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Facts
The AO-CPC issued a rectification order under Section 154, withdrawing deductions claimed by the assessee under Sections 11 and 12 of the Income Tax Act. The Ld. CIT(A) partially allowed the assessee's claim for deduction of revenue expenditure. Both the Revenue and the assessee appealed to the ITAT against the CIT(A)'s order, with the assessee primarily challenging the procedural validity of the rectification order.
Held
The Tribunal held that the AO's rectification order was invalid as it was passed without issuing a notice and providing an opportunity of being heard to the assessee, in violation of Section 154(3) of the Income Tax Act. Citing judicial precedents, the Tribunal affirmed that any rectification order enhancing liability or reducing a refund without due process is invalid. Consequently, the Tribunal found no reason to adjudicate other issues as the AO's order itself was invalid.
Key Issues
Whether a rectification order under Section 154, passed without adhering to the principles of natural justice and providing an opportunity of being heard under Section 154(3), is valid. Entitlement to exemptions under Sections 11 and 12 for trusts.
Sections Cited
250, 154, 154(3), 143(1), 12A(1)(ac), 12AA(5), 12A(2), 11, 12
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, GUWAHATI BENCH, GUWAHATI
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
This is a batch of two appeals belonging to the same assessee for the same assessment year. While Revenue, CO No. 02/GTY/2025 has been filed by the assessee.
Both these appeals arise from orders u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”) dated 20.02.2025, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi.
2.1 In this case, the AO-CPC passed a rectification order under Section 154 of the Act through which the deduction claimed by the assessee under Sections 11 and 12 of the Act were withdrawn. The assessee approached the Ld. CIT(A) where he could partially succeed as the Ld. CIT(A) allowed the claim of deduction of revenue expenditure incurred by the assessee. With this order of the Ld. CIT(A), both the revenue and the assessee are aggrieved and have approached the ITAT with the following grounds:
“1. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in law by directing the AO to allow the expenses of revenue nature incurred by the appellant for the objects of the Trust. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in quantifying the revenue expenditure at Rs. 3,45,52,045/- without specifying the basis for the same and without giving opportunity to the AO under Rule 46A.” CO No. 02/GTY/2025
“1. For that the Id. CIT(A) has erred in arbitrarily assuming that addition of Rs. 4,09,46,026/-was made by way of an adjustment in the intimation dated 10.08.2022 passed by the Id. Deputy Director of Income-Tax, CPC, Bengaluru (AO) in processing of return under section 143(1) of the Income Tax Act, 1961 (Act); whereas no such adjustment to the returned income was actually made by the Id. AO in the said intimation order which even otherwise could not have been made in view of the amendment by the TOLA, 2020 by way of omission of section 12A(1)(ac) with retrospective effect from 01.06.2020 and thereby, the Id. CIT(A) has misdirected 2 CO No. 02/GTY/2025 The Little Star Trust himself in passing the impugned appellate order on the basis of this factually erroneous assumption.
2. For that the Id. CIT(A) was not justified in not holding that the rectification order under section 154 of the Act dated 13.02.2023 which resulted in enhancement of the assessed income and tax payable determined vide intimation order 10.08.2022 passed under section 143(1) of the Act having been passed by the Id. AO without giving any notice for allowing opportunity of being heard to the assessee in terms of section 154(3) of the Act, the said rectification order is bad in law and is violates the principles of natural justice.
3. For that the Id. CIT(A) erred in ignoring the amendments and omissions made by Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 made in sections 12A(1)(ac), 12AA(5) and 12A(2) of the Act and thus, was not justified in denying statutorily allowable benefit of sections 11 and 12 on the basis of an already omitted provision of law.
4. For that the Id. CIT(A) erred in not holding that the benefit on sections 11 and 12 cannot be denied to an entity for AY 2021-22 on the ground that details of new registration was not mentioned in the return of income, more so when the time limit for applying of the said re-registration itself stands extended much beyond the time limit of furnishing of return of income for AY 2021-22.
For that the Id. CIT(A) has erred both in law and on facts in passing the impugned order in gross violation of the principles of natural justice and without allowing any opportunity of personal hearing to the assessee after ignoring the specific request made by the assessee and without allowing opportunity to the assessee to make its submissions in respect of the remaining grounds of the appeal.
