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Facts
The Revenue appealed against the CIT(A)'s order which held the AO's order under Section 154 of the Income Tax Act as bad in law. The dispute involved the disallowance of brought forward unabsorbed depreciation for AY 2013-14. The AO had initially allowed this depreciation in the assessment order but later tried to disallow it through a Section 154 rectification order.
Held
The Tribunal held that the AO had transgressed his jurisdiction by attempting to disallow the brought forward unabsorbed depreciation through a Section 154 order. The issue of depreciation had already attained finality in the assessment order, and there was no direction from the CIT(A) to disallow it. The Tribunal found no infirmity in the CIT(A)'s order and confirmed it.
Key Issues
Whether the Assessing Officer exceeded his jurisdiction by issuing a rectification order under Section 154 to disallow brought forward unabsorbed depreciation when the issue had already attained finality.
Sections Cited
154, 250, 143(3), 292B
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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JM AND SHRI GAGAN GOYAL, AM ITA No.2052/Mum/2024 (Assessment Year: 2013-14) Income Tax Officer Hickson Dadajee Pvt. Ltd. Room No. 570, Aayakar Mazannine Floor, Bhawan, Mamasaheb Varerkar Bridge, Vs. Churchgate, Mumbai-400 020 Grant Road, S.O., Mumbai-400 007 PAN/GIR No. AAACH 0986 M (Assessee) : (Respondent) Assessee by : Shri Vipul J. Shah Respondent by : Shri P. D. Chougule Date of Hearing : 11.07.2024 Date of Pronouncement : 22.07.2024 O R D E R Per Amit Shukla, J M: The aforesaid appeal has been filed by the Revenue against the order dated 20.02.2024, passed by the National Faceless Appeal Centre (‘NFAC’ for short) and proceedings u/s. 154 of the Income Tax Act, 1961 (‘the Act') for the Assessment Year (‘A.Y.’ for short) 2013-14.
The grounds raised by the Revenue reads as under: 1. "Whether in facts and circumstances of the ease and in law, the Ld CIT(A) has erred in holding the order passed by AO u/s 154 rs 250 dated 31.03.2021 as "bad in law without appreciating the fact that earlier order was inadvertently passed only "u/s 250 of the Income Tax Act & the second order was passed u/s 250 rs 154 of the IT Act" to correct these bonafide mistake occurred and hence the same is covered by the provisions of section 292 B of the Act.
2 ITA No. 2052/Mum/2024 (A.Y. 2013-14) ITO vs. Hickson Dadajee Pvt. Ltd. 2. Whether in facts and circumstances of the case and in law, the Ld. CITIA) has erred in holding the order passed by AO u/s 154 rws 250 dated 31.03.2021 as "bad in law" without appreciating that the computation of income and the revised total income computed in both the orders passed u/s 250 and 250 res 154 of the IT Act respectively is same Le Rs. 3,99,93,825/- 3. Whether in facts and circumstances of the case and in law, the Ld. CITIA) has erred in not adjudicating the matter on merits without appreciating the fact that the assessee had not claimed the brought forward losses of Rs. 3,08,21,712/ in the ITR filed for AY 2013-14. Therefore, the same ought to have been disallowed. 4. The appellant prays that the order of the CIT(A) on the grounds be set aside and confirm the order of the AO.
The brief facts are that the assessee is a private limited company and had filed its return of income for the A.Y. 2013-14 on 01.11.2013. The said return was selected for scrutiny and the assessment order u/s. 143(3) of the Act was passed on 10.03.2016 after making various additions/disallowances. While finalizing the assessment, the ld. A.O. had made huge additions, however the claim of brought forward unabsorbed deprecation was allowed to be set off as the same was not a new claim of deduction, but the claim was duly allowed by the AO after verification and in accordance with the provisions of the act. Aggrieved by the additions and disallowances made in the assessment order u/s. 143(3 passed on 10.03.2016, the assessee has filed an appeal before the ld. CIT(A) and the ld. CIT(A) vide order dated 28.12.2018 has upheld the order of the ld. A.O. including all the additions.
