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

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ITA 1489/SRT/2025Status: PendingITAT Surat28 October 2026AY 2019-204 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that while the CBDT Circular dated 31.05.2002 restricted the claim for leave encashment on retirement exemption to Rs. 3 lakhs, the assessee was not given an opportunity of being heard when Section 154 was invoked. The Tribunal noted that there were no reasons recorded for invoking Section 154, and as per the decision of the Hon'ble Supreme Court, the assessee should have been given an opportunity. The Tribunal also referred to CBDT Circular No. 31/2023, which revised the limit for deduction under Section 10(10AA) to Rs. 25 Lakhs. The Tribunal concluded that without assigning reasons, the AO cannot suo motu invoke Section 154 of the Act and pass an order without giving the assessee an opportunity of hearing. Therefore, the appeal of the assessee was allowed. The operative direction was that the appeal of the assessee is allowed.

What were the facts?

The assessee, Kaushikbhai Narsinhbhai Patel, filed an appeal against the order of the CIT(A), Visakhapatnam, for Assessment Year 2019-20. The assessee initially declared a total income of Rs. 11,76,217/-. In a revised return filed on 14.09.2020, the assessee claimed a refund of Rs. 1,53,130/- and declared a net taxable income of Rs. 9,76,220/-, by claiming an exemption of Rs. 8,02,333/- under Section 10(10AA)(ii) for leave encashment on retirement, against the employer's allowed exemption of Rs. 3 lakhs. The ADIT, CPC, Bengaluru, initially accepted the declared income and allowed the refund. However, the ADIT, CPC, subsequently passed a rectification order under Section 154 on 01.11.2021, suo motu adding Rs. 5,02,333/- to the income without issuing a statutory notice. The CIT(A) dismissed the assessee's appeal against this rectification order.

What were the issues?

1. Whether the Ld. AO grossly erred in upholding the action of allowing leave encashment claim on superannuation not exceeding Rs. 3 lakhs only and making an addition of Rs. 5,02,333/- to the determined income, as per law (Section 10(10AA)(ii)). 2. Whether the Ld. AO grossly erred in law by dismissing the raised ground that the Assistant Director of Income Tax CPC Bengaluru did not issue and serve the statutorily required notice under Section 154(3) of the Income Tax Act, 1961, before making the addition of Rs. 5,02,333/- under the rectification order dated 01.11.2021 (Section 154(3)). 3. Whether the Ld. AO grossly erred in law by exercising powers under Section 154 to rectify a mistake which was not on record, but exercised powers in the nature of a change of opinion, for which Section 154 does not confer any power (Section 154). 4. Whether the Ld. AA is justified in not holding that the order under Section 154 appealed against is not a speaking order and is in non-compliance with CBDT Instruction No. 2/2016, and therefore deserves to be quashed (Section 154, CBDT Instruction No. 2/2016). Assessee's contentions: The ADIT, CPC, modified the original order under Section 143(1) without any mistake and rectified it under Section 154 without having the power to do so. The AO rightly allowed the leave encashment claim. The Section 154 order lacked reasons recorded prior to its passing, making it without jurisdiction. Reliance was placed on M. Chockalingam & Another vs. CIT. The order passed under Section 154 does not survive without reasons recorded for invoking it. Revenue's contentions: The Ld. DR relied upon the assessment order/order under Section 154 and the order of the CIT(A).

Which sections of the Income-tax Act were involved?

Section 10(10AA),Section 154,Section 154(3),Section 143(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, SURAT BENCH, SURAT

Before: MS. SUCHITRA KAMBLE & SHRI B.M. BIYANI

Pronounced: 28.10.2026

IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER ITA No.1489/SRT/2025 (िनधा�रण वष�/ASSESSMENT YEAR: 2019-20) KAUSHIKBHAI NARSINHBHAI ITO, PATEL WARD 1(1), STATION RAOD, Vs. 387, SIDDHNATNAGAR, BHARUCH-392001, GUJARAT BHARUCH-392001, GUJARAT अपीलाथ� (APPELLANT) ��थ� (RESPONDENT)

Permanent Account Number of Assessee: AERPP3992B

अपीलाथ� �ारा/Appellant represented by: Shri Bhupendra Mehta, AR ��थ� �ारा/Respondent represented by: Shri Ashish Kumar, Sr. DR सुनवाई की तारीख / Date of conclusion of hearing: 19.08.2026 घोषणा की तारीख / Date of pronouncement: 28.10.2026 O R D E R PER : SUCHITRA KAMBLE, J M: The appeal filed by the assessee is against the order passed by the Commissioner of Income Tax, Appeal, ADDL/JCIT(A)-1, Visakhapatnam [in short “CIT(A)”] dated 19.12.2025 for the Assessment Year (in short “AY”) 2019-20.

2.

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.

4.

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.

5.

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.

6.

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).

7.

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.

8.

In result, appeal of the assessee is allowed.

Order pronounced in the open court on 28.10.2026

Sd/- Sd/- (B.M. BIYANI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat; Dated: 28.10.2026 //True Copy// * SKS, Sr. P.S. Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Surat 5. Guard File By order, HEMA KISHORE Digitally signed by HEMA KISHORE JAKKA JAKKA Date: 2026.10.29 18:26:52 +05'30' Assistant Registrar/Sr.PS/PS ITAT, Surat Bench

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