Aviaxpert Pvt. Ltd., New Delhi V. ITO Ward 3(1), New Delhi

ITA 87/DEL/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0290 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: H
• Next Hearing Date: 20-06-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 10-01-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: EIGHT
• Keywords: Transfer pricing; Rectification of order; Opportunity of being heard; Principle of natural justice; TDS; Set aside; FORM 26AS
• Section: 154; 2; 43B; 143(1); 208; 139(1); 48

Judgement Text

I.T.A.No.87/Del/2024 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A” NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER आ .अ.स ं /.I.T.A No.87/Del/2024 /Assessment Year: 2017-18 AVIA XPERT PVT. LTD. E-178, East of Kailash, New Delhi. ब म Vs. ITO, Ward 3(1), C.R. Building, I.P. Estate, New Delhi. PAN No. AAICA7960L अ Appellant /Respondent Assessee by Shri Sanket Joshi, CA Revenue by Shri Amit Katoch, Sr. DR स ु नवाईक तारीख/ Date of hearing: 21.06.2024 उ ोषणाक तारीख/Pronouncement on 09.08.2024 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 dated 16/11/2023 for the AY 2017-18 arising out of an order dated 15/06/2019 passed u/s 154 of the Act by CPC- Bangaluru. 2. In the appeal the assessee apart from challenging the adjustments made by the CPC in the order passed u/s 154 on merits I.T.A.No.87/Del/2024 2 had raised additional grounds of appeal in making suo moto disallowance u/s 36(1)(va) r.w.s. 43B of the Act without issuing any prior notice/intimation granting an opportunity of being heard to the assessee as mandated under sub-section (3) of section 154 of the Act. In the additional grounds the assessee also challenged the rectification order u/s 154 on the ground that the disallowance made u/s 36(1)(va) is outside the scope of section 154 as it was a debatable one as on the date of passing rectification order u/s 154 dated 15/06/2019 and therefore the said disallowance was outside the scope of the provisions of section 154 of the Act. 3. The Ld. Counsel for the assessee submitted that the assessee filed return on 30/10/2017 declaring income of Rs.79,08,452/- and an intimation u/s 143(1) was passed by CPC on 01/06/2018 accepting the returned income. A rectification order u/s 154 of the Act was passed by CPC on 30/12/2018 by raising a demand of Rs.1,41,940/- allowing TDS credit of Rs.65,17,430/- only as against Rs.66,49,457/- claimed in the return. The Ld. Counsel submits that assessee filed a rectification application u/s 154 of the Act against the 154 order dated 30/12/2018 passed by CPC requesting to allow the entire TDS credit of Rs.66,49,457/- reflected in Form 26AS. The Ld. Counsel submits that on 08/04/2019 rectification order u/s 154 I.T.A.No.87/Del/2024 3 was passed by CPC by raising a demand of Rs.54,35,750/- after allowing TDS credit of Rs.77,52,917/-. However, a disallowance of Rs.1,80,95,758/- was made u/s 36(1)(va) of the Act. Ld. Counsel submits that assessee filed a rectification application u/s 154 against order dated 08/04/2019 passed by CPC to accept the returned income and delete the disallowance made u/s 36(1)(va) of the Act. Ld. Counsel submits that on 15/06/2019 the CPC passed order u/s 154 of the Act making disallowance of Rs.1,80,95,758/- u/s 36(1)(va) of the Act without making any changes to the earlier rectification order dated 08/04/2019. 4. Ld. Counsel for the assessee submits that the CPC suo moto made disallowance u/s 36(1)(va) of the Act which resulted into increase in the tax liability and the CPC did not issue any prior notice/intimation granting an opportunity of being heard to the assessee as mandated under sub-section (3) of section 154 of the Act. Therefore, it is submitted that making adjustment/disallowance in the 154 order without giving any prior intimation/opportunity to the assessee is contrary to the express mandate of section 154(3) of the Act and, therefore, the same is bad in law. The Ld. Counsel for the assessee placed reliance on the decision of the coordinate bench of the Delhi Tribunal in the case of I.T.A.No.87/Del/2024 4 ACIT Vs. Humboldt Wedag Pvt. Ltd. ITA No. 1057/Del/2016 dated 11/06/2018. Ld. Counsel also placed reliance on the recent decision of the High Court of Telangana in the case of Apollo Specialty Hospitals Pvt. Ltd. Vs. DCIT (2024) 162 taxmann.com 2. 