INCOME TAX OFFICER, JAIPUR V. VINOD KUMAR JHARCHUR HUF, JAIPUR

ITA 255/JPR/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0495 (ITAT-JAIPUR)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 10-10-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 15-11-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Rectification of order; Opportunity of being heard; Audit objection; Principle of natural justice; Difference of opinion; Valuation report; Change of opinion; Reassessment proceedings
• Section: 147; 54; 263; 154; 44AD; 143(3); 54F; 143(1); 22; 153C

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oaJh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la- @ITA No. 255/JP/2021 fu/kZkj.k o"kZ@Assessment Year :2014-15 Income Tax Officer, Jaipur. cuke Vs. Vinod Kumar Jharchur HUF 1840, Bara Gangaur Ka Rasta Johari Bazar, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEHV2858M vihykFkhZ@Appellant izR;FkhZ@Respondent jktLo dh vksj ls@Revenue by: Ms. Monisha Choudhary -JCIT fu/kZkfjrh dh vksj ls@Assessee by : Shri Nikhelesh KatariA-C.A. lquokbZ dh rkjh[k@Date of Hearing :11/10//2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 18/10/2022 vkns'k@ORDER PER: DR. S. SEETHALAKSHMI, J.M. This appeal is filed by the Revenue aggrieved from the order of the National Faceless Appeal Centre, Delhi, [herein after referred to as “NFAC/ld. CIT(A) ] for the assessment year 2014-15 dated 17.09.2021which in turn arises from the order passed by the Income Tax Officer, Ward-1(1), Jaipur passed under Section 143(3) of the Income Tax Act, 1961 (in short 'the Act') dated 28.06.2016. 2. The Revenue has marched this appeal on the following grounds of appeal:- “1. Whether on the facts and in circumstances of the case the ld. CIT(A) NFAC was justified in deleting the addition of Rs. 36,58,811/- made by the AO u/s 54 on 2 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF sale of property without appreciating that the addition was made after giving proper opportunity of being heard vide notice u/s 154/155 dated 18.06.2018 to the assessee. The appellant crave the right to amend alter or add to any of the grounds of appeal given above.” 3. The brief facts of the case are that the assessee is an HUF, which derives income from gems stone business, rental and interest income. The assessee sold his share in residential house property and invested the sale proceeds in new residential house property. The assessee e-filed its return of income declaring total income at Rs. 50,09,160/- on 30.07.2014, which was processed u/s 143(1) of the Act. The AO arrived the findings that the assessee derives income from gems stone business, rental and interest income. During the year under consideration, the assessee has shown income from house property at Rs. 2,33,107/- after claiming deduction u/s 24(a) of Rs. 99,903/-. The assessee has declared net profit at Rs. 9,133/- u/s 44AD of the IT Act, 1961 on total turnover of Rs. 1,14,067/-/ Besides, the assessee has declared interest income at Rs. 3,69,437/- under the head income from other sources. Thus, the assessee has shown returned income at Rs. 6,11,677/- after claiming deduction u/s 80C, 80D and 80ITA of Rs. 1,02,520/-. Subsequently, the case was selected for scrutiny. After considering the fact of the case and details filed by the assessee, the returned income as declared by the assessee accepted in an order passed u/s. 143(3) of the Act on 28.06.2016. Later on vide order dated 03.07.2018, the Assessing Officer rectified the assessment order stating that for the A.Y. 2014-15, excess exemption under section 54 of the Act of Rs. 61,54,101/- was allowed 3 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF instead of Rs. 24,29,590/- which was rectified by applying the provision of section 154 of the Act. 4. The assessee challenged the action of the AO before the CIT(A) on both counts i.e. first that exemption so disallowed is not amenable within the provision of rectification proceedings as provided in section 154 of the Act and second that no proper opportunity of being heard was given to the assessee which is also the pre-condition to pass an order u/s. 154 of the Act. The ld. CIT(A) allowed the appeal of the assessee holding that the act of the assessing officer in not issuing any notice or giving an opportunity to the appellant before rectifying the assessment is bad in law and against the principle of natural justice and the same is violative of provision of section 154(3) of the Act. Aggrieved, from the said order of the ld. CIT(A)/NFAC the revenue has filed this appeal challenging that the action of the ld. CIT(A)/NFAC deleing the addition which was made after giving opportunity of being heard to the assessee vide notice dated 18.06.2018 and thus the finding was not correct and the order was passed after giving proper opportunity of being heard. 5. Before we proceed to deal with the merits of the case of the revenue, we would like to examine the findings of the ld. CIT(A) in an appeal of the assessee. The relevant findings are reproduced as under:- “ 5. I have duly considered the grounds of appeal and the statement of facts uploaded by the appellant. On perusal of order u/s. 143(3) of the Act, it is seen that the Assessing Officer had accepted assessee's returned income as 4 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF assessed income. Thus he allowed the exemption claimed u/s. 54 of Rs.61,54,101/-in totality. However, he subsequently disallowed an amount of Rs.37,24,511/- as not eligible for exemption u/s. 54 of the Act without giving any reason for the same while passing the rectification order. The issue of disallowance has neither been discussed in order passed u/s. 143(3) nor in order u/s. 154. The appellant has claimed in the statement of facts that he sold his share in residential house property and invested the sale proceeds in new residential house property. It has been contended that the complete details of land purchased and construction made were submitted during assessment proceeding and checked by the A.O. Subsequently the A.O. rectified the order to only allow the land cost and did not allow the construction cost without assigning any good reason. The allowability of an amount of Rs.24,29,590/- on account of land cost as exemption u/s. 54 instead of the earlier allowance of Rs.61,54,101/- on account of land and building cost does not