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Facts
The assessee declared an income of Rs. 3,02,610/- for AY 2017-18. Following a limited scrutiny for cash deposits, the AO made an addition of Rs. 4,64,706/- as unexplained expenditure under section 69C. Subsequently, the AO passed a rectification order under section 154 to apply the higher tax rate prescribed under section 115BBE, which was confirmed by the CIT(A).
Held
The Tribunal allowed the appeal, setting aside the rectification order. It found that the notice for the rectification u/s 154 was not proven to be served, denying natural justice. Furthermore, the AO incorrectly invoked the amended provisions of section 115BBE, applicable from 01/04/2017, for transactions in FY 2016-17, when the old provisions were in force. The Tribunal ruled that invoking the amended section 115BBE, a debatable issue, through a rectification order u/s 154 was legally incorrect.
Key Issues
1. Whether a rectification order under section 154 is valid when notice is not properly served. 2. Applicability of the amended section 115BBE retrospectively or through a rectification order u/s 154 for an assessment year when earlier provisions were in force, and if such application constitutes a debatable issue.
Sections Cited
154, 250, 143(2), 142(1), 69C, 115BBE, 68, 69, 69A, 69B, 69D, 234A, 234B, 234C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR “SMC” BENCH : JAIPUR
Before: DR. MANISH BORAD
This appeal at the instance of the assessee for the Assessment Year 2017-18 (A.Y.) is directed against the order of Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”], dated 20/12/2025 framed u/s. 250 of the Income Tax Act, 1961 (for short, 'the Act').
The assessee has raised the following grounds of appeal:-
“1. The impugned order u/s 154 dated 14.07.2021, as well as the action taken u/s 154 and notices are bad in law, illegal, invalid, void-ab-initio on facts of the case, for want of jurisdiction, and also barred by limitation and various other reasons and hence the same may kindly be quashed.
2. The Id. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the action or order of the Id. AO of invoking of the provisions of Sec. 115BBE for taxing the income on higher rate by way of passing order u/s 154, which has not been charged in the assessment order nor any show cause notice was given during the assessment proceedings nor applicable. Thus erred in taking the income on higher rate. Hence the provisions of Sec. 115BBE so invoked and income so taxed at higher rate being absolutely, contrary to the provisions of law and facts of the case and not in 2 ITA.No.30/JPR/2025 (Atul Kumar Kala) conformity with the law, hence the same may kindly be deleted in full.
The Id. AO has grossly erred in law as well as on the facts of the case in charging interest u/s 234 A,B,C. The appellant totally denies it liability of charging of any such interest. The interest, so charged, being contrary to the provisions of law and facts, may kindly be deleted in full.
4. The appellant prays your honors indulgence to add, amend or alter all or any of the grounds of the appeal on or before the date of hearing.”
3. Brief facts of the case are that assessee is an individual and declared income of Rs. 3,02,610/- in the return of A.Y. 2017-18 filed on 28/02/2018. Based on the information about cash deposits in the credit card account, the assessee’s case selected for limited scrutiny under CASS after serving of valid notices u/s. 143(2) and 142(1) of the Act. During the course of assessment proceedings, the assessee furnished various details. Ld.AO concluded the proceedings making addition of Rs. 4,64,706/- on account of unexplained expenditure u/s. 69C of the Act being the difference of amount of cash deposits shown by the assessee and the amount found as per the records available with Ld.AO. Thereafter, Ld.AO passed the order u/s. 154 of the Act observing that while concluding the assessment proceedings, he failed to invoke section 115BBE of the Act, as per which tax is payable @ 60% along with surcharge @25%, as the addition has been made for income referred to in section(s) 68/69/69A/69B/69C or 69D of the Act. The order u/s. 154 has been passed on 14/07/2021 and the same has been challenged before the Ld.CIT(A), but assessee failed to succeed.
Now, the assessee is in appeal before this Tribunal.
