ITAT Quashes Rectification Order for Being Beyond the Scope of Section 154
The Income Tax Appellate Tribunal (ITAT), Delhi, recently set aside a rectification order as it did not fall within the provisions of Section 154 of the Income Tax Act, 1961.
The assessment was completed under Section 143(3) on 28.12.2017. The AO then sent a notice under section 148 on 30.06.2021, to reopen the assessment, claiming that the amount of Rs 3,56,75,993, escaped the assessment. However, later on, the AO dropped the reassessment proceedings on 30.07.2022, stating that the provision for expenses did not fall under the definition of “asset”, so the notice cannot be issued in such a case.
Even though the reassessment proceedings were dropped, the AO issued a notice under section 154 to rectify the assessment order for the same reasons for which the assessment was reopened. The assesse filed an appeal before the CIT(A), which upheld the decision of the AO. Therefore, the assessee filed an appeal before the ITAT, Delhi.
The assessed company argued that the CIT(A) did not give them a fair chance to be heard regarding the rectification issue. The assesse also argued that whether the provisions of expenses disallowed in earlier years cannot be claimed for previous years requires analysis of a legal issue and cannot be considered a mistake apparent on the record. The assesse also cited the decision of the Supreme Court in the case of T.S. Balaram, ITO vs. M/s Volkart Bros. (82 ITR 50) (SC), which ruled that a mistake apparent on record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points.
The ITAT went through the order dated 30.07.2022, through which the AO had dropped the reopening proceedings and the notice dated 26.04.2021, and observed that the AO issued the notice on the basis of the audit objection.
The ITAT referred to various Supreme Court decisions, including Satya Narayan Laxminarayan Hegde vs. Mallikarjun Bhavanappa Triumale AIR 1960 SC 137, CIT vs. Hindustan Cycles and Tubes Ltd. (supra), to explain that Section 154 could only be invoked for correcting apparent mistakes.
The Tribunal held that the order dated 02.03.2022 is bad in law and the adjustment made in the order issued under Section 154 is beyond the scope of the provisions of Section 154. Therefore, the order under section 154 of the Act was set aside by the tribunal.
Case Citation: Baani Landbase Pvt Ltd Vs DCIT (ITAT Delhi); I.T.A No.5944/Del/2024; 30/10/2025; 2015-16