appear to be a mistake apparent from the record which falls under the purview of section 154. If at all there is a mistake, it has to be brought out and logically discussed in the rectification order, so that it could be determined as to whether it was a mistake apparent from the record or a change of opinion. Since the A.O. has not brought out the mistake apparent from the record, it is held that the disallowance was not amenable to the provision of section 154. The appellant has also contended that it was not given an opportunity to present its case before withdrawal of the exemption which was allowed earlier. Section 154(3) of the Act mandates a reasonable opportunity of being heard. The relevant portion of the said section is reproduced as under: "An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee or the deductor [or 5 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF the collector], shall not be made under this section unless the authority concerned has given notice to the assessee or the deductor [or the collector] of its intention so to do and has allowed the assessee or the deductor [or the collector] a reasonable opportunity of being heard". Thus, the act of the Assessing Officer in not issuing any notice or giving an opportunity to the appellant before rectifying the assessment is bad in law and against the principle of natural justice. The rectification order u/s. 154 of the Act in this case, is therefore not sustainable, being in violation of section 154(3). It is therefore quashed and the addition made consequently stands deleted. All the grounds of appeal are deemed to be allowed.” 6. The ld. AR of the assessee based on the above findings of the ld. CIT(A) / NFAC submitted that the issue of merits as well as on technical both grounds deliberated by the ld. CIT(A) and the appeal of the assessee was allowed on both the grounds. The revenue did not challenge the findings on the merits of the appeal but have filed an appeal only on technical ground which is not sustainable and deserves to be dismissed. Alternatively, the ld. AR of the assessee submitted that if the appeal of the revenue is considered on technical ground even though they have not challenged the finding of the ld. CIT(A) on merits then in that case he also be allowed to raise their submission on merits under rule 27 of ITAT Rules 1963.The ld. AR of the assessee with the written arguments in support of all the grounds demonstrated that the ld. AO under the pretext of section 154 of the Act is not permissible to re-open the completed assessment and the ld. AO in his notice not demonstrated as to why and how there exists a mistake apparent on records. So far as 6 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF the appeal of the revenue the ld. AR of the assessee submitted his written submission and the same is extracted here in below:- “ 1.1 Appeal of the department infructuous: At the very outset it is submitted that the appeal of the department has become infructuous for the reasons to be submitted during the course of hearing. 1.2.1 Assessment already completed u/s 143(3) taking into consideration all facts and circumstances: At the outset it is submitted that in the present matter the assessment has been completed u/s 143(3) of the Act and the order is placed at PB 1- 2. As would be seen from the assessment order, complete facts and information relating to the income declared by the assessee was duly brought on record. The observation of the ld. AO in para 1 of the order is worth mentioning: “.....In compliance of these notices, Sh. Vivek Chatter CA and AR of the assessee attended from time to time and filed required details. Books of account, bills and vouchers were produced, which were examined on test check basis. The issue was discussed with him” (para 1 page 1 of AO) Therefore, it is clear that the complete details relating to the assessment of the assessee were brought on record.This is also clear from the following submissions which were made before the ld. AO as has been detailed below. 1.2.2.1 Specific details of deduction u/s 54 were brought on record by the assessee: It is also submitted that the specific details relating to exemption u/s 54 were duly brought on record by the assessee. We may reproduce the extract of submission dt.19-5-2016 (PB 3) which read as under: Thus, it may be seen that the assessee has fully explained the complete deduction claimed u/s 54 of the Act supported with the bills in support of the same. 1.2.2.2 Copy of valuation report, forming basis of rectification proceedings, was duly before the ld. AO in assessment proceedings u/s 143(3): It is very important to note that the valuation report of the architect was duly brought on record by the 7 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF assessee before the ld. AO by the submission of the assessee (PB 3) and a copy of the valuation report is placed at PB 14-22. Interestingly, the same valuation report is made basis for present rectification proceedings. 1.2.2.3 Copy of sale deed on which deduction is claimed duly submitted in assessment proceedings u/s 143(3):We may also submit that the sale deed which is forming basis of deduction claimed by the assessee u/s 54 of the Act was duly submitted before the ld. AO. The extract from the submission dt.7-3-2016 is as under (PB 7): Thus, the sale deed was also before the ld. AO through above submission. 1.2.2.4 Sale deed itself mention that some shops were part of the property: It is also relevant to note that apart from the report of the valuer even the sale deed mention the existence of shops in the house property in question. The relevant extracts of the sale deed are as follows: (PB 44 last para) 8 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF (PB 46 first para) Therefore, even the sale deed clearly mentions that the property was residential cum commercial property. 1.2.3 The ld. AO must have considered the complete details filed by the assessee: As the complete information and documents were duly brought on record, there must be a reasonable assumption that the ld. AO has considered the complete facts and circumstances of the case before completing the assessment u/s 143(3) of the Act allowing the complete exemption claimed by the assessee. 