3 ITA.No.30/JPR/2025 (Atul Kumar Kala) 5. Learned counsel for the assessee vehemently argued referring to written submissions filed before the Ld.CIT(A) and further stated that notice issued u/s. 154 has not been served upon the assessee, thereby, no proper opportunity has been granted which is a clear violation of principles of natural justice. In support of his contentions, placed reliance on various decisions mentioned in the written submissions including that of this Tribunal in the case of M/s. Motisons Jewellers Ltd. in & 178/Jp/2022, dated 29/09/2022 and the decision of coordinate bench of Jodhpur in the case of Smt. Suraj Kanwar Devraa vs. ITO in dt 23/11/2021. It is further submitted that the debatable issues cannot be rectified u/s. 154 of the Act.
On the other hand, learned DR vehemently argued supporting the order of Ld.CIT(A).
I have heard rival contentions and perused the record placed before me. The first grievance of the assessee is that notice u/s. 154 of the Act has not been served upon the assessee. However, from going through the order u/s. 154 of the Act, Ld.AO has observed that notice u/s. 154 dated 20/04/2021 was served upon the assessee and an opportunity of being heard in this regard has been given to the assessee, but since there was no compliance, the order u/s. 154 has been passed. I note that notice of hearing has been sent on 20/04/2021 and at that point of time, our country was passing through Covid-19 pandemic and there were various restrictions for movements of the general public. There is no evidence to show that notice u/s. 154 of the Act has been served
4 ITA.No.30/JPR/2025 (Atul Kumar Kala) upon the assessee. Considering this aspect, the assessee deserves fair opportunity prior to being visited by additional tax liability. Though, the assessee has placed reliance on various decisions, but considering the fact about the Covid-19 pandemic, I deem it appropriate that the assessee succeeds on this ground and assessee deserves to be given one more opportunity.
The assessee has also raised alternative contention in ground No.2 that the order passed u/s. 154 of the Act deserves to be set aside because only apparent mistake can be rectified and not debatable issues. In the instant case, the addition of Rs. 4,64,706/- has been made u/s. 69C of the Act on account of unexplained expenditure. Now, no details have been filed before me as to whether the assessee has challenged the addition u/s. 69C of the Act. But admittedly, the addition has been made invoking section 69C and in the rectification order u/s. 154 of the Act, the Ld.AO has invoked section 115BBE of the Act, as per which the addition is subjected to tax rate @ 60% + surcharge @25% thereon. The instant appeal is for A.Y. 2017-18 i.e. for F.Y. 2016-17 and the period starts from 01/04/2016 to 31/03/2017. The alleged unexplained expenditure is towards transaction carried out during the said period of F.Y. 2016-17. Section 115BBE of the Act was originally inserted by the Finance Act, 2012 w.e.f. 01/04/2013 but the amendment as per which income determined u/s. 68, 69, 69A, 69B, 69C & 69D of the Act shall be subject to 60%, has been brought in by taxation law by second amendment to Finance Act 2016 w.e.f. 01/04/2017. Now when the assessee
5 ITA.No.30/JPR/2025 (Atul Kumar Kala) carried out the alleged transaction giving rise to the impugned addition, the old provisions of section 115BBE of Act were in force. However, ld.AO has passed the rectification order u/s. 154 of the Act by invoking the amendment to the provisions of section 115BBE which are applicable from 01/04/2017 onwards. This action of the Ld.AO itself is incorrect and not in accordance with law. It, thus, clearly shows that the Ld.AO has not passed rectification order for rectifying an apparent mistake appearing from record and has wrongly invoked section 115BBE of the Act for charging the assessee with tax rate @60% along with surcharge of 25%. I, therefore, fail to find any merit in the rectification order passed by the Ld.AO. The impugned order is set aside and ground No.2 raised by the assessee is allowed.
In the result, appeal of the Assessee is allowed as per the terms indicated hereinabove.