5. The Ld. Counsel further submits that as on the date of passing rectification order u/s 154 of the Act dated 15/06/2019 the issue, as to whether the PF & ESI contributions made by employees is an allowable deduction or not was certainly a debatable one and, therefore, such disallowance is outside the scope of provisions of section 154 of the Act. The Ld. Counsel submits that as on date of passing rectification order u/s 154 of the Act the issue of disallowance u/s 36(1)(va) of the Act in respect of employees contribution paid before due date u/s 139(1) of the Act was certainly debatable one and there were divergent views expressed by the Hon’ble High Courts on the said issue. Ld. Counsel submits that the said issue was decided in favour of the assessee by eight Hon’ble High Courts including the jurisdictional High Court of Delhi in the case of CIT Vs. AIMIL Ltd. (2010) 321 ITR 508. Similarly, the Hon’ble Bombay High Court in the case of CIT Vs. Ghatge Patil Transport Ltd. (2014) 368 ITR 749 and the Hon’ble Allahabad High Court in the case of Sangam Foundary Pvt. Ltd. Vs. DCIT 145 DTR I.T.A.No.87/Del/2024 5 265 (2017) were in favour of the assessee. Therefore, it is submitted that as on 15/06/2019 the said issue was certainly a debatable one and is outside the scope of rectification under section 154 of the Act. 6. The Ld. Counsel further submits that in the following cases it has been held that claim of deduction made in ITR in respect of a debatable legal issue cannot be said to be a “mistake apparent from record” and, therefore, no disallowance in respect of such debatable legal claim can be made while passing rectification order u/s 154 of the Act: 1. ITO vs. M/s Volkart Brothers & Ors [(1971) 82 ITR 50 (SC)] 2. CIT Vs. Hero Cycles (P) Ltd. [(1997) 228 ITR 463 (SC)] 3. CIT Vs. Krishak Bharati Co-opeative Ltd. [(2004) 266 ITR 208 (Del)(HC)] 4. Bajaj Auto Finance Ltd. vs. CIT [(2018) 404 ITR 564 (Bom) (HC)] 5. Khatau Junkar Ltd. vs. DCIT [(1992) 196 ITR 55 (Bom) (HC)]. 7. Ld. Counsel for the assessee also placed reliance on the decision of the Madhya Pradesh High Court in the case of CIT Vs. Mahavir Drilling Company (273 ITR 201) for the proposition that when there are divergent views of High Courts existing on the date of grant of relief to the assessee, Assessing Officer is not justified in I.T.A.No.87/Del/2024 6 withdrawing such relief by way of rectification based on subsequent decision of the Hon’ble Supreme Court. 8. The Ld. Counsel further referring to the grounds of appeal submits that out of the total disallowance of Rs.1,80,75,758/- made by the CPC, to the extent of Rs.97,54,041/- pertains to employers contribution to PF/ESI which was paid within due date u/s 139(1) and hence the same was allowable u/s 43B of the Act. Therefore, it is submitted that disallowance to the extent of Rs.97,54,041/- is apparently unjustified. 9. On the other hand, the Ld. DR strongly supported the orders of the authorities below. 10. Heard rival submissions, perused the orders of the authorities below. It is the submission of the Ld. Counsel that before passing rectification order u/s 154 of the Act the CPC-Bangluru did not issue any prior notice/intimation granting an opportunity of being heard to the assessee as mandated under sub-section (3) of section 154 of the Act. During the course of hearing the Ld. DR requested for some time to verify as to whether any prior notice was issued to the assessee before passing the 154 order making disallowance of PF/ESI contributions. Accordingly, several opportunities were granted to I.T.A.No.87/Del/2024 7 the Ld. DR to place on record any evidence of issue or prior notice to the assessee before passing 154 order proposing the disallowance u/s 36(1)(va) of the Act. However, the DR could not place any evidence on record to suggest that any prior intimation/notice was given to the assessee proposing to make disallowance u/s 36(1)(va) of the Act before passing rectification order u/s 154 of the Act. 11. We observe that in the case of ACIT Vs. Humboldt Wedag Pvt. Ltd. (supra) the coordinate bench of Delhi Tribunal held that it is obligatory under the statute to issue notice by the tax authorities and give a reasonable opportunity of being heard to the assessee and this is clearly set out under 154 of the Act. If this procedure