1.2.4 No contrary finding to suggest that the AO was not aware of house property being residential cum commercial property: As already submitted that the assessee has submitted the complete information and documents in the original proceedings itself. Now before initiating of reassessment proceedings the ld. AO has not bring anything on record to suggest that in the original proceedings the ld. AO was not aware the correct nature of the propertyi.e. residential cum commercial as not only the copy of sale deed but also the architect report which clearly mentions the property details were submitted before the ld. AO 1.3No apparent mistake on record – no rectification proceedings: 1.3.1 AO considered all the relevant facts and circumstances: From above discussion, it is clear that the ld. AO has duly considered all the facts and circumstances. Therefore, it cannot be said that there is any apparent mistake on record and as such initiating of rectification proceedings under the garb of correcting apparent mistake on record is bad in law and on the facts of the present case. At the best the other view which could be possible was to allow exemption u/s 54F of the Act instead of section 54 of the Act which was not resorted to by the ld. AO and as such no rectification proceedings could be initiated u/s 154 of the Act. 1.3.2 Debatable issues cannot be rectified u/s 154 of the Act: It is submitted that whether a proportionate capital gain may be considered in case of residential cum commercial property or not is a highly debatable issue in view of a detailed discussion made above because apparently law nowhere permits the proportionate calculation of capital gain. Even while calculating of proportionate capital gain there may be different interpretation and option possible as has been pointed out 9 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF above and as such multiple views may be taken. Therefore, such a rectification is never intended to be rectified u/s 154 of the Act which only allows apparent mistake on record to be rectified. 1.4 Sec.154 lacks proper reasoning: As also mentioned by the ld. CIT(A) that the order passed u/s 154 of the Act, we may submit that the rectification order passed by the ld. AO lacks proper reasoning as it is not explained that how there is any mistake apparent on record which is amenable to jurisdiction u/s 154 of the Act. This is also clear from the following submissions that the ld. AO has taken a easiest route just to make addition instead following the process of law. 1.5.1 Deduction can be granted ‘as a whole’ either in section 54 or section 54F – ld. AO already determined the house property to be ‘residential’: We may submit that in the scheme of deduction u/s 54 or 54F of the Act, there is no concept of proportionate deduction. While section 54 is applicable in cases where the assessee transfers a ‘residential’ property, deduction u/s 54F can be claimed where the assessee transfers ‘other than residential’ property. The provisions of the Act nowhere envisage a third situation which the ld. AO tried to work out. In the present case, once the erstwhile AO has found the house property to be residential and accordingly allowed deduction u/s 54 of the Act, subsequently the ld. AO cannot apply a new theory by applying a proportionate deduction on assumptions and presumptions just to assume jurisdiction u/s 154 of the Act and that too to allow proportionate deduction which is nowhere envisaged under the law. 1.5.2 Arbitrary action of ld. AO - no concept of proportionate deduction in law: It is submitted that the action of the ld. AO in allowing of proportionate deduction is completely arbitrary and baseless in as much as section 54 or section 54F do not speak of any proportionate deduction in case there is mix property like in the present case. 1.5.3 No mechanism of calculation in case of mix property – whether to be on cost basis, area basis, sale value basis or any factor?We may also submit there is no mechanism in either in section 54 or 54F to calculate deduction in cases of mix house property as the section itself speaks of deduction on the basis of the house property either being residential or other than residential. The ld. AO on his own tried to apply a new mechanism i.e. to take proportionate exemption on the basis of cost of property, which do not find any mention in the relevant provisions of the income tax.Therefore, action of calculating proportionate capital gain itself is bad in law. Even if presuming that he could have calculated proportionate exemption then there is no justification that why there cannot be other method made basis like proportionate sale consideration, the area of property or any other proper method. Thus the action of the AO in considering its own best suited method is bad in law and rightly quashed by the ld. CIT(A) Without prejudice to above: 10 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF 1.6.1 Proportionate deduction on the basis of cost of house property itself is flawed – value of property at the time of transfer is relevant not the cost: It is submitted that the ld. AO proceeded to allow proportionate deduction on the basis of cost of the property which was worked out by the architect in its valuation report which is placed at PB 14-22. Now here we may submit that the exemption is calculated on the basis of sale consideration of the property and the cost of property is considered only for calculating of net capital gain. Even while calculating of proportionate capital gain as per provisions of the Act, sale consideration is taken into consideration and not the cost. 1.6.2 Circumstances or valuation as of 1-4-1981 not relevant for the year 2014 i.e. year of sale: It is to be noted that the valuation report of the architect is of the valuation as of 1-4-1981 while the property was sold on dt.11-2-2014 i.e. a gap of more than 33 years. So logically the valuation is not relevant as there might have been disproportionate change in the residential and commercial rates. Therefore, even if some proportionate valuation was to be done, it should have been on the basisof sale consideration and not the cost as has been considered by the ld. AO. 1.7 No reasonable opportunity of being heard granted 1.7.1 The provisions itself speaks of ‘reasonable’ opportunity of being heard and not ‘a’ or ‘one’ opportunity of being heard: It is submitted that as per provisions of section 154(3) of the Act, a ‘reasonable’ opportunity of being heard must be granted