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Facts
During a survey, the assessee, a cement grinding firm, surrendered income of Rs. 52,86,885/-, which was initially filed under "Income from other sources" but later clarified as "Income from business & profession." The original assessment under Section 143(3) allowed the set-off of brought forward business losses. Subsequently, based on an audit objection, the AO rectified the order under Section 154, treating the surrendered income as undisclosed and disallowing the set-off, which the CIT(A) upheld.
Held
The Tribunal ruled that the Section 154 rectification order was not time-barred due to the Supreme Court's limitation extension. However, it held that the AO's rectification amounted to a change of opinion and a review of an already considered matter during the Section 143(3) assessment, which is beyond the scope of Section 154. It stated that Section 154 is for obvious mistakes, not debatable issues, and the revenue cannot benefit from a taxpayer's potential error.
Key Issues
Whether the rectification order under Section 154 was time-barred and if the disallowance of set-off of brought forward losses against surrendered business income constituted a "mistake apparent from record."
Sections Cited
154, 143(3), 72(1), 71, 68, 69, 69A, 69B, 69C, 116, 200A, 143, 206CB, 241, 156, 155, 263, 147
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No.1491/JPR/2024
fu/kZkj.k o"kZ@Assessment Years : 2013-14 Aditya Cement cuke ITO, E 18, RIICO I.A. Sotanala, Vs. Behror, Behror, Alwar. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AARFA5573H vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Anand Kumar Gupta, Adv. jktLo dh vksj ls@ Revenue by : Mrs. Swapnil Parihar, JCIT-DR a lquokbZ dh rkjh[k@ Date of Hearing : 19/02/2025 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 13/05/2025 vkns'k@ ORDER PER: DR. S. SEETHALAKSHMI, J.M. This appeal is filed by the assessee aggrieved from the order of the Ld. CIT(A), National Faceless Appeal Centre, Delhi dated 23.10.2024 [hereinafter referred as “CIT(A)/NFAC”] for the assessment year 2013- 14, which in turn arise from the order dated 31.03.2021 passed under section 154 of the Income Tax Act, [hereinafter referred as “Act” ] by the AO.
2. The assessee has raised the following grounds:- “1. That the Id. CIT(Appeal) erred in confirming the illegal order passed by the AO under section 154 of the Act.
2. That the Id. CIT(Appeal) erred in confirming the order passed by the Id. AO which was time barred by limitation, the order was passed after time limit provided in the Act.
3. That the Id AO has illegally rectified the order u/s 154 and made illegal addition of Rs. 54,56,322/-, there is no mistake which is covered u/s 154 of the Act.”
3. The brief facts of the case as culled out from the records are that it is a partnership firm doing business of cement grinding. On 06/06/2012, a survey was conducted at the business premises of the assessee. During survey, on account of certain discrepancies found in stock, cash, etc. the assessee surrendered an income of Rs.52,86,885/-. The assessee paid advance tax on the surrendered income and filed its ITR showing the amount surrendered as “Income from other sources”.It then went on to claim set off of depreciation. Finally, it filed ITR on 26.09.2013 declaring total income of Rs.30,00,650/- During assessment proceedings, the assessee filed a revised computation including the surrendered amount under the head “Income from business & profession” and explaining that there being no column in the ITR to show “Surrendered business income”, it had shown the same under the head “Income from other sources”. The then AO, after considering the reply of the assessee and the records of survey, and taking the revised computation filed by the assessee into consideration, made certain other additions to the returned Aditya Cement, Alwar income, and eventually allowed the brought forward losses/depreciation. The case was duly examined and assessed u/s 143(3) after thorough verification of the books, documents and papers found at the time of survey. Later, on the basis of audit objection, the AO rectified the order u/s 154 holding that set off of brought forward losses was not admissible to the assessee, as the income surrendered during survey was undisclosed income/investment u/s 68/69/69A/69B/69C.