of issuing notice and giving reasonable opportunity of being heard is not followed any further exercise will be nonest and the order itself becomes void ab initio. While holding so the Tribunal observed as under: - “15. This appeal by the assessee challenges the rectification order passed by the TPO vide order dated 25.02.2016. It has been submitted that there was a failure to provide an opportunity to the assessee of being heard before enhancing the income and this violated the provisions of section 154(3) of the Act. It has also been argued that the principle of natural justice has been upheld by the various Hon'ble Courts across the country in numerous cases wherein it has been held that the failure to provide an opportunity before enhancement will render the entire proceedings null and void. Admittedly, the impugned rectification order was passed proposing to enhance the income of the assessee by enhancing the transfer pricing I.T.A.No.87/Del/2024 8 adjustments as made in the final assessment order dated 30/12/2015 passed subsequent to the directions of the Ld. DRP. In the proceedings before us, the department was not able to negate the contention of the assessee that the impugned rectification order was passed without giving any opportunity to the assessee. It remains uncontroverted that principle of natural justice was not followed by the Transfer Pricing Officer while rectifying his earlier order. It is settled law that it not proper to remove a defect, if any, wherein no notice has been given to the assessee and wherein there will be an increased tax liability on the assessee. The Hon'ble Apex Court in the case of Chockalingam & Meyyappan Vs. CIT reported in (1963) 48 ITR 34 is precisely holding that principle of natural justice has to be followed by the authorities. As per Section 154(3) of the Act amendment/rectification which has the effect of enhancement of an assessment or reducing a refund or otherwise increasing the liability of the assessee shall not be made unless the authority concerned gives notice to the assessee of its intention to do so. Therefore, it is obligatory under the statute to issue notice by the tax authority to give a reasonable opportunity of being heard to the Assessee. This is clearly set out u/s 154 of the Income Tax Act and it has to be followed by the tax authorities at the initial stages. If this procedure of issuing the notice and giving reasonable opportunity of being heard is not followed, any further exercise will be non est. Therefore, the order itself becomes void ab initio. In the circumstances, we have no other option to set aside the impugned rectification order as being void ab initio. 15.1 As we have already set aside the impugned rectification order as being void ab initio and as has been fairly accepted by the Ld. AR that in case of the rectification proceedings being held as void, the grounds argued on merits will become academic, we are not adjudicating the other grounds as having become academic.” 12. The Hon’ble High Court of Telangana in its recent decision delivered on 07/03/2024, in the case of Apollo Specialty Hospitals Pvt. Ltd. Vs. DCIT (supra) considered an identical issue and held that rectification order passed u/s 154 of the Act disallowing carry I.T.A.No.87/Del/2024 9 forward loss without providing any opportunity of hearing being provided to the assessee is in violation of statutory provisions of section 154(3) of the Act and, therefore, such order is un- sustainable in law. While holding so the Hon’ble High Court held as under: “6. Mr.S. Ravi, learned Senior Counsel, appearing on behalf of Mr. Naga Deepak, learned counsel for the petitioner, contended that though Section 154 empowers the authorities concerned for rectifying an error committed and the rectification ought to be carried within a stipulated period prescribed under the said section itself. According to the learned Senior Counsel, in terms of Sub-Section (3) of Section 154 it was mandatory on the part of the respondent- Department to have at least issued a show-cause notice before the order of rectification was passed. In view of the same, we proceed to decide this very issue at the threshold before we proceed to decide the other issues, if required. 