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Income Tax Appellate Tribunal Bangalore has held that CIT(A) could not have confirmed additions made in the original assessment order ignoring the subsequent order of rectification under section 154 of the Income Tax Act, 1961 whereby the additions confirmed had already been deleted.

Case Details:
ITAT Bangalore Bench “ C ”
ITA  No.541/Bang/2014
Assessment Year : 2009-10
M/s. Maruthi Clothing Co. (Appellant) vs Asst. Commissioner of Income Tax (Respondent)
Date of Hearing : 30.6.2015.
Date of Pronouncement : 7.8.2015

Facts of the Case:
The assessee firm was in the business of manufacturing readymade garments. It’s return of income for Assessment Year 2009-10 was selected for scrutiny and the assessment was concluded under Section 143(3) of the Income Tax Act, 1961 ('the Act') making additions/disallowances. One of the additions was an amount of Rs. 4211320/- on account of outstanding sundry creditors due to discrepancy in the amounts reflected as payable & receivable.

Aggrieved by the order of assessment, assessee preferred an appeal before the CIT (Appeals) which was dismissed. Among the various ground of appeals, few of the grounds that the assessee took was as under:

5. The order of the CIT (Appeals) is bad in law as the CIT (Appeals) failed to appreciate that additions of Rs.42,11,320 was deleted by the Assessing Officer as per order of rectification passed under Section 154 of the Act on the facts of the case.

6. The CIT (Appeals) failed to take cognisance of the order passed under Section 154 of the Act and hence the order of the CIT (Appeals) needs to be set aside in the interest of equity and justice.

9. Without prejudice, the CIT (Appeals) erred in enhancing the assessment by making additions of Rs.42,11,320 which was already deleted by the Assessing Officer on the facts of the case.

10. Without prejudice, the action of the CIT (Appeals) in enhancing the assessment by making additions of Rs.42,11,320 without providing a reasonable opportunity to the appellant as per provisions of section 251(2) of the Act is not in accordance with law and needs to be deleted on the facts of the case.

Before ITAT, the assessee represented that during the course of assessment proceedings the Assessing Officer, inter alia, examined the assessee's records with respect to the assessee's purchases and job work dealings with Arvind Brands. On verification thereof, the Assessing Officer required the assessee to furnish details to explain the discrepancies noticed therein. On the assessee's failure to furnish the details, the Assessing Officer made an addition of Rs.42,11,320 on account of the difference between the amounts reflected as payable to Arvind Brands and receivable from them. However, the assessee preferred an application under Section 154 of the Act for rectification of the order of assessment by furnishing reconciliation of the aforesaid difference in sundry creditor balance and the Assessing Officer, taking cognisance of the assessee's application for rectification passed an order under Section 154 accepting the assessee's explanation and rectified the assessment order by deleting the addition of Rs.42,11,320.

It is further submitted by the assessee that copy of the rectification order dt.21.6.2012 was filed in office of the learned CIT (Appeals) on 21.11.2013, well before the appeal was dismissed on 11.12.2013.

The assessee contended that in spite of the rectification order being filed with the office of the CIT(Appeals) had failed to take cognisance of the same and made a factually incorrect statement that

“ ….. no copy of the rectification order has been furnished before me…….”

The assessee contended that CIT(A) could have ascertained the factual position with the Assessing Officer by verifying the records to check the authenticity of the assessee's claim. It was contended that once the Assessing Officer had rectified the assessment order deleting the addition of Rs.42,11,320, the CIT(A) could not have confirmed this non-existent addition which resulted in an implied enhancement of income.

The assessee prayed that the order of the CIT (A) be reversed and the income as assessed vide the rectification order u/s 154 be restored.

Excerpts from the ITAT Order:

5.3.1 We have heard both parties and perused and carefully considered the material on record. From an appreciation of the details on record, we find that in the order of assessment for Assessment Year 2009-10, the Assessing Officer had made an addition of Rs.42,11,320 on account of the assessee's failure to explain the difference / discrepancies in the amounts reflected as ‘payable to’ and ‘receivable from’ Arvind Brands. It is also seen from the details placed on record that on the assessee preferring a rectification application dt.14.5.2012 in this regard, the Assessing Officer accepted the explanation / reconciliation of the balances of Arvind Brands put forth by the assessee and passed an order under Section 154 of the Act dt.21.6.2012 rectifying the order of assessment dt.21.11.2011, by deleting the addition of Rs.42,11,320 made in respect of Arvind Brands, thereby reducing the assessed income to Rs.35,45,050 (i.e. Rs.77,56,369 less Rs.42,11,320). As per the details placed on record by the assessee, we find that the assessee had, vide letter dt.21.11.2013, also brought to the notice of the office of the learned CIT (Appeals) the fact the aforesaid order under Section 154 of the Act dt.21.6.2012 was passed and filed a copy thereof. We are of the view that if the learned CIT (Appeals) had doubted the claim of the assessee that the aforesaid rectification order dt.21.6.2012 was placed before her vide letter dt.21.11.2013, she could have called for and verified the same factual position from the Assessing Officer or the records of assessment; which she failed to do. Instead, she proceeded to confirm the non-existent addition of Rs.42,11,320 which she ought not to have done.

5.3.2 In the factual matrix of the case, as discussed above, we reverse the decision of the learned CIT (Appeals) in upholding the addition of Rs.42,11,320 and restore the position of the case on hand on this issue to that which exists subsequent to the rectification order under Section 154 of the Act dt.16.6.2012 where the assessee’s income was recomputed / determined, pursuant to the deletion of the said addition of Rs.42,11,320. It is ordered accordingly. Consequently, Grounds at S.Nos.5 and 6 are allowed.

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ITAT-CIT(A) Could not have Confirmed Additions made in Original Assessment When they were Already Deleted by Rectification Order u/s 154 | 09-09-2015 |