4. Aggrieved from the order of AO, the assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised, the relevant finding of the ld. CIT(A) is reiterated here in below:-
“Analysis and decision:- 3. I have considered the grounds of appeal and seen the submission made by the appellant and perused the rectification order passed u/s 154 of IT Act, 1961. The ground no. 1 and ground no. 5 are general in nature and don't require the specific adjudication. Ground no. 2 to ground no. 4 are related to disallowance of carry forward loss, which are discussed and decided as below:- 3.1 The relevant part of the rectification order is as under- “The reply of the assessee has been considered but not found acceptable on the issue of set off of brought forward losses against income from other sources in view of following- During the course of assessment proceedings brought forwarded business losses of Rs 40,32,152/- was erroneously allowed against current year's income of Rs 52,86,885/- lac shown under the head income from other sources in the return of income, merely on a subsequent claim of the assessee which was not even claimed in the return of income or through revised return of income. The assessee itself shown Rs. 52,86,885/- under the head income from Aditya Cement, Alwar other sources in return of income filed as well as in the computation of income for the year under consideration . As per section 72(1) of the I.T. Act, 1961, brought forwarded business losses can not be set off against the income other than income from business profession. Section 72(1) of the IT Act, 1961 clearly states as under- "Where for any assessment year, the net result of the computation under the head "Profit and gain of business or profession" is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall subject to the other provisions of this Chapter, be carried forward to the following assessment year, and.
1. It shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year, 2. if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on :] ……………………………………….. Thus, the wrongly allowed brought forwarded business loss from the income from other sources during the course of assessment proceedings is mistake apparent from records. In view of above, the claim of the assessee is denied on this issue. The income surrendered by the assessee during the course of survey is treated as "undisclosed income/investment' under section 68/69/69A/698/69C." 3.2 The submission of the Appellant is as under:- "With due respect, it is submitted that the assessee is a partnership firm and doing business of cement grinding. On dated 06/06/2012 a survey was conducted at the Business premises of the assessee. At the survey the firm surrender some amount out of his business income which are not recorded in the books of accounts Assessment u/s 143(3) was passed and also Appeal has been decided in this case. Now the AO has rectified the order of the assessee without any valid reasons u/s 154 of the Act. The rectification is totally illegal ab intio The AO has no power to rectify the order u/s 154 though he raised the demand The same in bad in the eye of law. Hence this appeal is preferred Summary of the case:-
Aditya Cement, Alwar That the assessee is a partnership firm and having grinding unit of cement at Sotanala. On dated 06/06/2012 a survey was conducted at the Business premises of the assessee. At the survey the firm surrendered some amount out of its business income which are not recorded in the books of accounts. The survey officers has passed the book entry at the same time in the books of accounts and took the printout of the Profit loss and Balance sheet as on date 06/06/2012, copy of that is also enclosed with this reply the assessee filed revised computation before the AO and claimed the refund in the IIR. The case was processed u/s 143(3) and with due verification of the documents and papers found at the time of survey, order was passed by allowing the losses of the assessee claimed in the ITR Later on the assessee filed appeal before CIT (Appeal) Alwar against the order of the AO. The Appeal of the assessee was partly allowed by the CIT. Later on Department also filed Appeal against the CIT Appeal order Before Hon'ble ITAT JAIPUR, but the appeal was dismissed. On dated 26/03/2021 ITO Behror issued notice u/s 154 to the assessee to rectify the order passed by the then AO Behror Ground of the Appeal-
1. 1. That the order passed by the Id AO is totally illegal, arbitrary, not as per law and not in his power to rectify the same.
1. The case was processed u/s 143(3) and with due verification of the documents and papers found at the time of survey, order was passed by allowing the losses of the assessee claimed in the ITR. Later on the assessee filed appeal before CIT (Appeal) Alwar against the order of the AO. The Appeal of the assessee was partly allowed by the CIT the assessee objected the rectification on the following reasons before you 1. That the order was passed u/s 143(3) of the Act.
2. That the order was passed with due verification of the documents of the assessee. The case was assessed due to survey only and the same has been duly verified by the AO from the books of accounts statements recorded at the time of survey and the papers available with the department 3. That there is no calculation mistake was found in the order.
4. That the AO has allowed business losses of Rs 40321528 of the assessee in the order after verification and the same has been confirmed by CIT(Appeal) Because CIT (Appeal) has also not passed any comments on such allowance.