3 ITA No. 2052/Mum/2024 (A.Y. 2013-14) ITO vs. Hickson Dadajee Pvt. Ltd.
Thereafter, the assessee preferred second appeal before the Tribunal and the Tribunal allowed certain claim of the assessee and remanded the matter back to the file of the A.O. in respect of one of the disallowance for verification of the claims. The Tribunal’s order was passed on 14.10.2020. Till that date, there were no proceedings which were initiated by the ld. A.O. for rectification of any error. Now after passing of the order of the Tribunal on 14.12.2020 and after giving effect to the order, the ld. A.O. issued a notice u/s. 154 of the Act on 25.03.202 asking the assessee why the claim of the unabsorbed depreciation, allowed by the then ld. A.O. should not be disallowed. The statutory time limit to rectify the error u/s. 154 had otherwise ended on 31.03.2020. However, due to Covid-19 Pandemic, the time limit for passing the order was extended upto 31.03.2021. It is seen that during the entire appellate proceedings, before the ld. CIT (A) and the Tribunal there was no issue relating to unabsorbed depreciation which was allowed and set-off by the ld. A.O. against various additions. Now ld. A.O. has issued a notice on 25.03.2021 u/s. 154 through email asking the assessee to submit the explanation before 31.03.2021, as to why unabsorbed depreciation should be allowed. The time for compliance was within six days from the date of notice, out of which two days were holidays. Since the issue pertained to Financial year 2012-13 and was more than 8 years old and also
4 ITA No. 2052/Mum/2024 (A.Y. 2013-14) ITO vs. Hickson Dadajee Pvt. Ltd. there was complete lock down in the country, the assessee could not reply on time and, accordingly, the assessee filed the report through email on 09.04.2021. However, the assessee received email on 13.04.2021 that the order has already been passed. All these facts have been captured by the ld. CIT(A) in his order at para 3. For the sake of ready reference the same is reproduced here in under: 3. Before delving further it is of importance that the facts of the case are narrated and therefore the same are summarized as under: 1. The appellant had filed its return of income for A.Y.2013-14 on 01.11.2013. It is an admitted fact that the brought forward unabsorbed depreciation of earlier years, has not been reported by the assessee in the said ITR. 2. In this case a scrutiny assessment u/s.143(3) was completed vide Assessment Order dated 10.03.2016. It is seen there from that the AO has allowed the brought forward unabsorbed depreciation for A.Y. 1995-96 to A.Y.2007-08 of Rs.3,08,21,712 in the computation of income on the last page of the said Assessment Order. 3. The additions made in the said Assessment Order have been contested by the assessee before the Ld. CIT(A) and the Ld. CIT(A) vide his Order u/s.250 dated 28.12.2018 has partly allowed the appeal of the assessee by granting some reliefs. 4. Further thereto, the assessee filed an appeal before the Hon’ble ITAT raising two grounds namely Stamp duty and registration fee of tenancy agreement and the second ground of disallowance of expenditure. The Hon’ble ITAT vide its Order dated 14.12.2020 has allowed the former ground no.1 and restored the later ground to the Assessing Officer. 5. Unconnected to the Orders of the appellate authorities as above, the AO has issued a notice u/s.154 of the Act dated 25.03.2021 and stated therein that the brought forward unabsorbed depreciation for A.Y. 1995-96 to A.Y. 2007-08 of Rs.3,08,21,712 has been allowed mistakenly in the Assessment