to the assessee before passing of rectification having effect of enhancing of assessment. The legislature in their wisdom used the word ‘reasonable’ and not ‘a’ or ‘one’. Therefore, the clear intention is that the assessee must be given time to put his defence and not just cursory opportunity which is also clear from the fact that a substantial time limit of 4 years has been in provisions of section 154. The law nowhere intended to give one single opportunity which is the present case. 1.7.2 Adequate time available before passing of the order: It is submitted that in this case the assessment order which has been rectified by the ld. AO was passed on dt.28-6-2016 and therefore, as per provisions of section 154(7), time limit for passing of rectification was available till 31-3-2021i.e. within the expiry of four years from the end of the financial year in which the order sought to be rectified has been passed. Therefore, there was adequate time available with the ld. AO for carrying out rectification proceedings instead of being hurry in creating demand ex parte. 1.7.3 One single opportunity granted to the assessee – not a reasonable opportunity: In this case the first notice for rectification was issued on dt.18-6- 2018 requiring the assessee to appear on 2-7-2018. On account of non-appearance in response to this single notice, rectification order was passed on dt.3-7-2018 ex parte. By no stretch of imagination, one single opportunity cannot be said to be 11 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF reasonable opportunity of being heard as there could be many reasons for non- appearance of the assessee and the ld. AO could have issued another notice before proceeding to make ex parte rectification. 1.7.4 No advantage for the assessee in non-appearance: We may also point out that there was no advantage for the assessee in not appearing in response to the rectification notice and it could only for the reasons of genuine issues. Therefore, it was not proper on the part of the ld. AO to proceed in making ex parte rectification. Therefore, where there was time available for the ld. AO till 31-3-2021 for making of rectification, making an ex-parte rectification on 3-7-2018 that too with one single notice, was not a reasonable opportunity of being heard and therefore, the ld. CIT(A) has rightly quashed the rectification order 1.8.1 Not a mistake apparent on record – can be subjected to revision: We may submit that even where there is no mistake apparent on record, the department is not powerless. The proceedings may well be initiated invoking of provisions of section 263 of the Actbut in any case where there is no mistake apparent on record, no question arises of invoking of rectification proceedings. 1.8.2 Time limit available for revision proceedings u/s 263: We may also submit that as per provisions of section 263, the time limit for passing of the revision order is two years from the end of the financial year in which the order sought to be revised has been passed. In the present case, the assessment order was passed on dt.28-6-2016 and therefore, the time limit for passing of the revision order was available till 31-3-2019. Thus even there was enough time available for making a revision order. Considering the above facts and circumstances of the case neither there was any mistake apparent on record nor there was any reasonable opportunity of being heard and therefore, the ld. CIT(A) rightly quashed the rectification assessment u/s 154 of the Act and the same is prayed to be sustained.” Based on the above written submission the ld. AR of the assessee submitted that even on merits there exist no mistake apparent on record and therefore, the action of the ld. AO is not permissible under the pretext of mistake it is not a mistake but the ld. AO is trying review his own records on the very same issue which is already considered and decided under section 143(3) of the Act. 7. The ld. AR of the assessee in addition to the submission on merit has also submitted an application under rule 27 of the Income Tax (Appellate Tribunal) Rules, 12 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF 1963 praying to consider the additional ground and also requested to allow the additional ground even though the same is not supported by cross objection as well as an appeal by the assessee. The ld. AR of the assessee submitted that the provision of Rule 27 does not require to make an application in writing. Similarly, rule 27 does not prescribe any time limit to make such an application on the issue decided against the assessee. And therefore he has prayed to considered the additional ground under rule 27 and in support of the same the ld. AR of the assessee submitted as under : “Brief Facts: The assessee in this case, filed its return of income (PB 10) declaring total income of Rs.509160/- including long term capital gain on sale of house property which was shown at nil after claiming exemption u/s 54 of the Act. Please refer computation of total income which is placed at PB 11-13 The case of the assessee was taken up for scrutiny and the assessment was completed u/s 143(3) of the Act on dt.28-6-2016 by accepting the exemption claimed by the assessee u/s 54 of the Act and a copy of assessment order is placed at PB 1-2. Lateron, the ld. AO on the basis of audit scrutiny, noted that excess exemption u/s 54 of the Act has been allowed to the assessee. Accordingly, a notice dt.18-6-2018 u/s 154 was issued to the assessee, which is claimed to be served on the assessee by speed post on dt.25-6-2018. The notice so issued stated that there is mistake apparent on record in as much as the exemption u/s 54 has been allowed at Rs.6154101/- instead of Rs.2429590/-. The assessee could not respond to the notice so issued and as such the ld. AO without giving any further opportunity carried out rectification in the assessment so completed u/s 143(3) of the Act allowing exemption at Rs.2429590/- only. The assessee challenged the action of the ld. AO on both counts i.e. first that exemption so disallowed is not amenable to rectification proceedings and second that no proper of being heard was given to the assessee. On the first part of the ground the ld. CIT(A) has given its finding para 1 of page 3 of its order: “......Since the AO has not brought out the mistake apparent from the record, it is held that the disallowance