Aditya Cement, Alwar 5. That the point which is rectified by the AO is not the mistake apparent from the record and same cannot be rectified u/s 154 of the ACT. Because this the fact of the case and same is settled in the order u/s 143(3) On the followings the assessee objected the order of rectification mistakes which are left at the time of passing the order can be rectified under section 154 of the ACT Further is any order is the subject matter of the Appeal or revision, any matter which are decided in such appeal or revision cannot be rectified by the Assessing officer Sir, in the case the main point was of surrender and same has been accepted by the Assessing offer in his order after verification of the fact and document and the same cannot be rectified under section 154 The same point is debatable point and such point cannot be rectified SECTION 154 STATE THAT 154.(1) With a view to rectifying any mistake apparent from the record, an income-tax authority referred to in section 116 may. - (a) amend any order passed by it under the provisions of this Act, [(b) amend any intimation or deemed intimation under sub-section (1) of section 143;] ((c) amend any intimation under sub-section (1) of section 200A | (1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.] Further courts also cited that: Mistake means commission that is not designed and which is obvious and something which has no two opinions or which is debatable. [CIT V Lakshmi Prasad Lahkar (1996) 220 ITR 100 (GAU)] Addition of debatable nature cannot be subject of Section 154 rectification. [ACIT VS Shri Punit J. Patel (ITAT Mumbai)] 1 That the AO has also filed Appeal before Hon'ble ITAT Jaipur against the order of CIT (Appeal) but not raised any ground on such issue which has been Aditya Cement, Alwar now rectified This show the bad intention of the AO and not the difference of the Opinion.
This point is cover at point no 2 3. That the addition of Rs 5456322/- is totally illegal and same is not in the hand of the AO to pass such order The same cannot be rectified Therefore the assessee prays to accept the reply of the assessee and nullify the illegal order passed by the AQ" 3.3 There is only one issue of setting off of brought forward losses against the head-income from other sources. There is mistake apparent from the record and it comes under the preview of section 154 of the IT Act as the issue in hand is not debatable I have considered the submission of the appellant and perused the rectification order. The AO has clearly mentioned that the appellant had not declared the brought forward losses in its return of income. I also went through the provisions of section 71 and 72, according to which the business losses can't be set off against the income from other sources. Thus, I don't find any irregularity in the rectification order and further, I considered the issue on merit. In view of these facts and circumstances, I am of the considered view that the issue under consideration is apparent mistake from the record and the brought forward losses can't be set off in the instant case. Accordingly, the stand taken by the AO is hereby confirmed. Thus, the grounds of appeal
are dismissed.
4. In the result, appeal is dismissed.”
5. As the assessee did not receive any favour from the appeal filed before Ld. CIT(A), the present appeal is filed against the said order of the Ld. CIT(A) before us on the grounds as reiterated here in above. To support the grounds so raised the Ld. AR of the assessee has placed reliance on the written submission which is extracted herein below:-
“ 1. That the Id. CIT(Appeal) erred in confirming the illegal order of passed by the AO under section 154 of the Act:- The Ld.CIT (Appeal) has not consider the fact that the case was assessed u/s 143(3) and detailed order has been passed by the AO based on the facts of the case, and there is no escaped calculation or error was left in the order which has been illegal rectified Aditya Cement, Alwar by the AO. Hence the action of CIT (Appeal) in confirming the order of the AO is bad in the eye of law and deserve to be deleted 2. That the Id. AO passed the order which was time barred by limitation u/s 154 provided in the Act.:- That the rectification order u/s 154 passed by AO is totally illegal and against the law. It is a matter of fact that the order sought to be revised was passed on dated 22.03.2016. The same has been rectified by the order dated 21.03.2021 which is barred by limitation under the Act. The AO in his order page 2 mentioned that" the assessment in this case was completed on dated 22.03.2016 at the total income of Rs 3416700/-During the course of assessment proceedings brought forward business losses of Rs 4032152/- was erroneously allowed against the current year Income Rs 5286885-" To rectify the aforesaid mistake apparent from records, a notice u/s 154 of the 1.T.Act 1961 was issued to the assesse It is clear from above that what order the AO sought to revise u/s 154. 2.1 On dated 26/03/2021 a notice u/s 154 was given to the assesse to rectify the order for the AY 2011-12 passed on dated 22-11-2018 the relevant PARA OF THE NOTICE IS AS FOLLOW: " The order u/s 144/147 for the assessment year 2011-12 passed on dated 22-11-2018 in your case require to be amended as there is a mistake apparent from the record within the meaning of section 154 of the income Tax Act, 1961. The rectification of the mistake as per details given below will have the effect of enhancing the assessment/reducing the refund increasing you liability."( Copy of notice enclosed as Annexure). Where as the order for the year 2013-14 was amended.
