AJAY KUMAR GHOSH,PATNA vs. ACIT, CIRCLE-4, PATNA

The assessee has taken eight grounds of appeal, but in brief his grievance is that the ld. CIT(Appeals) has erred in upholding the rectification order passed under section 154 of the Income Tax Act.

Brief facts of the case are that the assessee is a Civil Contractor. He has filed his return of income on 07.10.2013 showing total income of Rs.9,59,250/-. The case of the assessee was selected for scrutiny assessment and an assessment order under section 143(3) of the Income Tax Act was passed on 30.01.2016 determining the total taxable income at Rs.9,69,220/-. The ld. Assessing Officer has initiated a proceeding under section 154 of the Income Tax Act. He observed in his order dated 28.06.2019 passed under section 154 of the Income Tax Act that the intention to rectify the assessment order was intimated to the assessee vide a notice dated 18.12.2018 and the copy of this notice has been placed on record at page no. 13 of the paper book. In the alleged show-cause notice, the ld. Assessing Officer has proposed the rectification under two heads and those proposals contained in this alleged notice read as under:- Assessment Year: 2013-2014 Ajay Kumar Ghosh “Nature of mistake proposed to be rectified:- On perusal of assessment record for A.Y. 2013-14, it has been found from bank account statement of SBI, Branch Patna Account No. 61167925284 revealed that payments were made through bearer cheque to different persons for supply of materials on different dates. Why these amount should not be disallowed u/s 40A(3). In this case you had paid Rs.4,97,700/- to Subodh Kumar and Rs.95,000/- to Kanchan Ghosh for labour payment but TDS not deducted on it. Hence, the same is required to be added back to total income of the assessee”.

The ld. Assessing Officer has observed that the assessee did not appear in response to the show-cause notice and accordingly he passed the rectification order. He made an addition of both these amounts to the total income of the assessee. In this way, he enhanced the taxable income to Rs.23,35,920/- as against the original determined taxable income of Rs.9,68,270/-. Dissatisfied with this action, the assessee carried the matter in appeal but ld. CIT(Appeals) concurred with the ld. Assessing Officer.

The ld. Counsel for the assessee took us through page 8 of the paper book and submitted that the assessee has filed an application to the Revenue praying for supply of the evidence to demonstrate that notice Assessment Year: 2013-2014 Ajay Kumar Ghosh dated 18.12.2018 was served upon the assessee. He also prayed that kindly supply me the mode of communication of notice as to how the notice was served to the assessee. In response to the application, ld. DCIT/ACIT, Circle-4, Patna has informed as under:- (a) As per the office record, notice under section 154 has been issued on 18.12.2018. Further, pursuant to the notice, order u/s 154 has been passed on 28.06.2019.

On the strength of this information, ld. Counsel for the assessee submitted that no notice was ever served upon the assessee proposing the alleged modification of the taxable income.

On the other hand, ld. Sr. D.R. relied upon the order of the ld. Assessing Officer. Assessment Year: 2013-2014 Ajay Kumar Ghosh 8. We have duly considered the rival contentions and gone through the record carefully. The impugned order passed under section 154 and confirmed by the ld. CIT(Appeals) is not sustainable for two reasons:- (a) The power of rectification under section 154 of the Income Tax Act can be exercised only when the mistake, which is sought to be rectified, is an obvious and patent mistake, which is apparent from the record, and not a mistake which requires to be established by argument and a long-drawn process of reasoning on points on which there may conceivably two opinions. The items selected by the ld. Assessing Officer were debatable issues whether a disallowance under section 40A(3) could be made or not. It requires evidence as to how payments in cash were made by the assessee. Similarly the other item could not be completed without an inquiry. Such type of addition cannot be made after scrutiny assessment by way of 154 rectification order. On the simple reason, this order of the ld. Assessing Officer is not sustainable.

(b) The ld. Assessing Officer has not given any notice to the assessee before carrying Assessment Year: 2013-2014 Ajay Kumar Ghosh out the alleged rectification exercise. Only the copy of the notice is available but there is no evidence to the Revenue when the notice was issued and how it was served whether through post, affixture or through any other mode. In view of this, the order passed under section 154 is not sustainable.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 9.10.2023.