Non-issuance of the notice u/s 154(3) is a procedural irregularity – ITAT

Non-issuance of the notice u/s 154(3) is a procedural irregularity. ITAT directs AO to issue notice and give opportunity

ABCAUS Case Law Citation:
ABCAUS 3812 (2023) (10) ITAT

Important Case Laws relied upon by parties:
Chockalingam & Meyyappan Vs. CIT (1963) 48 ITR 34

In the instant case, the assessee had challenged the order passed by the CIT(A) arising out of an appeal before HIM against the order u/s 154 of the Income Tax Act, 1961 (the Act) BY THE Assessing Officer (AO).

The assessee was an individual engaged in the business of trading in textile goods. He suffered a survey operation u/s 133A at his business premises wherein he surrendered an amount against excess stock.

The assessee offered the said amount as business income in the return of income. During assessment proceedings, the same were accepted as business income however subsequently, the AO exercised powers of rectification u/s 154 of the Act and enhanced the tax liability by invoking the provisions of Section 115BBE of the Act instead of tax at normal rate u/s 143(3) of the Act.

The assessee assailed the rectification order before the CIT(A) and pleaded that the rectification without notice was not valid and specific reliance in that regard was made on section 154(3) of the Act alleging that the mandatory procedure under the said section was not followed.

However, the CIT(A) dismissed the appeal of assessee.

Before the Tribunal, the assessee argued that since no mandatory notice was issued while there was an enhancement in the tax demand the exercise of jurisdiction was irregular. It was also submitted that even otherwise u/s 154 such a rectification could not have been done.

The Tribunal observed that Hon’ble Supreme Court has precisely held that principle of natural justice has to be followed by the tax authorities and section 154(3) of the Act thus provides that amendment/rectification which has 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.

The Tribunal stated that it is obligatory under the statute to issue notice by the Assessing Officer to give a reasonable opportunity of being heard to the Assessee.

The Tribunal opined that the non-issuance of the notice u/s 154(3) is a procedural irregularity and the issue is of prejudice only and such a prejudice has to be presumed and same can be rectified by giving opportunity to the AO to serve notice upon the assessee, and exercise powers u/s 154.

The ITAT set aside the impugned order and AO was directed to decide the issue afresh giving a due opportunity of hearing to the assessee. Accordingly, the appeal of assessee is allowed.

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