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Facts
The assessee filed its return of income, which was processed by the CPC with an addition on account of contingent liability. The assessee's rectification application under Section 154 was rejected, and an appeal to the CIT(A)/NFAC was also dismissed on technical grounds. The CIT(A) held that the appeal should have been against the intimation under Section 143(1) and not the order under Section 154.
Held
The Tribunal held that the CIT(A)/NFAC erred in dismissing the appeal on technical grounds, as the order under Section 154 was maintainable. The Tribunal noted that the addition was made on the basis of a contingent liability disclosed only for informational purposes and not claimed as an expense or liability. The matter was remanded back to the CIT(A)/NFAC for fresh adjudication on merits.
Key Issues
Whether the appeal against an order passed under Section 154 is maintainable when the original cause of action arose from the processing under Section 143(1), and whether a contingent liability disclosed for informational purposes can be added to the income.
Sections Cited
154, 143(1), 246A(1)(c)
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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R. K. PANDA & SHRI VINAY BHAMORE
This appeal filed by the assessee is directed against the order dated 13.01.2025 passed by Ld. CIT(A)/NFAC for the assessment year 2020-21.
The assessee has raised the following grounds of appeal :-
“1. On the facts and circumstances of the case and in law NFAC has erred in rejecting the appeal made against order passed u/s 154, for the reason that appellant ought to have filed appeal against intimation passed u/s 143(1) and not us 154 as according to him there is no cause of action against order u/s 154. With at respect, we submit that the findings given by Learned CIT Appeal for dismissing the appeal is Inconsistent with the provisions of IT Act and therefore such action needs to be reversed.
2. On the facts and circumstances of the case and in law. The Dy Director of Income Tax CPC has erred in making addition of Rs.35,50,679/-to the return income on account of contingent liabilities, when there is no such contingent liabilities and no such contingent liabilities was claimed or shown in the balance sheet and Dy. Director of Income Tax CPC has further erred in not deleting the above said addition. When all these facts were brought to the notice of Dy Director of Income Tax CPC Considering the above necessary order u/s 154of the IT Act, 1961 was required to be passed by the CPC. He be directed to delete the addition of Rs 35,50,679/-by passing necessary order u/s 154of the IT Act, 1961.
On the facts and circumstances of the case and in law. The Dy. Director of Income Tax CPC has erred in not passing order u/s 154 of the IT Act, 1961 the act properly when the original information passed was bad in law on various counts such as1, No Intimation regarding additions were given to the Appellant. This is a prima condition laid down by the Act.2. The addition/adjustments made are not covered by any provisions of section143(1) of the IT Act, 1961. All these facts were brought the notice of CPC. The Dy. Director of income Tax of CPC be directed to deleted the addition of Rs 35.50.679/- He be directed to delete the addition by passing order u/s 154 of the IT Act 1961. Your appellant prays for deletion of entire addition. Your appellant craves for to add, alter amend, modify, delete any or all grounds of appeal before or during the course of hearing in the interest of natural justice.”
3 facts of the case in brief are that the assessee is a private limited company furnished its return of income for the period under consideration declaring income of ₹ 5,757,490. The return of income was processed under section 143 (1) of the IT act on an income of ₹ 9,314,220 by making addition of ₹ 35,50,679 to the income returned by the assessee on account of contingent liability of sales tax disclosed in the financial statements in the shape of note. The assessee preferred rectification application under section 154 of the IT Act before CPC and stated that neither such expenditure was claimed in the profit and loss account nor such liability was shown in the balance sheet, and accordingly requested to delete the addition & rectify the intimation. CPC issued rectification order under section 154 of the IT act however with no change. The assessee than preferred 1st appeal before learned CIT(A)/NFAC who dismissed the same by observing as under “5.1. I have carefully considered Form 35. statement of facts, order 154 submissions/details uploaded in the system and the Grounds of Appeal raised. The present appeal is filed against the order u/s 154 dated 31/05/2024. 5.2. In this case, the CPC had made the adjustments while processing the return 143/1). The appellant could have filed an appeal against the intimation 143(1) per the provisions of the Act. However, appears that the appellant has not filed an appeal against the intimation 143(1). Thereafter, the appellant has fled an application u/s 154 before the CPC which has been rejected and hence the appellant has filed the present appeal against the order u/s 154. 5.3. In this regard, it is stated that the original cause of action in the present case had arisen at the stage of proceeding u/s 143(1) and not u/s 154. The appellant is trying to make a back door entry by filing an appeal against the order u/s 154, the original cause of action for which had arisen at an earlier point of time during the proceedings u/s 143(1). Therefore, in view of the given factual matrix, as the original cause of action has arisen at the stage of 143(1), the issue cannot be adjudicated upon in the present appeal as there is no mistake apparent from record at the stage 154. Therefore, the grounds of appeal are dismissed.
6. In the result, the appeal of the appellant is treated as dismissed.” 4 It is this order against which the assessee is in appeal before the Tribunal.
