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Facts
The assessee company filed appeals against orders of the Ld.CIT(A) for AYs 2016-17 to 2018-19. The core issue was the AO's initiation of rectification proceedings under Section 154 of the Income Tax Act without providing the assessee an opportunity of being heard.
Held
The Tribunal held that the AO violated Section 154(3) of the Income Tax Act by failing to issue a notice to the assessee before passing rectification orders that enhanced the assessment or increased the liability. This violation of natural justice rendered the rectification orders invalid.
Key Issues
Whether the AO's rectification orders passed under Section 154 of the Income Tax Act were valid without providing the assessee an opportunity of being heard, as mandated by Section 154(3).
Sections Cited
154, 143(3), 155(4), 155(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee company against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld.CIT(A)”), Delhi, all dated 19.03.2024 for the Assessment Years (hereinafter referred to as "AY”) 2016-17 to 2018-19.
to 1496/Chny/2024 (AYs 2016-17 to 2018-19) M/s. ILJIN Automotive Pvt. Ltd. :: 2 ::
2. At the outset, the Ld.AR of the assessee brought to our notice that the assessee has filed an additional ground of appeal for all the captioned appeals, which challenges the very jurisdiction of the AO to have passed the rectification order without following the statutory procedure stipulated therein, which additional common ground is reproduced as under:-
1. On the facts and circumstances of the case and in law, the rectification order under section 154 read with section 143(3) of the Income-tax Act, 1961 ('the Act') dated 19 February 2021 is without jurisdiction as the said order was passed without providing an opportunity of being heard as required under section 154(3) of the Act which is in violation of principles of natural justice and thereby, liable to be quashed. 3. The Ld.DR opposed admitting of the aforesaid additional ground.
However, we note that this is a legal issue and adjudication of the said ground is essential for rendering substantial justice and doesn’t require any fresh investigation into the facts and the same is essentially a question of law. Therefore, we admit the additional ground by relying on the decision of the Hon’ble Supreme Court in the case of NTPC Ltd. v.
CIT reported in [1998] 229 ITR 383 (SC).
The brief facts relating to the aforesaid additional ground of all the captioned assessment years are that the assessee had filed Income Tax Returns (ITRs) for captioned three (3) assessment years, which ITRs were later selected for scrutiny and assessment orders u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was duly passed against the assessee. The AO later has passed the impugned to 1496/Chny/2024 (AYs 2016-17 to 2018-19) M/s. ILJIN Automotive Pvt. Ltd. rectification orders u/s.154 of the Act for all the three (3) assessment years by making the following enhancement/disallowances as noted by the Ld.CIT(A) in respect of all the three (3) assessment years, which are reproduced as under:-
For AY 2016-17:
2. Brief facts of the case is that the appellant is a Private Limited company incorporated under the companies act and is engaged in the business of manufacture of automobile components. It has filed its return of income for the AY 2016-17 on 30/11/2016. The return of the appellant was selected for scrutiny under CASS. Subsequently, assessment u/s 143(3) was completed by AO on 23/11/2019 assessing total income at Rs.3,81,21,110/-, Further, the AO has initiated rectification proceeding u/s 154 of the Act. After consideration the fact of the case, the AO has passed rectification order u/s 154 of the Act and assessing total income at Rs.46,08,30,548/-, In the rectification order, the AO had denied the brought forward of loss of Rs.43,08,30,548/- stating that no brought forward was available.
For AY 2017-18:
2. Brief facts of the case is that the appellant is a Private Limited company incorporated under the companies act and is engaged in the business of manufacture of automobile components. It has filed its return of income for the AY 2017-18 on 30/11/2017 admitting total 1 income at Rs.61,88,22,620/-. The return of the appellant was selected for scrutiny under CASS. Subsequently, assessment u/s 143(3) was completed by AO on 31/08/2021computing total income at Rs.62,29,74,010/-, The AO has made addition of Rs.41,51,390/- on account of disallowance of depreciation. Further, the AO has passed rectification order u/s 154 of the Act and denying MAT credit of Rs.6,64,38,277/- and stated record.
For AY 2018-19:
Brief facts of the case is that the appellant is a Private Limited company incorporated under the companies act and is engaged in the business of manufacture of automobile components. It has filed its return of income for the AY 2018-19 on 26/11/2018 admitting total income at Rs.82,54,22,300/-. The return of the appellant was selected for scrutiny under CASS. Subsequently, assessment u/s 143(3) was completed by AO on 13/09/2021 accepting the returned income of the appellant. Further, the AO has passed rectification order u/s 154 of the to 1496/Chny/2024 (AYs 2016-17 to 2018-19) M/s. ILJIN Automotive Pvt. Ltd. :: 4 ::
Act and denying MAT credit of Rs.2,73,59,655/- and stated the mistake is apparent from record.