7. In the instant case, by way of the rectification the respondent-Department has disallowed carrying forward of the loss reflected in the Assessment Year 2016-17 so far as the petitioner's firm is concerned. As a consequence of the disallowance of carrying forward of the loss to the tune of Rs.2,60,98,369/-, the petitioner herein would be deprived and denied to carry forward the said loss of the previous year into the Books of Account of the next financial year. Thus, the said action on the part of 1st respondent has an adverse bearing and impact so far as the interest of the petitioner is concerned. 8. It is in this context that Sub-Section (3) of Section 154 has to be read which clearly envisages that in the event of effect of rectification resulting in an enhancement of assessment, reducing a refund, increasing the liability of the asseee, it is incumbent upon the respondent-Department for issuance of a notice to the assessee and grant reasonable opportunity of hearing before the order of rectification is passed. The said provision has to be read in a manner where it means that, in the event of any order which has a detrimental effect upon the assessee in those circumstances firstly a notice and secondly a reasonable opportunity of hearing becomes mandatory. I.T.A.No.87/Del/2024 10 9. Learned Senior Standing Counsel, appearing for the Income Tax Department, for the respondents, however contended that the 1st respondent later on came to know about the carrying forward of the loss by the petitioners. This, according to him, in terms of Section 79 of the Income Tax Act, 1961 was not permissible, because there was a substantial change in shareholding pattern. When this error was detected, the respondent-Department has invoked the powers under Section 154 (2) of the Act. According to him, since it was the power which was conferred under Sub-Section (2), there was no requirement for the compliance as is envisaged under Sub- Section (3). He further contended that by way of the impugned order, there is no change in the tax liability upon the petitioner neither is in any manner the tax liability getting enhanced nor is the petitioner being held liable to pay any additional tax. It is only a case where there is disallowance of carrying forward of the loss incurred for the Assessment Year 2016-17. Hence, there is no adverse financial implication upon the assessee and therefore Sub-Section (3) of Section 154 would not get attracted. 10. Now for proper understanding of the dispute it would also be relevant at this juncture to take note of the provisions to Sub- Sections 1, 2 and 3 of Section 154 of the Act, which for ready reference, they are reproduced as under : "154. Rectification of mistake : -- (1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in Section 116 may, -- (a) amend any order passed by it under the provisions of the Act; (b) amend any intimation or deemed intimation under sub-section (1) of Section 143; (c) amend any intimation under sub-section (1) of Section 200A; (d) amend any intimation under sub-section (1) of Section 206CB; (1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing I.T.A.No.87/Del/2024 11 such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided. (2) Subject to the other provisions of this section, the authority concerned - (a) may make an amendment under sub-section (1) of its own motion, (b) shall made such amendment for rectifying any such mistake which has been brought to its notice [by the assessee or by the deductor] [or by the collector], and where the authority concerned is the Commissioner (Appeals), by the Assessing Officer also. (3) 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 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." 11. If we peruse the aforesaid provision of law, it would be evidently clear that Sub-Sections (1) & (2) both reflect the powers which are conferred upon the authorities concerned for rectification of a mistake. It also provides for the circumstances and the situations when the rectification can be carried out. Further, when we read Sub-Section (3) of Section 154 of the Act in continuation, it would clearly give an indication of the rectification to be done only after a reasonable opportunity of hearing being provided to the assessee. 