5 ITA No. 2052/Mum/2024 (A.Y. 2013-14) ITO vs. Hickson Dadajee Pvt. Ltd. Order and that the mistake is apparent from records and that the same is proposed to be rectified. 4. Subsequent to the notice u/s.154 mentioned above, curiously, in this case there are two Orders of the AO dated 31.03.2021 and the same are discussed here below: 4.1 The above order bears the DIN 20131398465 and has been forwarded to the assessee vide ITO’s letter dated 13.04.2021. The said Order of the AO is the consequential order giving effect to the Ld. CIT(A)’s Order u/s 250 of the Act dated 28.12.2018. The said Order is enclosed as Annexure-A 4.2 The second order also bears the same DIN 20131398465 but has been forwarded to the assessee after about Seven days, vide ITO’s letter dated 21.04.2021. The second Order of the AO is titled as “Order u/s. 250 r.w.s. 154 of Order u/s.143(3) dated 10.03.2016 of the Act” and vide this Order the AO, apparently, has passed “a Composite Order” combining the order giving effect to Ld. CIT (A)’s order and rectification order u/s 154 of the Act, together. The said Order is enclosed as Annexure-B. 4.3 So in essence, the AO passes two consequential Orders to give effect to the Ld.CIT(A) Order dated 28.12.2018 and, apparently, both bear the same date i.e., 31.03.2021. It is interesting to note that even in the consequential order referred to in Para 4.1, above, the AO disallows the brought forwarded losses of Rs.3,08,21,712, whereas there is no such direction by the Ld. CIT(A). • In the other Order which is titled as “Order u/s.250 r.w.s. 154 of Order u/s.143(3) dated 10.03.2016 of the IT Act, 1961” and bears the same date of 31.03.2021, the AO simultaneously gives effect to the CIT(A) Order and also rectifies u/s.154, the Order u/s.143(3) dated 10.03.2016. Vide this order the AO disallows the brought forward losses of Rs. 3,08,21,712 for A.Y. 1995-96 to A.Y. 2007-08, as they are not claimed in the ITR filed for A.Y. 2013-14. In this order, the said amount is referred to as unabsorbed depreciation in para 2 & 3 correctly and later the said amount is referred to as brought forward losses wrongly. • It is curious to note that the AO vide his letter dated 21.04.2021 states that his earlier letter dated 13.04.2021 has been sent wrongly and is to be ignored and the letter dated
6 ITA No. 2052/Mum/2024 (A.Y. 2013-14) ITO vs. Hickson Dadajee Pvt. Ltd. 21.04.2021 and its attachment be treated in place of earlier reference. 5. The ld. CIT (A) after considering the entire submission and the facts and circumstances of the case, observed and held as under: I find that there is considerable merit in Assessee’s 6.5 submissions that the assessee was provided with only three effective days to respond and the fact that the period under consideration happens to be during the pandemic of Covid-19, makes the situation grim. 6.6 Be that as it may, the assessee has vide its fifth and sixth grounds challenged the impugned order on “legality and validity of order passed u/s.250 r.w.s.154 of the Act” and regarding “passing the order without following guidelines and instructions of CBDT” respectively. 6.7 In this regard, I have gone through the appellant’s contentions as detailed in para 2.21 to 2.35 with regard to the above two grounds of appeal, vide its Written Submission dated 13.01.2024, which is reproduced in para 5 above. 6.8 It is noted that the AO has forwarded vide his letter dated 13.04.2021, an Order u/s.250 of the Act dated 31.03.2021, giving consequential effect to the Ld.CIT(A)’s Order dated 28.12.2018, as detailed in Para 4.1 above. This Order is defective in so much as the Order disallows the brought forward losses of Rs.3,08,21,712 for A.Y. 1995-96 to A.Y. 2007-08, since there is no direction of the Ld.CIT(A) to that effect. The AO while passing consequential Order giving effect to the Ld.CIT(A)’s Order cannot address the issues which have not been dealt with by the Ld.CIT(A) in his Order. Furthermore, the AO is also mistaken in so much as the said amount does not represent brought forward losses but is the unabsorbed depreciation and this indicates lack of application of mind. Needless to add, the AO ought to restrict himself to the issues dealt by and the directions of the Ld. CIT (A), while passing the consequential order giving effect to the Ld. CIT (A)’s Order and accordingly, the AO is directed to do so in this case. 6.9 Subsequently, the AO has forwarded another Order which is dated 31.03.2021, vide his letter dated 21.04.2021, and is titled as “Order u/s 250 r.w.s. 154 of Order u/s143(3) dated 10.03.2016”, as detailed in Para 4.2 above, and requests the