was not amenable to the provisions of section 154.” (CIT(A) para 1 page 3) In last para of the order, the ld. CIT(A) held as under: “Thus, the act of the assessing officer in not issuing any notice or giving any opportunity to the appellant before rectifying the assessment is bad in law and against the principle of natural justice. The rectification order u/s 154 of the 13 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF Act in this case, is therefore not sustainable, being in violation of section 154(3). It is therefore quashed and the addition made consequently stands deleted. All the grounds of appeal are deemed to be allowed”(CIT(A) last para page 3) Therefore, it is very much clear that the appeal of the assessee was in totality including the ground relating to rectification not being amenable to sec.154. Now the department has filed this appeal challenging the quashing of proceedings u/s 154 of the Act but only on the ground relating to the providing of reasonable opportunity of being heard. Now without prejudice to the submission that CIT(A) has duly accepted the ground of appeal of the assessee and there is no appeal by the department on that part Additional Ground of Appeal: Now under above background the assessee prays to raise the following additional ground of appeal by invoking of the provisions of Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 (‘ITAT Rules’ in short) “The ld. AO erred in law as well as on the facts of the present case in making rectification u/s 154 of the Act while disallowing exemption claimed by the assessee u/s 54 of the Act in part, as the same is not amenable to rectification proceedings u/s 154 and the ld. CIT(A),though accepting the plea of assessee, erred in not specifically mentioning it while accepting the ground of appeal of the assessee” Submission: 1.1 All the conditions set out in Rule 27 of ITAT Rules fulfilled: At the outset, it is submitted that the Rule 27 of ITAT Rules read as under: “Respondent may support order on grounds decided against him 27. The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him.” there are two conditions which need to be fulfilled for invoking of rule 27 of ITAT Rules. a. Ground of appeal is not adjudicated by the CIT(A) or decided against the assessee b. Adjudication of the ground of appeal should have direct impact on the outcome of the appeal Now in the present case, both these conditions have been fulfilled by the assessee as is discussed below: 1.1.1 Ground of appeal duly taken before the ld. CIT(A) and decided against the assessee: In the present case the assessee has taken the following grounds of appeal before the ld. CIT(A): Relevant sections (s) of the Act Issue Ground of appeal 154 The issue is not a mistake apparent The ld. AO grossly erred under the facts and circumstances of the case in 14 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF from records exercising jurisdiction under section 154 without any mistake apparent from record and without providing opportunity of being heard 154 Disallowance of investment in residential house property For that the ld. AI grossly erred under the facts and circumstance of the case in allowing deduction under section 154 of Rs.2429590/- only instead of actual expenses incurred of Rs.6154101/- thereby making addition of Rs.3724511/- Thus, from above it is clear that the assessee has taken a specific ground of appeal before the ld. CIT(A) with regard to the validity of the rectification proceedings on the ground that such a rectification is out of the scope of the provisions of sec.154 as this is not a mistake apparent on the record. Now though the ld. CIT(A) has clearly held that disallowance is not amenable to rectification proceedings but the same was not mentioned while finally disposing off the appeal in favor of the assessee. Therefore, the first condition that the ground of appeal is not adjudicated or should have been decided against the assessee is clearly met 1.1.2 Adjudication has direct bearing on the subject matter of the appeal: As can be seen above that the assessee has challenged the validity of the rectification proceedings on two counts, firstly that the rectification is out of the purview of the provisions of section 154 and secondly that no proper opportunity of being heard have been granted by the ld. CIT(A). As already submitted above, the ld. CIT(A) did not accept the ground raised questioning whether the such rectification is within the scope of section 154 or not. However, the ld. CIT(A) has allowed the appeal of the assessee on the ground that no proper opportunity of being heard was given to the assessee. Now adjudication of this ground of appeal of the assessee has a direct bearing on the subject matter of appeal as if it is held that such a rectification could not be made in rectification proceedings then the rectification proceedings will remain invalid even if it is held that proper opportunity of being heard was granted to the assessee. 1.1.3 Legal ground of appeal with all facts already on record: It is also submitted that the ground being raised by the assessee is purely a legal ground and the complete facts and information is already on record. This ground of appeal was already before the ld. CIT(A) and as such all the relevant facts and circumstances required for disposing of above ground of appeal is already on record. A paper book has been submitted containing the documents which were before the lower 15 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF authorities. In such circumstances it will be completely lawful to admit the above ground of appeal raised by the assessee. So assessee fulfilling both the conditions as required under the provisions of Rule 27 of the ITAT Rules, the ground of appeal challenging the validity of rectification proceedings on above ground is prayed to be admitted 1.2 Case Laws: Sanjay Sawhney vs. Pr. CIT ITA No.834/2019 dt.18-5-2020 (Del HC) 22. Therefore, the position of law that materialises on a reading of the aforesaid decisions is that the appellant herein, (Respondent before ITAT) could have invoked Rule 27 to assail those grounds that were decided against him if those grounds/issues had a bearing on the final decision of the CIT(A). Revenue was certainly not taken by surprise as the appeal is considered to be continuation of the original proceedings. The ITAT had no discretion