2021 (1) TMI 36 - AT - Income Tax

Order u/s.154 - AO has disallowed the entire prior paid expenditure - disallowance was made in the first rectification order dated 19.02.2015 wherein the Assessing Officer has made disallowance of prior paid expenditure - Two rectification applications filed - HELD THAT - In so far as second rectification order dated 28.07.2015, no disallowance has been made; and in fact whatever relief was sought by the assessee in its application has been allowed. Ld. counsel has also informed that assessee has even filed second set of rectification application before the Assessing Officer against order dated 09.02.2015, wherein it has challenged the entire disallowance of prior period expenditure which has not been disposed off; and secondly, it has also been prayed before us that liberty should be given to file the appeal before the first appellate authority against the first rectification order passed u/s.154 dated 19.02.2015. These pleas have been taken only by way of alternative contention, otherwise the main contention of the ld. counsel is that the first rectification order has been merged with the second rectification order, and therefore, all these issues arising in the first rectification order are open and can be challenged by the assessee. However, we are unable to accept this contention of the ld. counsel, because the right course of remedy would have been that assessee should have filed the appeal before the appellate forum against the first rectification order dated 19.02.2015 and/ or had filed an application for rectification against the said order. Since right to appeal is a substantial right and if any disallowance has been made which otherwise is not sustainable in law and on facts, then such a legal remedy is always available to the assessee in the interest of substantial justice. We are granting liberty to the assessee to file appeal before the first appellate authority against the first rectification order dated 19.02.2015 along with petition for condonation of delay where it can challenge such disallowance in the said appeal. Assessing Officer is also directed to dispose of the rectification application if the assessee has filed such an application against first rectification order dated 19.02.2015 expeditiously.

Summary

Issues:
1. Dismissal of appeal by CIT(A) against order u/s.154 dated 28.07.2015.
2. Disallowance of prior period expenditure of ?25,76,38,511 made in the rectification order(s) passed under section 154 of the Act.

Analysis:
1. The appeal was filed against the order dated 25.07.2016 passed by the Ld. Commissioner of Income Tax (Appeals)-XXII regarding the order passed u/s.154 for the Assessment Year 2008-09. The appellant raised grounds challenging the dismissal of the appeal by CIT(A) without providing an opportunity to be heard. The CIT(A) dismissed the appeal stating that the grounds did not pertain to the rectification order dated 28.07.2015 under challenge. The CIT(A) clarified that this order would not prejudice any legal right to appeal pertaining to the order dated 19.02.2015 if available under the law.

2. The disallowance of prior period expenditure of ?25,76,38,511 was contested by the assessee. The Assessing Officer had initially disallowed ?28,64,00,000 which was later reduced to ?2,87,61,489 in the rectification order dated 28.07.2015. The assessee argued that the earlier order u/s.154 merged with the subsequent order, allowing the challenge to the disallowance. However, the Tribunal found that the right course of remedy would have been to file an appeal against the first rectification order dated 19.02.2015. The Tribunal granted liberty to the assessee to file an appeal against the first rectification order along with a petition for condonation of delay.

3. The Tribunal highlighted that the right to appeal is a substantial right available to the assessee if any disallowance is not sustainable in law and on facts. The Tribunal directed the Assessing Officer to expeditiously dispose of any rectification application filed against the first rectification order dated 19.02.2015. The assessee was given the opportunity to explore the legal remedy of appeal for addressing its grievance. The appeal of the assessee was technically treated as dismissed, subject to the Tribunal's direction for filing an appeal against the first rectification order.

In conclusion, the Tribunal dismissed the appeal of the assessee but granted liberty to file an appeal against the first rectification order dated 19.02.2015, emphasizing the importance of the right to appeal in addressing grievances related to disallowances not sustainable in law and on facts.