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Facts
The Assessee filed an appeal against the rectification order passed by the AO under Section 154 of the Income Tax Act. The rectification was based on the same reasons for which reassessment proceedings under Section 147 were dropped.
Held
The Tribunal held that the AO's attempt to rectify the assessment order under Section 154 using the same grounds for which reassessment proceedings were dropped constituted an issue that required debate and was not a mistake apparent from the record. Therefore, the rectification order was bad in law.
Key Issues
Whether the rectification order passed under Section 154, based on grounds that were previously considered and dropped during reassessment proceedings, amounts to a "mistake apparent from record".
Sections Cited
154, 143(3), 148, 147, 151, 149(1)(b), 155, 292B, 148A(b)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “A” NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI AVDHESH KUMAR MISHRA
आदेश /O R D E R PER C.N. PRASAD, J.M.
This appeal is filed by the Assessee against the order of the Ld. CIT(Appeals)-NFAC, Delhi dated 23.10.2024 for the AY 2015-16 arising out of the rectification order passed u/s 154 of the I.T. Act. The assessee in its appeal raised the following grounds:
1. “1.1 That the Ld. CIT(A) erred in passing the order, upholding the actions of the Ld. AO, without granting proper opportunity of being heard to the Appellant, by declining request for adjournment in respect of scheduled hearing on 05.12.2022. 1.2 That the Ld. CIT{A) erred in law in holding that the failure of Ld. AO to issue Notice of Demand u/s 156 of the Act along with the impugned order u/s 154 constitutes technical lapse curable u/s 292B of the Act.
2. That on facts and in law the Ld. Commissioner of Income Tax (Appeals) failed to consider and appreciate that the impugned order passed by Ld. AO u/s 154/143(3) of the Act dated 02.03.2022 is bad in law, ought to be quashed , for the following reasons: (i) That the impugned order passed by Ld. AO, based on a singular notice, issued during COVID duly complied with, without allowing proper opportunity of being heard, is against the principle of natural justice, (ii) That the impugned order has been passed without specifying the mandatory DIN on the face of the order; (iii) That the proceedings u/s 154 of the Act initiated vide Notice dated 26.04.2021 do not constitute mistake apparent from record, for the reason that the same issue was examined during assessment proceedings and constitutes change of opinion; (iv) That the addition made by the Ld. AO is not pursuant to mistake apparent from record particularly as Ld. AO had issued Notice u/s 148 of the Act dated 30.06.2021 for the reassessment.
3. That without prejudice to the aforesaid grounds of Appeal it is contended on merits, that the Ld. AO while making the impugned addition of Rs. 3,56,75,993/-, failed to consider and appreciate that the method of Accounting regularly followed had been accepted by Revenue in accordance with which Appellant claimed deduction based on actual expenditure incurred in proportion to area sold.
4. That the appellant craves, leave to add, alter, amend, substitute, forgo, any or all the grounds of appeal before or at the time of hearing.”
Ld. Counsel for the assessee, at the outset, submitted that in this case assessment was completed u/s 143(3) on 28.12.2017.
Subsequently notice u/s 148 was issued on 30.06.2021 which is placed at page 33 of the PB along with the approval and reasons recorded for reopening the assessment which are placed at pages 34 to 36. Ld. Counsel referring to page 35 of the Paper Book which are the reasons recorded for reopening of assessment submitted that the AO proposed to reopen the assessment on the ground that a sum of Rs.3,56,75,993/- has escaped assessment. Ld. Counsel submitted that the basis for coming to such conclusion was stated in the reasons that the assessee company has created a provision of Rs.9.25 crores for construction expenses by passing a general entry on 31.03.2014, the assessee has claimed an amount of Rs.4,12,38,088/- on account of provision for expenses disallowed last year now allowed. Ld. Counsel submitted that subsequently the reassessment proceedings were dropped on 30.07.2022 which intimation is placed at page 39 of the Paper Book, wherein the AO had stated that the reasons mentioned for reopening of assessment pertains to the provision for expenses and the same are not falling under the definition of “asset” and therefore it is not a fit case for issuance of notice and accordingly the reopening proceedings were dropped.