to deprive the appellant the benefit of the enabling Rule provision to defend the order of the CIT(A). The question of jurisdiction -which is sought to be urged by the Respondent while supporting the order in appeal, had a bearing on the final order passed by the CIT(A), because if the said issues were to be decided in favour of the appellant herein the assessee, that would have been an additional reason to delete the additions made by the A.O. 26. The upshot of the above discussion is that Rule 27 embodies a fundamental principal that a Respondent who may not have been aggrieved by the final order of the Lower Authority or the Court, and therefore, has not filed an appeal against the same, is entitled to defend such an order before the Appellate forum on all grounds, including the ground which has been held against him by the Lower Authority, though the final order is in its favour. In the instant case, the Assessee was not an aggrieved party, as he had succeeded before the CIT (A) in the ultimate analysis. Not having filed a cross objection, even when the appeal was preferred by the Revenue, it does not mean that an inference can be drawn that the Respondent– assessee had accepted the findings in part of the final order, that was decided against him. Therefore, when the Revenue filed an appeal before the ITAT, the Appellant herein (Respondent before the Tribunal) was entitled under law to defend the same and support the order in appeal on any of the grounds decided against it. The Respondent – assessee had taken the ground of maintainability before Commissioner (Appeals) and, therefore, in the appeal filed by the Revenue, it could rely upon Rule 27 and advance his arguments, even though it had not filed cross objections against the findings which were against him. The ITAT, therefore, committed a mistake by not permitting the assessee to support the final order of CIT (A), by assailing the findings of the CIT(A) on the issues that had been decided against him. The Appellant - assessee, as a Respondent 16 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF before the ITAT was entitled to agitate the jurisdictional issue relating to the validity of the reassessment proceedings. We are, therefore, of the considered opinion that the impugned order passed by the ITAT suffers from perversity in so far as it refused to allow the Appellant – assessee (Respondent before the Tribunal) to urge the grounds by way of an oral application under Rule 27. The question of law as framed is answered in favour of the Appellant – assessee and resultantly the impugned order is set aside. The matter is remanded back before the ITAT with a direction to hear the matter afresh by allowing the Appellant- assessee to raise the additional grounds, under Rule 27 of the ITAT Rules, pertaining to issues relating to the assumption of jurisdiction and the validity of the -reassessment proceedings under Section 153C of the Act. Addl. CIT vs. Ranbaxy Laboratories Ltd. ITA no.3799/Del/2009 dt.29-7-2019 “21. Rule 27 states that the respondent may support the order of the Ld. CIT (A) on any of the ground decided against him. The assessee before the Ld. CIT (A) has challenged the reassessment proceedings initiated under section 147 of the Act on various reasons/ grounds. Thus there was an only a single technical issue before the Ld.CIT (A) which was challenged/ argued by the assessee but from different angles/propositions. The Ld. CIT (A) decided the technical issue in favor of the assessee on other reasons except for the issue on hand, i.e., nonissuance of the statutory notice. Thus the question arises whether the assessee was aggrieved because of non-adjudication of the ground of appeal by the Ld. CIT(A). The answer is certainly in affirmative. But the assessee chose not to appeal as it succeeded on other reasons/ contentions raised before the ld. CIT(A). Accordingly, the Revenue filed an appeal before us on those points which were decided by the Ld. CIT (A) in favor of the assessee. Now the controversy arises whether the assessee can raise the issue not decided by the Ld.CIT (A) under rule 27 of ITAT rules before us. In our considered view, the assessee was very much entitled to raise the issue under rule 27 of ITAT Rules which was not decided by the Ld. CIT (A) as the point of contention of the assessee relates to the same issue raised by the Revenue. In this regard, we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of PCIT vs. Sun Pharmaceuticals Industries Ltd in tax appeal no. 654 & 655 of 2017, wherein it was held as under: “11. To put the controversy beyond doubt, Rule 27 of the Rules makes it clearthat the respondent in appeal before the Tribunal even without filing an appeal cansupport the order appealed against on any of the grounds decided against him. It canbe easily appreciated that all prayers in the appeal may be allowed by theCommissioner (Appeals), however, some of the contentions of the appellant may nothave appealed to the Commissioner. When such an order of the Commissioner is atlarge before the Tribunal, the respondent before the Tribunal would be entitled 17 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF todefend the order of the Commissioner on all grounds including on grounds heldagainst him by the Commissioner without filing an independent appeal or crossobjection. 12. Rule 27 of the Rules is akin to Rule 22 Order XLI of the Civil ProcedureCode. Sub-rule (1) provides that any respondent, though he may not have appealedfrom any part of the decree, may not only support the decree but may also state thatthe finding against him in the Court below in respect of any issue ought to have beendecided in his favour; and may also take any cross-objection to the decree which hecould have taken by way of an appeal. In case of Virdhachalam Pillai vs. ChaldeanSyrian Bank Ltd, Trichur and anrreported in AIR 1964 SC 1425 in context of thesaid Rule the Supreme Court observed as under:"32. Learned Counsel for the appellant raised a short preliminary objectionthat the learned Judges of the High Court having categorically found thatthere was an antecedent debt which was discharged by the suit- mortgage loanonly to the extent of Rs. 59,000/- and odd and there being no appeal by theBank against the finding that the balance of the Rs. 80,000/- had not gone indischarge of an antecedent debt, the respondent was precluded from puttingforward a contention that the entire sum of Rs. 80,000/- covered by Exs. Aand B went for the discharge of antecedent debts. We do not see anysubstance in this objection, because the respondent is entitled to canvass thecorrectness of findings against it in order to support the decree that has beenpassed against the appellant." 