When CIT(A) order to remand case to AO was set aside without interfering with direction to delete addition, order of AO did not automatically revive.
In a recent judgment, Kolkata High Court has held that when High Court set aside CIT(A) order to remand the case but did not interfering with direction to delete the impugned addition, it can not be said that the order of the Assessing Officer automatically stood revived.
ABCAUS Case Law Citation:
4912 (2025) (12) abcaus.in HC
In the instant case, the assessee had filed a Writ Petition challenging the rectification order under section 154 of the Income Tax Act, 1961 (the Act) passed by the Assessing Officer (AO).
The return of income of the Petitioner /assesse was initially processed under Section 143 (1) of the Act and subsequently the same was selected for scrutiny under CASS.
Hearing was conducted and the scrutiny assessment under Section 143(3) of the Act was completed by order under section 143(3) after making addition towards unexplained sundry creditors which was outstanding.
The Commissioner of Income Tax Act (Appeals), National Faceless Appeal Centre passed an order remanding the case to AO with direction to delete the additions after verification.
Being aggrieved by the order of the CIT(A), the petitioner preferred an appeal before the Income Tax Appellate Tribunal which refused to interfere with the order passed by the CIT(A).
The Petitioner challenged the order passed by the ITAT before the Division Bench of High Court. The High Court allowed the appeal
Thereafter, the Assessing Officer passed an order giving effect to the order of the High Court and recomputing the income of the assessee by holding that the petitioner was entitled to a refund. The said order was, however, rectified by the Assessing Officer enhancing the tax liability and reducing the refund by a subsequent order passed u/s 154 of the Act.
Before the Hon’ble High Court, the assessee submitted that the Division Bench did not interfere with the portion of the order passed by the CIT(A) directing the Assessing Officer to delete the additions. Only the portion of the order of the CIT(A) directing further enquires to be made was only set aside.
The Revenue contended that the Division Bench was pleased to set aside the orders passed by the CIT(A) as well as the order of the Tribunal. Therefore, a consequential effect of such an order was that the order of the Assessing Officer automatically stood revived.
It was further submitted by the Revenue that Assessing Officer, on a bona fide mistake, passed the first order directing certain amount to be refunded to the petitioner and immediately after detection of such bona fide mistake the rectification order was passed.
It was also submitted that the tax liability of the petitioner was not enhanced by the impugned order but only a bona fide error in giving effect to the order of the Hon‟ble Division Bench was rectified and, therefore, the provisions of Section 154(3) of the Act did not stand attracted to the case on hand.
The Hon’ble High Court observed that the Division Bench had passed an order after framing two substantial questions of law only with regard to the power of the CIT (A) to direct further enquiries to be made.
The Hon’ble High Court further observed that the Division Bench had noted the factual finding recorded by the CIT(A) that the Assessing Officer was not justified in making the addition and there was a positive direction to delete the addition. The Division Bench was of the view that the CIT (A) committed an error of law by remanding the matter to the Assessing Officer for a fresh consideration after having held in favour of the assessee and the Tribunal also did not deal with such issue.
The Hon’ble High Court noted that only the portion of the order remanding the matter to the Assessing Officer for fresh adjudication on merits, was interfered with by the Division Bench and the positive finding recorded in the order of the CIT (A) that the Assessing Officer was not justified in making the addition as well as the positive direction to delete the addition, was not interfered with.
The Hon’ble High Court opined that the action of the Assessing Officer (AO) in passing the rectification order u/s154 of the Act adjusting the penalty demand with the refund order fell with the scope of sub-Section (3) of Section 154 of the Act which requires that an amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee shall not be made unless notice is given to the assessee of intention to do so and to allow the assessee a reasonable opportunity of being heard.
Accordingly, Hon’ble High Court set aside and quashed the rectification order under section 154 bringing back life to original order.
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