154. Rectification of mistake.
-[(1) With a view to rectifying any mistake apparent from the record un income-tax authority referred to in section 116 may.- (a)amend any order passed by it under the provisions of this Act:] (b) amend any intimation or deemed intimation under sub-section (1) of section 1437 d. (amend any intimation under sub-section (1) of section 206CB) (1-A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.) (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, and where the authority concerned is the (3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard (4)Where an amendment is made under this section, an order shall he passed in writing by the income-tax authority concerned.
(5)Subject to the provisions of section 241, where any such amendment has the effect of reducing the assessment, the [Assessing Officer] shall make any refund which may be due to such assessee.
(6)Where any such amendment has the effect of enhancing the assessment or reducing a refund already made, the [Assessing Officer] shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this Act shall apply accordingly.
(7)Save as otherwise provided in section 155 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] (8) Without prejudice to the provisions of sub-section (7), where an application for amendment under this section is made by the assessee on or after the 1st day of June, 2001 to an income-tax authority referred to in sub-section (1), the authority shall pass an order, within a period of six months from the end of the month in which the application is received by it,- (a)making the amendment; or (b)refusing to allow the claim ] From the above it is crystal clear that as per section 154(7) no order can be rectified after the expiry of four years from the end of the financial year in which the order sought to be amended was passed. Here the date of order is 22.03.2016 (financial year 2015-16) and the date of rectification 21.03.2021, i.e. after four year from the end of The action of the AO is totally time barred by limitation and such rectification is illegal ab- initio. Hence the assesse pray to quash the order and allow the appeal.
That the Id AO has illegally rectify the order u/s 154 and make illegal addition of Rs 5456322/-:-
3.1 the firm was surveyed on dated 06/06/2012. During the course of survey proceedings the firm has surrender Rs. 5456322 / under different heads of income. The same was surrender as business income of the current year and given 3 cheques for the calculated tax liability Rs 1636897/-. The amount was calculated by the survey team @30% of the amount 5456322/-. Later on the firm has filed its income Tax return for the year and make the adjustment in the book of accounts. The assesse found that there is no column in ITR 5 to show the surrender amount in ITR.
3.2 The case was selected as compulsory scrutiny and a notice u/s 143(2) was issued on dated 29/03/2014. The assesse firm has filed documents along with revised computation of income in which surrender income was shown as Business income of the assesse. During the course of scrutiny proceedings all the details relating to the surrender along with others are filed with the AO.
3.3 The AO after verification the documents and details filed by the assesse passed detailed order u/s 143(3) by accepting the surrender amount as business income and allow the brought foreword losses from that. The AO has correctly passed the order and given full details at page 11 of the order, therefore it cannot be understand that the same is over looked or mistake has been happen while passing the order. The assesse filed appeal against this order and the same has been partly allowed.
3.4 On dated 06/01/2017 a Audit memo was given on the basis of Audit objection that the same cannot be allowed from surrender income the assesse filed his reply on dated 08/01/2017 on this issue.
3.5 Where as the order for the AY 2013-14 which was passed on dated 22.03.2016 was rectified on the basis of audit observation memo dated 06/01/2017.
On dated 30/03/2021 the assesse filed detailed reply that the same cannot be rectified under section 154 of the act. Because this is not the mistake which is apparent from record only those mistakes which are left to discuss at the time of passing the order that can be rectified if not debatable. The assesse further submit that Sir, in this case the main point was of surrender and same had been accepted by the Assessing offer in Aditya Cement, Alwar his order passed u/s 143(3) after verification of the fact and document and the same cannot be rectified under section 154. The same point is debatable point and such point cannot be rectified.
Rectification of mistake.
-[(1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may.- (a)amend any order passed by it under the provisions of this Act:] (b)[ amend any intimation or deemed intimation under sub-section (1) of section 143.] d. [ amend any intimation under sub-section (1) of section 206CB.J (1-A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.)
As section 154 (1) this is not the mistake which is apparent from record. The AO has passed detailed order after considering the facts and reply of the assesse and the same cannot be said that it is left to discuss or calculate. The AO has correctly allowed the claims of the assesse in his order. But the AO has rejected the same and passed the order.
