferred u s 154 to rectify the mistake which is not on record but exercised the powers which is in the nature of change of opinion for which sec 154 does not confer any power. 5 The Ld AA is not justified in not holding that the order u s 154 appealed against is not a speaking order though it is not 5 incompliance with the binding nature of Instruction no 2 2016 dated 15 02 2016 issued by CBDT etc and therefore it deserves to be quashed.” 3. The assessee filed return of income on 22.07.2019 declaring total income of Rs.11,76,217/-. The assessee filed a revised return of income on 14.09.2020 claiming refund of Rs.1,53,130/- and declared gross salary income and net taxable income at Rs.11,31,822/- and Rs.9,76,220/- respectively. The due amount of refund of Rs.1,53,130/- claimed in the revised return of income as the exemption of Rs.8,02,333/- u/s 10(10AA)(ii) of the Income Tax Act, 1961 (in short, “the Act”) is the amount received on account of leave encashment on retirement against the allowed amount of exemption at Rs.3 Lakhs by the employer as per the Salary Certificate forming part of the revised return of income. The assessee’s case was selected for scrutiny and ADIT, CPC, Bengaluru passed the order u/s143(1) of the Act thereby determining the assessed income of the assessee and accepting the declared income allowing due amount of refund of Rs.1,54,410/- as claimed inclusive of interest of Rs.1280/-. The ADIT, CPC passed rectification order dated 01.11.2021 suo moto without giving any statutory notice show cause notice and made addition of Rs.5,02,333/- to the declared gross taxable salary income of Rs.11,31,822/- and net taxable income of Rs.9,76,220/- vide order dated 01.11.2021.

Being aggrieved by the rectification order u/s 154 of the Act, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

The Ld. Authorized Representative (in short “the Ld. AR”) for the assessee submitted that the ADIT, CPC has modified the original order u/s 143(1) of the Act when there was no mistake and rectified the same u/s 154 of the Act suo moto when the same power is not with the AO. The Ld. AR further submitted that the AO has rightly allowed leave encashment claim of the assessee on superannuation. The Ld. AR submitted that the order passed u/s 154 of the Act does not have any reasons recorded prior to pass the same order allowing the claim u/s 143(1) of the Act as per the revised return of income and thereafter withdraw the allowed exemption claim is without jurisdiction and authority of law. The Ld. AR relied upon the decision of Hon’ble Supreme Court in case of M. Chockalingam & Another vs. CIT, 1963 AIR 1456. When there are no reasons recorded for invoking Section 154 of the Act, the order passed u/s 154 of the Act does not survive.

The Ld. Departmental Representative (in short “Ld. DR”) relied upon the assessment order / order u/s 154 of the Act and the order of the CIT(A).

We have heard both the parties and perused all the relevant materials available on record. As per the CBDT Circular dated 31.05.2002 gazette notification, the claim was restricted to Rs.3 lakhs in respect of leave encashment on retirement exemption, but, while invoking Section 154 of the Act, the assessee was not given opportunity. There was no reasons recorded u/s 154 notice and as held in decision of Hon’ble Supreme Court, the assessee should have been given the opportunity. As per CBDT Circular, revised limit for deduction u/s 10(10AA), Notification No.31/2023, the revised limit is Rs.25 Lakhs issued by the Ministry of Finance. Thus, without assigning the reasons, the AO cannot suo moto invoke Section 154 of the Act and pass the order without giving opportunity of hearing to the assessee. Therefore, the appeal of the assessee is allowed.

In result, appeal of the assessee is allowed.