5 Learned AR appearing from the side of the assessee submitted before us that the order passed by learned ld.CIT(A)/NFAC is unjustified. It was submitted by ld.AR for the Assessee that the order passed under section 143(1) was as it is supplied as the order under section 154 of the Income Tax Act, and there is no difference in both the orders. It was also contended by learned AR that both the orders are appealable and learned ld.CIT(A)/NFAC should not have had dismissed the appeal merely on this technical ground. Learned AR also submitted before the bench that no notice was issued by CPC before making the above prima facie addition. It was further submitted by learned AR that the sales tax assessment for assessment year 2008-2009 was completed in the financial year 2016-17 and demand of ₹35,50,679 was raised which is not acceptable to the assessee and the assessee has preferred appeal against the sales tax assessment order and also obtained a stay of the same demand from Sales Tax Department. All these facts were mentioned in the audit report since assessment year 2018-19 and again the same was also shown in the audit report of assessment year 1919-20 & 1920-21, however the CPC only made addition for Assessment Year 2020-2021 and did not make any addition on the same set of facts for assessment year 2018-19 and Assessment Year 2019-20.
5.1 Learned AR also submitted before the bench that the company has neither claimed the sales tax liability of ₹ 35,50,679 as an expense in the profit and loss account nor it has been shown as a liability in the balance sheet. It was also stated by him that the disclosure of this contingent liability was solely for informational purposes as per accounting standards only & therefore there was no need to make the prima-facie addition. In support of this contention, copy of the financial statements along with notes of auditor were also produced before the bench wherein in Note Number: “xiv” the full details of contingent liability was provided. In support of its contentions that appeal against 154 order is also maintainable LD AR relied on the order passed by coordinate bench of this tribunal in the case of Shivganga Drillers Pvt Ltd., Vs. CPC passed in order dated 17-05-2022 wherein coordinate bench of this tribunal has allowed the appeal filed by the assessee which was filed against order passed under section 154 of the IT act instead of against the order passed under section 143 (1) of the IT Act. Ld.AR further referred section 246A(1) c of the Income Tax Act, which specifically provides that an appeal can be filed by the assessee against an order passed under section 154 or 155 of the Income Tax Act. Further In support of its contentions that contingent liability should not have been added by CPC, Learned AR relied on the order passed by coordinate bench of this tribunal in the case of ACIT versus Mahesh Mohan Bhai Patel (2025) 174 Taxmann.com 843 Ahmedabad, wherein under identical facts similar addition made by CPC on the basis of contingent liability was deleted by the tribunal & accordingly learned AR requested to delete the addition of Rs 35,50,679.
Learned DR appearing from the side of the revenue relied on the orders passed by subordinate authorities and requested to confirm the same.
We have heard learned counsel from both the sides and perused the material available on record including the case laws relied on by the Counsel of the assesse. In this regard we find that the return of income was processed by CPC and prima facie addition of ₹ 35,50,679/- was made on the basis of note reported by the auditor in the financial statements which was regarding information of contingent liability of sales tax demand pertaining to assessment year 2008-09, which was raised during assessment year 2018-19. The assessee filed rectification application under section 154 of the IT act which was not allowed and the order passed under section 143(1) of the IT Act was maintained. The assessee than preferred 1st Appeal against the order passed under section 154 of the Income Tax Act. Learned CIT(A)/NFAC has not gone into merits of the case and dismissed the appeal for the sole reason that the assessee should have had filed the appeal against the order under section 143(1) of the IT Act instead of against the order passed under section 154 of the IT act. In this regard we find that the order passed u/s.143(1) of the IT Act and the order passed under section 154 of the IT act are same, since the order passed under section 143(1) has again been issued as order under section 154 of the IT Act. We further find that a contingent liability of ₹ 35,50,679/- was reported in the financial statements towards disputed sales tax demand for the purposes of information only, and neither any deduction was claimed in the profit and loss account nor it was shown as a liability in the balance sheet. We find that the above demand was not accepted by the assessee and an appeal was preferred before sales tax authorities and stay order dated 23rd December, 2016 was also obtained on a payment of ₹ 80,000 which was shown as receivable from sales tax Department. We also find that the contingent liability was disclosed in the shape of note in the financial statements for the purposes of information only. In support of its contentions Learned AR relied on the order passed by coordinate bench of this tribunal in the case of Shivganga Drillers Pvt. Ltd. Vs. CPC passed in order dated 17-05-2022 wherein coordinate bench of this tribunal has allowed the appeal filed by the assessee which was filed against order passed under section 154 of the IT instead of against the order passed under section 143(1) of the IT act, since the claim of the assesse was an allowable claim. Respectfully following the above decision we also accept the contention of the assessee and hold that the order passed by learned CIT(A)/NFAC was not correct wherein he dismissed the appeal on technical grounds by observing that the assessee has filed appeal against 154 order whereas the cause of action arose from the order passed under section 143(1) of the IT act . In this regard we find that the prima facie addition was wrongly made by CPC and the assessee has rightly moved under section 154 of the IT act for rectification and when the rectification application was rejected the assessee has rightly filed an appeal u/s.246A(1)(c) of the IT Act before learned CIT(A)/NFAC. Accordingly we hold that learned CIT(A)/NFAC erred in dismissing the appeal filed by the assessee, and therefore we set aside the order passed by learned CIT(A)/NFAC and remand the matter back to his file with a direction to decide the appeal afresh as per fact & law in the light of our above discussion after providing reasonable opportunity of hearing to the assessee. Accordingly, Ground No.1 raised by the assessee is allowed. The remaining two grounds have not been adjudicated, as they pertain to the merits of the case, which have already been remanded back to the file of the learned CIT(A)/NFAC to be decided afresh in accordance with the facts and the law." Accordingly the appeal filed by the assessee is partly allowed for statistical purpose.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced on this 18th day of July, 2025