7 ITA No. 2052/Mum/2024 (A.Y. 2013-14) ITO vs. Hickson Dadajee Pvt. Ltd. assessee to ignore the earlier Order forwarded vide his letter dated 13.4.2021. At the outset, there is no provision in the Income Tax Act for passing a “compsite order” combining Consequential Order giving effect to the CIT(A)’s Order u/s.250 of the Act and rectification order u/s.154 of the Act. The AO ought to have past separate Orders, one for consequential order giving effect to the CIT(A)’s Order and the second for rectification, which the AO has failed to do. Once again, even in this Order, the AO mistakenly refers the amount of disallowance of Rs. 3,08,21,712 as brought forward losses and not as the unabsorbed depreciation, indicating non application of mind. 6.10 Further, once an order under the stamp and seal of an Officer along with a DIN has been duly served upon the assessee, the statute does not provide for any provision to request the assessee to ignore such an Order, particularly when the same is accompanied by the computation sheet and also notice of demand u/s.156 of the Act bearing the DIN. Subsequent thereto the only recourse left for the Officer is to rectify or make amends to the said Order, by the due process as prescribed under the provisions of the Income Tax Act. 6.11 It is quite curious to note that both the above Orders, one forwarded vide his letter dated 13.04.2021 and the other vide his letter dated 21.04.2021, bear the same DIN which has been entered “manually”. 6.12 In view of the above facts and circumstances, one finds that there is considerable merit in both these grounds raised by the appellant i.e., “legality and validity of order passed u/s.250 r.w.s.154 of the Act” and regarding “passing the order without following guidelines and instructions of CBDT” and accordingly, both these grounds of appeal are allowed. 7. In summation, the impugned Order, namely, the Order dated 31.03.2021, titled as “Order u/s 250 r.w.s. 154 of Order u/s 143(3) dated 10.03.2016” is held to be bad in law and invalid, on procedural and technical grounds and since the said Order has been quashed and treated as invalid in limine, the first, fourth and fifth grounds raised by the assessee which are regarding the merits of the disallowance of unabsorbed depreciation are not deliberated upon, since the exercise renders itself an academic one.
8 ITA No. 2052/Mum/2024 (A.Y. 2013-14) ITO vs. Hickson Dadajee Pvt. Ltd. 6. After considering the aforesaid facts and the aforesaid order of the ld. CIT (A), it is seen that the ld. A.O. has transgressed his jurisdiction while giving effect to the order of the ld. CIT (A) as he cannot go beyond the directions given by the ld. CIT (A) in the garb of rectification u/s 154. The aforesaid observation and the finding of the ld. CIT (A) clearly shows that the ld. A.O. has exceeded his jurisdiction by disallowing the claim of brought forward unabsorbed depreciation by rectifying the order giving effect, because the issue of claim of brought forward unabsorbed depreciation had already attained finality and there was no such direction by the Ld. CIT (A) to disallow. Thus, post order of Ld CIT (A) and after giving effect to the order, AO cannot rectify such order u/s 154 as there was no mistake apparent from record. We do not find any infirmity in the order of the ld. CIT (A) and the same is confirmed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 22nd July, 2024.
Sd/- Sd/- (Gagan Goyal) (Amit Shukla) Accountant Member Judicial Member Mumbai; Dated : 22/07/2024 Roshani, Sr. PS
9 ITA No. 2052/Mum/2024 (A.Y. 2013-14) ITO vs. Hickson Dadajee Pvt. Ltd. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER,
(Dy./Asstt. Registrar) ITAT, Mumbai