AO can’t pass order u/s 154 making additions merely on the admission made by the assessee in application submitted before Settlement Commission.
In a recent judgment, ITAT Jaipur has held that Assessing Officer (AO) can not pass order u/s 154 for making additions to the income relying on the admission made by the assessee in application submitted before Settlement Commission without any incriminating material.
ABCAUS Case Law Citation:
4486 (2025) (03) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the rectification order passed under section 154 of the Income Tax Act, 1961 (the Act).
A search and seizure action u/s 132(1) of the Act was carried out in the case of a business group to which the assessee belongs. Notice u/s 153A of the Act was issued to the assessee.
The assessee filed an application before Settlement Commission concerning above said search. Before the Commission, the assessee offered additional incomes over and above the income declared in the return filed u/s 136/153A for seven assessment years. However, the above said applications filed by the assessee before Settlement commission were rejected.
Thereafter that assessment u/s 143(3) r.w.s 153A read with section 245HA was completed against which assessee filed appeal before CIT(A). Pursuant to appellate order passed by the CIT(A), notice u/s 154 of the Act was issued to the assessee for rectification of mistake necessitated by the increase in the income pursuant to CIT(A) orders in five Assessment Years. However, with respect to all Assessment Years, rectification was also proposed on account of admission of additional income before the Settlement Commission.
While passing the impugned rectification order rejecting the submissions of the assessee, the AO observed that the admission of the assessee was binding on her as the assessee had owned up the share of undisclosed income after complete analysis and incriminating material. Therefore, the assessee cannot be allowed to take a plea that the amount of undisclosed income owned by the assessee was not fully backed by the seized material as it would amount to adopting a modus operandi to avoid tax liability. The same was reaffirmed by the CIT(A).
Before the Tribunal, the assessee raised only one contention that the order u/s 154 came to be passed by the Assessing Officer relying on the admission made by the assessee in her application submitted before Settlement Commission regarding undisclosed income, but, the AO could not base on the orders only on the admission of the assessee in the said application submitted before Settlement Commission, without any incriminating material.
The Tribunal noted that while passing the orders u/s 154 of the Act, the AO based the same on the admission made by the assessee in her application submitted before Settlement Commission. The Tribunal opined that as rightly pointed out by the appellant, the AO did not refer to any incriminating material for the purpose of passing of the said orders.
The Tribunal observed that the Coordinate Bench on the basis of decision of ITAT Mumbai had held that that confidential information submitted before the Settlement Commission cannot be the basis of addition in the assessment proceedings in absence of any incriminating material found during the course of search and seizure action.
The Tribunal further observed that the Co-ordinate Bench Jaipur held that in the absence of any material must less incriminating material, no addition could be made only on the basis of income offered in the application u/s 245C(1) of the Act, when the application was rejected by the Settlement Commission.
The Tribunal held that the AO erred in making addition simply on the basis of admission made by the assessee in her application submitted before Settlement Commission, without referring or taking into consideration or discussing any incriminating material therein.
Accordingly, all the appeals were allowed in favour of the assessee and the impugned orders passed by CIT(A) and the orders u/s 154 of the Act passed by AO were set aside.
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