Aggrieved by the aforesaid action of the AO for the respective assessment years, the assessee preferred respective appeals before the Ld.CIT(A) who was pleased to confirm the action of the AO. Aggrieved, the assessee is before us and has raised the aforesaid additional ground for all the captioned assessment years.
Having heard both the parties and after perusal of the records, since the assessee is challenging the action of the AO passing the rectification order u/s.154 of the Act, it would be gainful to reproduce relevant portion of the section 154 which reads as under:
s.154. Rectification of mistake - s.154(1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may, -
(a) …….. (b) ………. (c) ………. (d) ……….
(2) Subject to the other provisions of this section, the authority concerned-
(a) may make an amendment under sub-section (1) of its own motion, and (b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee, [or by the deductor] [or by the collector] and where the authority concerned is the [***] [Commissioner (Appeals)] by the [Assessing] Officer also.
(3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the to 1496/Chny/2024 (AYs 2016-17 to 2018-19) M/s. ILJIN Automotive Pvt. Ltd. assessee [or the deductor] [or the collector] shall not be made under this section unless the authority concerned has given notice to the assessee [or the deductor] [or the collector] of its intention so to do and has allowed the assessee [or the deductor] [or the collector] a reasonable opportunity of being heard. (4) …………… (5) …………. (6) …………. (7) Save as otherwise provided in section 155 or sub-section (4) of section 186, no amendment under this section shall be made after the expiry of four years [from the end of the financial year in which the order sought to be amended was passed].
A plain reading of the aforesaid section as it stood, would reveal that it deals with the rectification of mistakes apparent on the face of record of an order, by an Income tax Authority (in this case the AO), on his own motion or by the assessee or by the Ld.CIT(A), at any time within four (4) years from the end of the Financial Year in which the order sought to be amended was passed. Sub-section (3) mandates that no such rectification shall be made unless, the AO has given notice to the assessee with an intention to enhance the assessment or reduce a refund or otherwise increase the liability of the assessee. Therefore, if the AO intents to enhance the assessment or reduce the refund, then, he acting u/s.154 must give assessee a reasonable opportunity of being heard.
Since such a requirement of law is provided u/s.154 of the Act, and assessee alleges non-compliance to the same, in order to find out as to whether there is any merit in the contention of the assessee, we called for Remand Report from the AO as to whether any such notice was issued to to 1496/Chny/2024 (AYs 2016-17 to 2018-19) M/s. ILJIN Automotive Pvt. Ltd.
:: 6 :: the assessee facilitating reasonable opportunity of being heard as provided in the statute; and the Ld.DR has placed before us a copy of the Remand Report dated 10.03.2025 which is reproduced as under:
GOVERNMENT OF INDIA MINISTRY OF FINANCE, INCOME TAX DEPARTMENT OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX CORPORATE CIRCLE-1 (1), ROOM NO. 611, WANAPARTHY BLOCK, 6TH FLOOR, #121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI-600 034 ---------------------------------------------------------------------------------------- Tel No: 044-28338494, e-mall: chennai.dcIt.c1@incometax.gov.in
F. No. AAACI2641E/ACIT/CC1(1)/2024-25 Date: 10:03.2025
To The Income Tax Officer. O/o CIT(DR)-1. A-Bench, ITAT, Chennai
Sub: Details regarding opportunity extended to assessee before passing order u/s.154 in case of M/s ILJIN AUTOMOTIVE PRIVATE LIMITED for A.Y. 2016-17, 2017-18 & 2018-19
Ref: Letter dated 10.03.2025 from The Income Tax Officer, O/o CIT(DR)-1, A- Bench, ITAT, Chennai.
Vide above referred letter, the details of the notices issued u/s.154(3) was asked in the case of M/s. ILJIN AUTOMOTIVE PRIVATE LIMITED for A.Y. 2016-17, 2017-18 & 2018-19.
On examination of the available records, the details found are as under:
AY Date of order Date of notice u/s.154 Delivery u/s.154 status 2016-17 19.02.2021 Cannot be ascertained from the - available physical record and ITBA No notice copy found 2017-18 04.11.2022 Cannot be ascertained from the - available physical record and ITBA No notice copy found 2018-19 22.11.2022 09.11.2022 Through ITBA Email delivered on 25.11.2022
However, reduction of loss is as per the provisions of section 155(4) and assessee may not be given the benefit of procedural aspect of giving opportunity as no prejudice is caused by not giving opportunity. Further, the amendment is not due to enhancing the assessment or reducing the refund or otherwise increasing the liability and cannot be read to mean, when a loss claimed by assessee in return of income becomes apparent mistake due to assessment in other year.