Ld. Counsel for the assessee further submitted that having dropped the reassessment proceedings which were initiated u/s 147 of the Act, the Assessing Officer issued notice u/s 154 to rectify the assessment order for the very same reasons for which the assessment was sought to be reopened u/s 148 of the Act. The Ld. Counsel submitted that the 154 notice is placed at pages 1 to 4 of the Paper Book. Ld. Counsel for the assessee submitted that whether the provision for expenses disallowed in earlier years cannot be claimed for previous year, requires analysis of a legal issue and cannot be treated as a mistake apparent on record. An issue that necessitates a debate on the interpretation of the provision of law in the light of available facts cannot form a mistake apparent from records for which provisions of section 154 can be invoked. Reliance was placed on the decision of the Hon’ble Supreme Court in the case of CIT vs. Keshri Metal Pvt. Ltd. (104 Taxman 360) (SC). Ld. Counsel for the assessee further submitted that the Hon’ble Supreme Court in the case of T.S. Balaram, ITO vs. M/s Volkart Bros. (82 ITR 50) (SC) held that a mistake apparent on record must be an obvious and patent mistake and not some which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. Ld. Counsel for the assessee further placing reliance on the decision of the Apex Court in the case of CIT vs. Hero Cycles 4 Pvt. Ltd. (228 ITR 463) submitted that the Hon’ble Apex Court held that “a point which was not examined on facts or in law cannot be dealt with as a mistake apparent on record”. Reliance was also placed on the decision of the jurisdictional High Court in the case of CIT vs. Hindustan Cycles & Tubes Ltd. (147 Taxman 555) and the Hon’ble Madras High Court in the case of CIT vs. MRM Plantation Pvt. Ltd. (240 ITR 660).
On the other hand, the Ld. DR strongly supported the orders of the authorities below.
Heard rival contentions, perused the orders of the authorities below and the case laws relied on. In this case the assessment u/s 143(3) was completed on 28.12.2017 determining the loss of the assessee at Rs.2,04,16,710/- under normal provisions of the Act and book profits u/s 115JB at Rs.1,75,39,634/-. Subsequently notice u/s 148 was issued on 30.06.2021 along with the following reasons for reopening of assessment u/s 147 of the Act:
Subsequently by order dated 30.07.2022 the AO dropped the reopening proceedings holding that this is not a fit case for issue of notice u/s 148 of the Act observing as under:
Subsequently the Assessing Officer issued notice u/s 154/155 of the Act dated 26.04.2021 stating as under:
On perusal of the notice issued u/s 154 of the Act we observed that the AO at the beginning in paragraph 1 stated that assessment made u/s 143(3) requires to be amended as there is a mistake apparent on record within the meaning of section 154 of the Act. We also observed that in the last paragraph at page 4 of the very said notice the AO stated that on this issue income of Rs.3,56,75,993/- has escaped assessment resulting in loss of Revenue. Therefore, it is evident from reading of the notice itself that the AO having dropped the proceeding u/s 148 proceeded to invoke the provisions of section 154 of the Act proposing to rectify the assessment order on the same reasons on which 148 notice was issued to the assessee. The whole exercise of the AO in issuing notice u/s 154 appears to be on the basis of the audit objection and nothing more. On careful reading of the show cause notice and the proposal made in the 154 notice by the AO can never be said to be an apparent mistake crept in the assessment order.
The constitution bench of Hon’ble Supreme Court in its land mark judgment of Hari Vishnu Kamath vs. Syed Ahmed Ishaque AIR 1955 SC 233, quoted the observation of Chagla, CJ. In Batuk K. Vyas vs. Surat Borough Municipality AIR 1953 Bom. 133, that no error can be said to be apparent on the face of the record if it is not manifest or self evident and requires an examination or argument to establish it.
In Satya Narayan Laxminarayan Hegde vs. Mallikarjun Bhavanappa Triumale AIR 1960 SC 137, the Hon’ble Supreme Court stated as to what can be an error apparent on the face of the record as under:
“An error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions can hardly be said to be an error apparent on the face of the record”. In the case of CIT vs. Keshri Metal Pvt. Ltd. (supra), the Hon’ble Supreme Court held as under: “under the provisions of section 154 there has to be a mistake apparent from the record. In other words a look at the record must show that there has been an error and that error may be rectified. The Ld. Counsel for the Revenue has not been able to specify us that it shows any apparent error from the record. Reference to documents outside the record and the law is impermissible when applying the provisions of section 154”. 14
The Hon’ble jurisdictional High Court in the case of CIT vs. Hindustan Cycles and Tubes Ltd. (supra) held as under:
“The provision of section 154 of the Act clearly indicate that it is only a mistake apparent on record which can be rectified by the AO and accordingly could amend the order of assessment”.
Determination of controversial or debatable issues in exercise of this rectification powers would not be permissible. The Hon’ble Madras High Court in the case of MRM Plantations Pvt. Ltd. (supra) held as under:
“The mistake is not to be a mistake which requires in depth proving to discover, but it is a mistake which is apparent from the record. The power conferred by this provision is only to unable the authorities to rectify the “Apparent” mistakes in the record. The record referred to in the record which the authorities are required to examine for the purpose of rectifying the mistakes in the orders mentioned in sub clauses (a), (b) & (c) of section 154(1) of the Act”.
The ratios of all these decisions squarely apply to the assessee’s case. Therefore, respectfully following the above decisions, we hold that 154 order passed by the AO dated 02.03.2022 is bad in law as the adjustment made in the 154 order is beyond the scope of the provisions of section 154 and it cannot be said to be a mistake apparent on record. Accordingly the order passed u/s 154 of the Act is hereby quashed.
In the result, appeal of the Assessee is allowed.
Order pronounced in the open court on 30.10.2025