3.6 The assesse filed appeal before CIT Appeal and submit that the same cannot be rectified u/s 154 of the Act,, because the same has been passed by verification and this is not the mistake than can be rectified. But Appeal has not appreciated that that rejected the appeal of the assesse.
3.7 The AO has also not taken permission from his Range Head as per board instruction 246/06/2023-A&PAC-1-79 Dated 16.03.2023 in which it is clearly mentioned that if the Audit objection is accepted and in case the assessing officer decides to choose section 154 as the appropriate remedial measure in 5.4 above he shall initiate the action after approval of the Range Head. But he has not done so.
3.8 The Assessing officer while framing the assessment u/s 143(3), considered explanation of the assesse and after applying his mind, allow the claim of the assesse in his order and the same cannot be rectified u/d 154 because this is not the mistake apparent from record.
THE HIGH COURT MADRAS Dated: 19.07.2022 in case of M/s. E IH Associated Hotels Ltd., Chennai 600 017....Petitioner. V/S The Assistant Commissioner of Income Tax, Corp Circle 2(1)- Chennai, citied that The petitioner also raises the argument that the impugned proceedings are based on an audit objection though none of the documents on record would evidence this position. Thus even on this score and following the settled position that an audit objection does not satisfy the requirement of the Assessing Officer having an independent 'reason to believe that income has escaped assessment, that too after the elapse of nearly six years from the end of the relevant assessment year, the impugned proceedings are vitiated".
THE Hon'ble ITAT Bench-G, Delhi in case of Shri Satish Kumar Aggarwal V/S DCIT Central Circle 21, New Delhi citied that;- "in this case the assesse submit in para 6 of the order that- Learned counsel for the assessee vehemently argues that the provisions of section 154 can be invoked by any authority only to rectify any mistake apparent from record, which should be manifest and glaring from the order passed by the A.O. Any issue, which is debatable, carries more than one opinion and has been subject matter of litigation cannot be termed to be a mistake apparent from record. In the instant case, the original assessment was completed u/s 143(3). Assessee had claimed deduction u/s 80HHC on the basis of certificate issued by chartered accountant and the working supplied with the return of income. A.O allowed the claim after due deliberation and80HHC working of the assessee was accepted, the same depends upon many factors, which require adjustments, additions and analysis of turnover and profits etc. If there was any possible loss to revenue caused by the working of the assessee the same should not have been accepted by the A.O. in the first place and otherwise revision proceedings u/s 263 and reassessment proceedings u/s 147 could have been undertaken as provided by Act. The A.O. chose it as a mistake apparent u/s 154 from the record which is not the applicable provision of law to facts looking from any angle, the mistake in order to be rectifiable should be a self-evident and mistake which is tried to be corrected by a complicated process of investigation, arguments, facts and on judicial pronouncement as in these facts cannot be called a mistake apparent from record. Rectification proceedings cannot be invoked to review his order by the A.O.'s. Reliance was placed on the following decisions for this proposition (i) TS. Balaram, ITO vs. Valkart brothers (1971) 82 ITR 50 (SC ); ii) Varindra Construction vs. ITO (2004) 1 SOT 152 (Asr); (iii) CIT vs. Krishak Bharti Co-operative Lotd. (2004) 266 ITR 208 (Del.);
Per contra, ld. DR relied upon the orders of the Ld. CIT(A). She also filed a letter received from the AO countering the submissions made by the assessee.
We have heard both the parties and perused the material available on record.
Ground No.1 raised by the assessee is an outcome of Ground No.3, which is being adjudicated in the latter part of this order.
Ground No.2, as regards the rectification order getting time-barred, we are afraid that it is not so. It is true that as per section 154(7) no order can be rectified after the expiry of four years from the end of the financial year in which the order sought to be amended was passed. Here, the date of order is 22.03.2016 (FY 2015-16) and the same ought to have been rectified by 31.03.2020. The rectification order u/s 154 was passed on 21.03.2021, i.e. after four year from the end of the FY 2015-16. But in view of the Supreme Court’s decision in Suo motu writ petition (C) No.3 of 2020, RE: COGNIZANCE FOR EXTENSION OF LIMITATION Aditya Cement, Alwar dated 10.01.2022, as per Para 5(iii) of the order, which is reproduced below- “In cases where the limitation would have expired during the period between 15.03.2020 till 28.02.2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01.03.2022. In the event the actual balance period of limitation remaining, with effect from 01.03.2022 is greater than 90 days, that longer period shall apply”.
