Validity of assessment u/s 144/147 can be challenged in rectification Petition u/s 154 – ITAT
In a recent judgment, ITAT Mumbai has held that validity of assessment order u/s 144/147 can be challenged in rectification Petition u/s 154 when there is a mistake apparent from record but also is a mistake of law.
ABCAUS Case Law Citation:
4181 (2024) abcaus.in 08 ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) / National Faceless Appeal Centre (NFAC) in confirming the rectification order u/s 154 of the Income Tax Act, 1961 (the Act) passed by the Assessing Officer (AO) holding that the relief sought for by the appellant was “beyond the scope of the Section 154 of the Act.
On the basis of information that assessee had made payments for investment in property, purchase of mutual funds and credit cards. According to the AO the assessee had not filed return of income, reassessment proceedings u/s 147 was initiated by issuance of notice u/s 148 of the Act.
According to the AO, assessee had not filed any return of income for the relevant Assessment Year, however in the submission before the AO, assessee had categorically stated that assessee had already filed the return and mentioned the PAN also.
However, still AO held that assessee had not filed any return of income in response to notice u/s 148. Thereafter, he issued a final show-cause notice and passed the best judgment assessment u/s 144 and added the entire amount of payments to the income. The assessment order was passed on other PAN i.e. not on the PAN which assessee had stated to have filed return of income.
Thereafter, assessee had filed rectification petition u/s 154 for cancelling the order u/s 144 r.w.s. 147 on the ground that it had been passed on a wrong PAN, however, the AO summarily rejected the application on the ground that cancelling of the assessment order u/s.144 r.w.s. 147 is beyond the scope of Section 154 of the Act.
The CIT(A) observed that section 154 is applicable only for rectifying mistakes which are apparent from records and not for cancelling the Assessment order passed. The CIT(A) opined that action of the AO was in accordance with the Act. The CIT(A) further held that grounds taken in the appeal preferred against the order passed u/s 154 of the Act, were beyond the powers of Section 154 of the Act. The Assessee needed to file a separate appeal against the order u/s 144 r.w.s 147 which had not been done by the Assessee.
Before the Tribunal the assessee submitted that earlier he had two PAN, one old PAN under which she had filed her return of income upto preceding AY. Thereafter, assessee had taken a new PAN which was quoted while doing the transaction of property etc. The old PAN was surrendered and was duly intimated to the department.
The Tribunal observed that the Income Tax Department had duly acknowledged the letter surrendering the old PAN. Later on the process of surrender of old PAN was completed and there was only one active PAN of the assessee i.e. new PAN. The assessee had filed return of income for the relevant AY under the new PAN. Not only that the said return was accepted but intimation u/s.143(1) was also issued under the new PAN.
The Tribunal further observed that the notice u/s.148 was not only addressed on the non-existing PAN but also at non-existing premises. Since assessee did not have access to her portal under old PAN; therefore, assessee submitted the return on her active PAN in response to notice u/s.148 but the system did not permit and allow filing of the return. This fact was duly intimated to the AO.
The Tribunal observed that when assessee filed application u/s.154 stating that earlier assessment order has been passed under a wrong PAN which was not in existence, then both the authorities stated that it is beyond the scope of Section 154.
Thus, the issue was whether rectification application u/s.154 can be filed challenging the validity of earlier assessment order passed u/s 144 / 147 which otherwise is admittedly an illegal order?
The Tribunal observed that section 154 of the Act provides for rectification of a mistake apparent from record. “Any mistake apparent from the record” covers all mistakes discoverable from a perusal of the whole evidence in the case, or from an omission to apply certain provisions of the Act to the facts of the case, or a mistake due to an overlooking of certain aspects of the case, or a mistake arising on account of a wrong construction of any provisions of the Act. The error may be either of fact or error of law. Here in this case there was a clear cut mistake which is very glaring and there cannot be any two views that an assessment order passed u/s 144/147 on a non-existing PAN is incorrect in law. What is material u/s.154 of the Act is that, whether there is a mistake, a mistake which is clear, glaring and which is incapable of two views being taken. The expression “record‟ has to be construed and understood in which it appears and in context of expression “apparent from the record‟ in section 154, “record‟ would mean the record of the entire proceedings of the case including the documents and material produced by the assessee and taken on record by the authorities, which were available at the time of passing of the order.
The Tribunal opined that once at the time of passing of the order the material fact that assessee had filed the return of income under a new PAN and all the transactions have been disclosed then, taking cognizance of old PAN which was already surrendered, does constitutes a mistake apparent from record which falls within the scope and ambit of rectification u/s.154.
The Tribunal noted that Hon’ble Supreme Court held that the jurisdiction u/s 154 to rectify the mistake is much wider than provided in Order XLVII, rule 1 of the CPC, 1908, and therefore, relief could be allowed in the rectification proceedings if all the factual material necessary for allowing the relief were available on record and such relief could not be denied merely because the assessee omitted to claim the same.
The Tribunal held that in the instant case, the validity of assessment order u/s 144/147 can be challenged because not only there is a mistake apparent from record but also is a mistake of law.
Accordingly, the Tribunal quashed the assessment order u/s.144 / 148 and allowed the appeal of the assessee.
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