For that the cross-objector craves leave of your honours to take additional ground or grounds of cross-objection and/or modify or resign any ground(s) of cross- objection before or at the time of hearing.”
Before us, the Ld. DR averred that the Ld. AO's order was worth supporting since the assessee was not entitled for any exemption. The Ld. DR also drew our attention to Ground No. 2 whereby the basis for quantifying the figure of revenue expenditure at Rs. 3,45,52,045/- was claimed and it was averred that there was possibly a violation of Rule 46A of the IT Rules in this regard.
3.1 The Ld. DR, on the other hand, stated that firstly section 154 rectification order was without any opportunity as envisaged under Section 154(3) of the Act. It was also pointed out that the basis on which the exemption has been withdrawn was on account of an amendment effective from 01.06.2020, which was brought in by the Finance Act, 2020.
CO No. 02/GTY/2025 The Little Star Trust It was argued that the said amendment was later on omitted with retrospective effect from 01.06.2020 itself by the TOLA- 2020. Through TOLA a new clause (ac) was inserted to section 12A(1) w.e.f. 01.04.2021. Thus, effectively for A.Y. 2021-22 there was no requirement for the assessee to apply for fresh registration.
We have carefully considered the rival submissions and have also gone through the documents before us. It is seen that the very basic issue needing to be decided in this matter pertains to the violation of provision of section 154(3) of the Act. It is seen that the assessee had raised this issue before the Ld. CIT(A) also and the same has been held to be against the assessee on the basis of some long-drawn reasoning, which effectively justified the denial of opportunity to the assessee (paras 4.2 to 4.7 of the impugned order). A review of judicial precedents in this matter reveals that there is a useful finding given in the case of Sandeep Khanna reported in 67 ITD 23 (Ched) (TM) in which the following has been held:
“In the case of CIT v. Pankaj Gupta [1991] 188 1TR 184. the Allahabad High Court observed that section 154(3) gives statutory shape to the principle of natural justice and any order of rectification which has the effect of enhancing the liability of the assessee, passed without complying with the said requirement is invalid in law. The above decision squarely supported the Accountant Member's view. The provisions of section 154(3) are mandatory in nature and are meant to ensure that no order is passed to the detriment of the assessee without affording him due opportunity of being heard. Thus, the Commissioner (Appeals) was right in cancelling the interest charged from the assessee. Furthermore, there is a judgment of the Hon'ble Calcutta High Court in the case of Arun Kumar Bose reported in 173 taxmann.com 853 (Calcutta) in which the following has been held:
“The Assessing Officer passed the subsequent order dated 7-2-2025 by exercising powers under section 154. By such order the assessment was enhanced and the refund was reduced as it would be evident from a bare perusal of the order dated 7-2-2025 that the order dated 3-1-2024 directing refund, was rectified by adjusting the penalty demand with the refund order and arriving at an amount of tax payable by the assessee. Such an exercise undoubtedly falls within the scope of sub-section (3) of section 154. [Para 22] CO No. 02/GTY/2025 The Little Star Trust Upon a conjoint reading of sub-sections (1), (2), (3) and (4) of section 154, it is held that the authority has the power to make an amendment under section 154(1) of its own motion but if such amendment has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, the authority concerned is under a statutory obligation to issue a notice upon the assessee and give a reasonable opportunity of hearing before passing an order of amendment for rectification of any mistake apparent from the record. [Para 25] In the case on hand, the Assessing Officer made the amendment of its own motion. It is not in dispute that notice in terms of section 154(3) was not served upon the assessee. No opportunity of hearing was afforded to the assessee before passing the order dated 7-2-2025. It is held that there has been a violation of the provision laid down under section 154(3) and for such reason the order dated 7-2-2025 calls for interference. [Para 26].” Accordingly, there can be no doubt that once the provisions of section 154(3) of the Act have not been adhered to by the Ld. AO then the order itself would deserve to be invalidated. Since, the Ld. AO's order itself has been held to be invalid hence we find no reason to proceed ahead with any further adjudication on any of the other issues.
Order pronounced on 11.08.2025