The order passed by the AO is well within the extended time limit, and is not barred by limitation. This ground of appeal by the assessee is therefore, dismissed.
10. We now take Ground No.3, challenging the order passed by AO u/s 154 being illegal. After perusing the reply and the paper book filed by the assessee, we find that it is an undisputed fact that the income surrendered by the assessee during survey was duly offered to tax, along with the business income, in the return filed by the assessee. It is also an uncontroverted fact that the source of income surrendered during survey was from the business of the assessee, as had been stated by the partner of the assessee firm in his statements recorded during survey. Moreover, the survey team or the AO had not detected any other source of income. The assessee credited this surrendered income to its P&L Account over and above the normal profits of the business, but inadvertently it showed the same as “Income from other sources”, while filing the return. The then Aditya Cement, Alwar AO, who completed the original assessment duly considered the surrender made, the statements recorded during survey, the submission made at the time of assessment and the revised computation filed by the assessee and thereafter finally reached to a conclusion that the surrendered income was normal business income which needed to be taxed at normal rates and the same being from explained sources, was not subject to tax rates u/s 115BBE. Holding so, he allowed the set off of carried forward business losses. However, while working out the total income of the assessee on the last page of his order (page-11), he made adjustments to the loss reflected in the P&L A/c (i.e.Rs.9,91,246/-) on account of additions made by him, and showed it as Net income under the head Income from business or profession and thereafter added the amount surrendered during survey. From the aggregate of the income, he allowed the set off of brought forward business loss. The Internal audit raised an objection on the basis of this presentation and the AO sought explanation from the assessee in this regard. The assessee duly filed his reply on 08.01.2017. For more than 4 years, there was no action by the department till 25.03.2022. Finally, the department on realizing that it had missed the train for initiating remedial action u/s 263 or 147, issued a notice u/s 154on 26.03.2022 to make good the major audit objection. Even assuming that the Ld.AO may have committed an error in allowing the set Aditya Cement, Alwar off of business loss on the basis of revised computation, whereas the same had not been claimed in the ITR filed by the assessee, in view of the Supreme Court’s decision in the case of Goetz (India) Ltd. vs. CIT [2006] 284 ITR 323, the legal remedy available to the AO was initiating action u/s 263. Further, since A.O. passed the order u/s 143(3) after due consideration of all the facts and evidences before him, any interference in the working could have been made under appropriate proceedings under sections 263 only. At this stage, it would be appropriate to reproduce the notice dated 26.03.2021, issued to the assessee u/s 154, which states – During the course of assessment proceedings, brought forward business losses of Rs.40,32,152/- was erroneously allowed under current year’s income of Rs.52,86,885/- shown under the head Income from other sources in the return of income. The income surrendered during the course of survey is required to be treated as ‘undisclosed income/investment’ under section 68/69/69A/69B/69C. The present AO thus, wants to take recourse to section 154 on two counts, the first being disallowance of set off of brought forward business loss allowed in original assessment and the second, treating the surrendered income as ‘undisclosed income/investment’ under section 68/69/69A/69B/69C.