13. Likewise, in case of S.Nazeer Ahmed vs. State Bank of Mysore and orsreported in 2007 AlRSCW 766 it was held and observed as under:"7. The High Court, in our view, was clearly in error in holding that theappellant not having filed a memorandum of cross-objections in terms ofOrder XLI Rule 22 of the Code, could not challenge the finding of the trialcourt that the suit was not barred by Order II Rule 2 of the Code. Therespondent in an appeal is entitled to support the decree of the trial courteven by challenging any of the findings that might have been rendered by thetrial court against himself. For supporting the decree passed by the trialcourt, it is not necessary for a respondent in the appeal, to file a memorandumof cross-objections challenging a particular finding that is rendered byagainst him when the ultimate decree itself is in his favour. A memorandum ofcross-objections is needed only if the respondent claims any relief which hadbeen negatived to him by the trial court and in addition to what he hasalready been given by the decree under challenge. We have therefore nohesitation in accepting the submission of the learned counsel for the appellantthat the High Court was in error in proceeding on the basis that the appellantnot having filed a memorandum of cross-objections, was not entitled tocanvass the 18 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF correctness of the finding on the bar of Order II Rule 2 renderedby the trial court." 14. Similar issue came-up before Division Bench of this Court in case of DahodSahakariKharidVechan Sangh Ltd. vs. Commissioner of Income Tax reported in282 ITR 321 in which the Court observed as under: "17. Taking up the second issue first, the Tribunal has committed an error inlaw in holding that the assessee having not filed cross- objection againstfindings adverse to the assessee in the order of Commissioner (Appeals), thesaid findings had become final and remained unchallenged. The Tribunalapparently lost sight of the fact that the assessee had succeeded before theCommissioner (Appeals). The appeal had been allowed and the penalty leviedby the assessing officer deleted in entirety. In fact, there was no occasion forthe assessee to feel aggrieved and hence, it was not necessary for the assesseeto prefer an appeal. The position in law is well settled that a cross objection,for all intents and purposes, would amount to an appeal and the crossobjector would have the same rights which an appellant has before before theTribunal. 18. Section 253 of the Act provides for appeal to the Tribunal. Under subsection(1), an assessee is granted right to file an appeal; under sub-section(2), the Commissioner is granted a right to file appeal by issuing necessarydirection to the assessing officer; sub-section (3) prescribes the period oflimitation within which an appeal could be preferred. Section 253(4) of theAct lays down that either the assessing officer or the assessee, on receipt ofnotice that an appeal against the order of Commissioner (Appeals) has beenpreferred under subsection (1) or subsection (2) by the other party, may,notwithstanding that no appeal had been filed against such an order or anypart thereof, within 30 days of the notice, file a memorandum of crossobjections verified in the prescribed manner and such memorandum shall bedisposed of by the Tribunal as if it were an appeal presented within the periodof limitation prescribed under sub-section (3). Therefore, on a plain readingof the provision, it transpires that a party has been granted an option or adiscretion to file cross objection. 19. In case a party having succeeded before Commissioner (Appeals) opts notto file cross objection even when an appeal has been preferred by the otherparty, from that it is not possible to infer that the said party has accepted theorder or the part thereof which was against the respondent. The Tribunal has,in the present case, unfortunately drawn such an inference which is notsupported by the plain language employed by the provision. 19 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF 20. If the inference drawn by the Tribunal is accepted as a correctproposition, it would render Rule 27 of the Tribunal Rules redundant andnugatory. It is not possible to interpret the provision in such manner. Anyinterpretation placed on a provision has to be in harmony with the otherprovisions under the Act or the connected Rules and an interpretation whichmakes other connected provisions otiose has to be to avoided. Rule 27 of theTribunal Rules is clear and unambiguous. The right granted to the respondentby the said Rule cannot be taken away by the Tribunal by referring toprovisions of Section 253(4) of the Act. The Tribunal was, therefore, in errorin holding that the finding recorded by the Commissioner (Appeals) remainedunchallenged since the assessee had not filed cross objections." 15. The first question is, therefore, answered against the Revenue and in favour ofthe assessee. “ 22. The ratio laid down in the judgment above is squarely applicable to the facts of the case. The judgments referred by the Ld. DR in the course of hearing are distinguishable from the present facts of the case. Therefore we find that the said judgements are not relevant for the purpose of adjudication of issue before us. 23. In view of the above, we concur the argument of the ld. AR for the assessee. Considering the above facts and circumstances of the case, application made under Rule 27 is prayed to be admitted and also prayed to consider the ratio decided in the following decisions:- • Sanjay Sawhney vs. Pr. CIT in ITA No. 834/2019 dated 18.05.2020 (Del. H.C.) • Addl. CIT vs. Ranbaxy Laboratories Ltd. In ITA 3799/Del/2009 dated 29.07.2019 ( Del. Trib.) 8. In addition to the above two written submission the ld. AR of the assessee read provision of Rule 27, related relied upon judgment and his additional grounds raised in this appeal along with the appeal of the revenue. As regards the ground of the opportunity of being heard the ld. AR demonstrated that