12. Taking into consideration the submissions made by the learned Senior Standing Counsel, appearing for the Income Tax Department, for the respondents, it would be relevant at this juncture to take note of the contents of the counter-affidavit filed by the 1st respondent, relevant portion of which is reproduced as under: "12. In reply to the averments made in para no.9 of the writ petition, it is submitted that the respondent No.1 passed the rectification order u/s 154 with suo moto as I.T.A.No.87/Del/2024 12 there is a mistake apparent from record which did not require any show cause notice issued to the petitioner. Further, it is noticed that the order passed u/s 154 dated 27.03.2023 now only noticed by the respondent No.1 that it is gone to the petitioner without digital signature." 13. As has been discussed in the preceding paragraphs, since on account of disallowance of carrying forward of the loss for the financial year 2016-17 to the tune of Rs.2,60,98,369/-, the petitioner would be denied to carry forward the said loss any further. By implication, the petitioner would suffer a loss and therefore, it is in that situation Sub-Section (3) of Section 154 stipulates issuance of notice and an opportunity of hearing. The said Sub-Section (3) otherwise has a mandatory force of law and it is this statutory requirement which has not been complied with as would be evident from the contents of paragraph No.12 of the counter-affidavit (extracted above). 14. Thus, we are of the firm view that the impugned order of rectification (Annexure P.1) dated 27.03.2023 passed by the 1st respondent is in violation of the statutory provision of Section 15393) of the Act, and therefore, the same is unsustainable. Accordingly, the same is set aside. The Writ Petition stands allowed. No costs. 15. Since the impugned order is getting quashed only on the ground of it being violative of the statutory requirement, we are not inclined to deal with the other objections, which have been raised by the learned Senior Counsel, appearing on behalf of the petitioner, and those issues are left open to be decided in an appropriate case as and when raised.” 13. The ratios of the above decision squarely applies to the facts of the assessee’s case. Thus, respectfully following the above decisions, we hold that the 154 order passed by the CPC dated 15/06/2019 was without issuing any prior notice/intimation granting an opportunity of being heard to the assessee and therefore is in I.T.A.No.87/Del/2024 13 violation of the mandate as provided in sub-section (3) of section 154 of the Act. Thus, the rectification order of CPC is bad in law. 14. The order of the CPC passed u/s 154 is also not sustainable for one more reason. We observed that as on the date of passing the order u/s 154 dated 15/06/2019 there were divergent views on the issue of disallowance u/s 36(1)(va) of the Act which were paid before due date u/s 139(1) of the Act. As on the date of passing rectification order i.e. 15.06.2019 the jurisdictional High Court in the case of CIT Vs. AIMIL Ltd. (supra) was in favour of the assessee, wherein the Hon’ble High Court held that the contributions to PF/ESI paid before the due date u/s 139(1) of the Act are allowable as deduction. Therefore, the issue of disallowance u/s 36(1)(va) of the Act stands decided in favour of the assessee as on the date of passing of the rectification order u/s 154 of the Act. Therefore, the adjustment made by CPC disallowing PF/ESI contributions by way of rectification u/s 154 of the Act cannot be said to be a mistake apparent on record as contemplated u/s 154 of the Act. Therefore, for this reason also the order passed u/s 154 of the Act disallowing PF/ESI contributions by way of rectification u/s 154 of the Act cannot be sustained. I.T.A.No.87/Del/2024 14 15. As we have held that the rectification order passed u/s 154 of the Act is bad in law, we are not inclined to go into the merits of disallowance made u/s 36(1)(va) of the Act as the same is only of academic in nature at this stage. 16. The additional grounds raised by the assessee are allowed. 17. In the result, appeal of the assessee is partly allowed as indicated above. Order pronounced in the open court on 09/08/2024 Sd/- Sd/- (BRAJESH KUMAR SINGH) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 09/08/2024 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order Assistant Registrar, ITAT: Delhi Benches-Delhi