Aditya Cement, Alwar As far as the first issue is concerned, the then AO completing the assessment committed an error in as much as he allowed the set off on the basis of revised computation filed by the assessee, whereas he could have done so only on the basis of the claim having been made through revised return. As it was a mistake that had been committed in ignorance of a judicial pronouncement and was not self evident, recourse to section 154 could not been had. In respect of the second issue, the then AO had rightly held the surrendered income to be taxable as normal business income, after considering the statements of partner of the assessee firm and the submission filed by the assessee. Mere fact that survey has been conducted at the business premises of the assessee doesn’t mandate the AO to automatically invoke deeming provisions of 68/69/69A/69B/69C of the Act; said provision can be invoked only where the explanation offered by the assessee is not found satisfactory; where from explanation offered by the assessee it clearly emerged that the source of income offered during survey was from his business operations, such income could not be taxed under sections 68/69/69A/69B/69C of the Act. The finding of the Assessing Officer in the assessment order was concluded after considering all the documentary evidence and personal appearances on behalf of the assessee and he did not draw any adverse inference against the assessee. Section 154 of the Act mandates rectification of Aditya Cement, Alwar mistake apparent from record. The source of the income/investment which was accepted by the Assessing Officer in his original assessment order could not be revised under section 154 of the Act and so could the error of providing set off of brought forward business loss, as it could not be said to be a mistake apparent from the record. The Assessing Officer wanted to change his view in the garb of rectification of mistake under section 154 of the Act, which was not permissible under the law. In the given circumstances, remedial action under other alternate sections could have been taken. In view of the above discussion, recourse to section 154 was not permissible. Since A.O. passed the order u/s 143 (3) after due consideration of all the facts and evidences before him, any interference in the working can be made under appropriate proceedings under sections 263 or 147. In our view, what is envisaged u/s 154 is a glaring and apparent mistake and it does not clothe A.O. with a power to review his own order. Income-tax Act provides various remedies to Department to safeguard interest of revenue including revision of order as administrative mechanism u/s 263, reopening of assessment u/s 147 for income escaped assessment and for glaring mistake rectification u/s 154. Merely because there is a power to rectify, each and every decided issue resulting in possible loss of revenue on change of opinion of A.O. cannot be rectified u/s 154. The sine qua non of rectification power is existence of a glaring, Aditya Cement, Alwar patent and obvious mistake, which does not cover each and every decided issue which may result in possible loss of revenue. In our view, the rectifications made in the impugned order u/s 154 falls in the category of review of the order by A.O. which is not covered u/s 154. Consequently, we hold that the impugned order u/s 154 does not conform to the provisions in this behalf, i.e. rectification of mistake. Under these circumstances, we have no alternate but to set aside the impugned order passed by the A.O. u/s 154 and allow assessee's appeal on this ground. The Ld.CIT(A) upheld the order passed by the AO u/s 154. He failed to consider the submission filed by the assessee and the facts of the case. Even considering the fact that the claim of set off of losses was admissible only through filing of revised return and the rectification order to that extent was perfect, the CIT(A) ought to have allowed the appeal as the Hon’ble Supreme Court in Goetz (India) Ltd. (supra) ruled that this case is limited to the power of the assessing authority and does not impinge on the power of the Appellate authorities, meaning thereby that the claim can be entertained by the Appellate authorities without the restriction of filing of a revised return to claim it. We may add that Revenue cannot be made to benefit from the mistakes of the assessee. Even assuming the assessee had committed a mistake, still the revenue should not take the benefit of such mistake committed by the assessee.
Aditya Cement, Alwar The tax has to be charged as per the provisions of law. The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over- assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. The Supreme Court has observed in numerous decisions, including Ramlal and Ors. v. Rewa Coalfields Ltd., AIR 1962 SC 361; The State of West Bengal v. The Administrator, Howrah Municipality and Ors., AIR 1972 SC 749, and Babutmal Raichand Oswal v. Laxmibai R. Tarte, AIR 1975 SC 1297, that the State authorities should not raise technical pleas if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The State authorities cannot adopt the attitude which private litigants might adopt. The CIT(A) while confirming the order passed u/s 154 failed to consider the facts of the case in the right perspective. We would like to state that regardless of whether the revised return was filed or not, once an assessee is in a position to show that he has been over-assessed under the provisions of the Act, regardless of whether the over-assessment is as a result of assessee’s own mistake or otherwise, the CIT(A) has the power to correct such an assessment under the appellate powers conferred on Aditya Cement, Alwar him. If the CIT(A) refuses to give relief to the assessee, in such circumstances, he would be acting de hors the powers under the Act and the provisions of the Act and, therefore is duty-bound to give relief to an assessee, where due, in accordance with the provisions of the Act. As such, the assessee was entitled for the lawful claim as provided under the provisions of the Act despite that the assessee omitted to claim the same in the given fact and circumstances. The state cannot clutch the undue benefit of the mistake committed by the taxpayer. We would like to add that a hyper technical and pedantic approach while deciding the appeal should have been avoided. The appellate order confirming the action of the AO is also set aside and the appeal of the assessee on this ground is also allowed. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open Court on 13/05/2025.
Sd/- Sd/- ¼ jkBkSM+ deys'k t;UrHkkbZ ½ ¼MkWa-,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 13/05/2025 *Santosh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Aditya Cement, Alwar. 2. izR;FkhZ@ The Respondent- ITO, Behror.