only one notice was issued and even in that notice there is no mention of the mistake apparent on record and thus effectively there is 20 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF no opportunity to the assessee to so as to submit the submission on merits and thus, the order passed against the assessee by the assessing officer rightly cancelled by the NFAC. The ld. AR of the assessee further submitted that revenue has also not demonstrated as to what is the mistake apparent on record and under the guise of the mistake reviewing his own order is not permitted under the law. 9. On the other hand, revenue supported the order of the ld. AO and submitted that the assessee was already given an opportunity of being heard and to substantiate their claim as the same was not allowed properly in the original order passed under section 143(3) of the Act and as the issue was raised in revenue audit the same was rectified as per provision of section 154 of the Act after giving an opportunity of being heard. The ld. DR also placed on record the proof of service of notice and controvert the finding of the ld. CIT(A). But at the same time ld. DR remain silent and did not controvert the fact that whether there exists a mistake apparent on record or not. Further the ld. DR informed that as the issue was raised by the revenue audit team the same is rightly rectified by passing an order u/s. 154 of the Act. At the same time the ld. DR strongly objected to the additional ground raised by the ld. AR of the assessee and based on the set of arguments he has argued in support of the action taken by the ld. AO. 10. We have considered the rival contentions, perused the material available on record and also gone through the findings of the lower authorities recorded in their respective 21 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF orders.At the outset we note that the assessee was allowed one opportunity against the proposal of the ld. AO to rectify the order passed u/s. 143(3) of the Act. At the same time ld. DR did not controvert the arguments of the ld. AR of the assessee that the whether the action of the ld. AO is falling within the provision of section 154 of the Act or not?. The ld. DR merely stated that as there was an audit objection the ld. AO rectified the point of error pointed out by the revenue audit team. There are no arguments of the ld. DR on merits of the case so as to controvert the findings of the ld. CIT(A).Since, the appeal of the assessee was allowed by the ld. CIT(A) on both technical as well as consideration of the merits of the case and the revenue has challenged this appeal only on the opportunity ground (technical ground) and did not challenge the ground on the fact that considering the fact of the case that the mistake is apparent on record or not. Whereas on the other hand looking to the petition of the ld. AR of the assessee under rule 27 raising the legal ground at this stage which is based on the ratio decided in favour of the assessee considering the facts of the case on hand respectfully following the ratio of decision relied upon by the assessee we consider it to allow the additional ground on merits raised by the ld. AR of the assessee as the related ground was also raised before the ld. CIT(A). We have gone through the submission of the assessee and orders of the lower authorities it is not disputed that the assessee has earned the capital gain and the claimed the deduction under section 54 of the Act. As the ld. AR of the assessee has already submitted all the details related to the claim made by the assessee against the capital gain expressly showing that all the details were submitted and after examination of all the records the ld. 22 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF AO has taken conscious decision and has allowed the claim after making all the necessary enquiry. The dispute is only about the amount of the claim allowable to the assessee which has already reached to finality once the order of the assessment is passed under section 143(3) of the Act. The ld. DR did not controvert the arguments of the ld. AR of the assessee that considering the present set of fact the ld. AO did not bring anything in the notice issued to him so as to demonstrate that in fact there is a mistake apparent on record. The claim of the assessee is already considered which is based on the submission on merits in the scrutiny assessment and order has been passed which is based on the evidences and submission made by the assessee. Merely there is an observation of the revenue audit party it is not a mistake apparent on record. The ld. AO is in error of reviewing his own order under section 154 of the Act. Considering the facts placed on record the bench noted that the issue noted by the ld. AO is not a mistake apparent on record and is not subjected to revision under the guise of provision of section 154 of the Act and therefore, order passed under section 154 of the Act lacks jurisdiction as ld. AO did not demonstrate as to what is the mistake apparent on record and the debatable or change of opinion is not subject matter of the provision of section 154 of the Act, as the law allows the mistake apparent on record be rectified which is expressly not demonstrated before us and see that there exist no mistake which is apparent on record. The law duly empowers the revenue to invoke other provision to consider the audit objection but the same is not permitted under the provision of section 154 of the Act as it done by the AO. 23 ITA No. 255/JP/2021 ITO vs. Vinod Kumar Jharchur HUF 11. In view of the above, we do not find any infirmity in the order of the ld. CIT(A)/NFAC and accordingly decline to interfere. Hence the ground of the appeal of the revenue is dismissed. 12. In the result, the ground raised by the assessee in the application filed under rule 27 of ITAT Rules, 1963 is allowed and the appeal filed by the revenue is dismissed. Order pronounced in the open court on 18 /10/2022 Sd/- Sd/- ¼jkBksM deys'k t;UrHkkbZ ½ ¼MkWa-,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@ Jaipur fnukad@Dated:- 18/10/2022 *Santosh vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- ITO, Jaipur 2. izR;FkhZ@ The Respondent- Vinod Kumar Jharchur HUF,Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 255/JP/2021) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asstt. Registrar