Rectification order u/s 154 quashed due to doctrine of merger.

Rectification order u/s 154 quashed due to doctrine of merger. Questions expressly decided by appellate/revisional authority cannot be reagitated u/s 154

ABCAUS Case Law Citation:
ABCAUS 2886 (2019) (04) ITAT

Important Case Laws Cited/relied upon by the parties
Rajputana Mining Agencies & others vs ITO (1979) 118 ITR 585
Commissioner of Income-tax v. Rao Thakur Narayaq Singh [1965] 56 ITR 234
Indra Company  [1968] 70 ITR 534
Sewa Singh Gill v. Income-tax Officer [1968] 70 ITR 534
In J.K. Synthetics Ltd. v. Additional Commissioner of Income-tax [1976] 105 ITR 344
Jeewanlal (1929) Ltd. v. Additional Commissioner of Income-tax [1977] 108 ITR 407

The assessee had filed an appeal against the order of the CIT(A) in confirming the order of the Assessing Officer (AO) passed order u/s 154 of the Income Tax Act, 1961 (the Act) disallowing the deduction u/s 54F.

The assessee while declaring the long term capital gains had claimed deduction u/s 54F towards purchase of agricultural land. . However, the Assessing officer disallowed the deduction u/s 54F in the original assessment order passed u/s 143(3.

Subsequently, the assessee carried the matter in appeal before the CIT(A) who directed the AO to allow deduction.

In pursuance to the said directions of the CIT(A), the AO passed the appeal effect order giving effect to the order of the CIT(A) wherein he allowed the deduction u/s 54F of the Act.

However, the Revenue filed an appeal before the Tribunal challenging the order of CIT(A) wherein he had allowed the deduction of section 54F. However, the Tribunal confirmed the order of the CIT(A).

However, the AO did not stop and thereafter issued a show cause notice (SCN) u/s 154 read with section 155 stating that while giving effect to the order of the CIT(A), the deduction u/s 54F was wrongly allowed and the mistake in calculation of deduction u/s 54F was apparent on the face of the record and hence the same was proposed to be rectified u/s 154 of the Act.

Thereafter, considering the reply of the assessee, though not finding the same acceptable, the AO disallowed deduction u/s 54F its order passed u/s 154 of the Act.

Against the said order of the AO u/s 154, the assessee filed an appeal before the CIT(A) who confirmed the said action of the AO holding that the same is within the purview of section 154 and the same having been passed within the period allowed u/s 154(7) of the Act.

Against the said order of the CIT(A), the assesse was in appeal before the Tribunal.

The Tribunal observed that the matter relating to eligibility and quantum of deduction u/s 54F had been examined by the Assessing officer in the original assessment proceedings and had travelled right up to the Tribunal which had confirmed the order of the CIT(A).

It was also noted that when the matter reached the CIT(A), the latter had given a direction that “AO is not justified to disallow deduction u/s 54F. AO is directed to allow exemption u/s 54F as claimed by appellant.” The directions of the CIT(A) were crystal clear and there was no ambiguity that the assessee was eligible for deduction u/s 54F.

The Tribunal opined that since the Tribunal had confirmed the order of the CIT(A) allowing the deduction, the order of the AO had merged with the order of the Tribunal so far as the issue relating to deduction u/s 54F of the Act was concerned. In light of the same, the action of the Assessing officer in passing the impugned order u/s 154 wherein he had reduced the quantum of deduction u/s 54F was clearly beyond his jurisdiction and could not be sustained.

The Tribunal pointed out that the said position is clear in terms of section 154(IA) of the Act wherein it has been laid that where any matter has been considered and decided in any proceedings by way of appeal or revision relating to an order referred to in sub section (1), the authority passing 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.

Thus the matter relating to deduction u/s 54F had been specifically raised by the assessee before the CIT(A) and thereafter, by the Revenue before the Tribunal and both the appellate authorities had since considered and examined the said matter and had decided in favour of the assessee.

It was noted that the Hon’ble jurisdictional High Court was faced with a question as to whether the Income-tax Officer was authorised to make a rectification of an error which is said to have been committed by the Appellate Commissioner?

The Hon’ble High Court observed that the Supreme Court had held that it was not the intention of the legislature to enable the Income-tax Officer to reopen final decisions made against the revenue in respect of questions that directly arose for decision in earlier proceedings and were finally decided by the Tribunal. Their Lordships of the Supreme Court observed that if that was not the legal position, it would result in placing an unrestricted power of review in the hands of the Income-tax Officer to go behind the findings given by a hierarchy of Tribunals and even those of the High Court and the Supreme Court, with his changing moods.

The Hon’ble Supreme Court had held that the order of the Appellate Tribunal having become final and the finding of the Tribunal, even though passed by mistake, yet the Income-tax Officer could not initiate fresh assessment proceedings, as the order of the Tribunal was binding on the Income-tax Officer. It was noted that various High Court had expressed a similar view.

The Hon’ble Supreme Court observed that the Income-tax Act of 1961 has given statutory recognition to the said doctrine of merger by providing in section 154(1A) that where any matter has been considered and decided in any proceedings by way of appeal or revision relating to an order, the authority passing such order may amend the said order by way of rectification in relation to any matter other than the matter which has been so considered and decided. Thus, the questions which are expressly raised before or decided by the appellate or revisional authority cannot be reagitated and no rectification proceedings will be maintainable in respect thereof, under section 154 of the 1961 Act, before the Income-tax Officer in the garb of amending his own order.

Accordingly, the Tribunal held that the assumption of jurisdiction by the AO u/s 154 was bad in law and the order so passed u/s 154 was set-aside.

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