2023 (2) TMI 409 - AT - Income Tax

Valdity of Rectification of mistake u/s 154 - assessment of the assessee was completed u/s 143(3) - CIT(A) adjudicating upon the matter involved in order passed u/s 154 which was neither contested as a separate appeal nor was taken as an additional ground of appeal before Ld.CIT(A) by the assessee - Whether CIT(A) is right in law in admitting additional evidence without recording any reasons thus violating the provisions of Rule 46A(2) and Rule 46 A(3)? - AO disallowed the exemption u/s 54 resulting in an additional tax payable - HELD THAT - Similar issue came for consideration in the case of Navodaya Foundation Trust 2021 (7) TMI 769 - ITAT BANGALORE wherein held held by the CIT(A), as issue is not emanating from the order passed u/s 154 of the Act. The assessee cannot use proceedings u/s 154 to file appeal against the order passed u/s 143(1) of the Act. In the present case also, the assessee filed appeal against the order passed by AO u/s 143(3) of the Act dated 14.12.2016. There was no appeal by assessee against the rectification order passed u/s 154 of the Act dated 11.10.2017. Even if the assessee raised the ground in his appeal with regard to addition/deletion made in rectification order passed u/s 154 of the Act before the ld. CIT(A), the ld. CIT(A) must have called for the remand report from the AO, which he failed to do so. Being so, in the interest of justice, we remit the entire issue in dispute to the file of CIT(A) to consider afresh and decide the issue after giving fair opportunity of hearing to both the parties. Appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues:
1. Rectification order under section 154 of the Income Tax Act.
2. Admissibility of additional evidence without recording reasons.
3. Disallowance of exemption under section 54.
4. Eligibility for deduction under section 54F.
5. Violation of IT Rules by the Appellate Tribunal.

Rectification Order under Section 154:
The appeal involved a dispute regarding a rectification order passed under section 154 of the Income Tax Act, which revoked a deduction allowed under section 54 for three adjacent plots acquired by the appellant for constructing a residential house. The Appellate Tribunal held that the rectification order was invalid and void as the issue had already been decided under section 143(3) and did not constitute a mistake apparent from the record. The Tribunal directed the Assessing Officer to allow the deduction for the investment made in the three plots.

Admissibility of Additional Evidence:
The Appellate Tribunal addressed the issue of admitting additional evidence without recording reasons, which was raised by the revenue. The Tribunal observed that the additional evidence, related to the investment in a fourth property, was not eligible for deduction under section 54F as the appellant had not complied with the requirement to retain the sale proceeds in the Capital Gains Account Scheme within the specified time frame. The Tribunal confirmed the denial of deduction for the fourth property.

Disallowance of Exemption under Section 54:
The appellant contested the disallowance of exemption under section 54, arguing that the rectification order was erroneous and incorrect. The Appellate Tribunal examined the grounds raised by the appellant and found that the appellant had complied with the conditions stipulated under section 54 for reinvestment in a residential property. The Tribunal held that the rectification order revoking the deduction already granted for the three adjacent plots was unlawful, and directed the AO to allow the deduction while giving the appeal effect.

Eligibility for Deduction under Section 54F:
Regarding the investment in the fourth property, the Tribunal found that the appellant had not retained the sale proceeds in the Capital Gains Account Scheme as required by section 54F. As a result, the appellant was deemed ineligible for deduction under section 54F for the fourth property. The Tribunal confirmed the Assessing Officer's denial of the deduction for the fourth plot.

Violation of IT Rules by the Appellate Tribunal:
The revenue contended that the Appellate Tribunal violated Rule 46A(2), 46A(3), and 46A(4) of the Income Tax Rules by addressing the issue of the rectification order without calling for a remand report from the AO. The Tribunal cited a previous case to highlight that what could not be done directly by the appellant could not be achieved indirectly. Consequently, the Tribunal remitted the entire dispute back to the CIT(A) for a fresh consideration and decision after providing a fair opportunity of hearing to both parties.

This detailed analysis of the judgment covers the issues related to the rectification order, admissibility of evidence, disallowance of exemption, eligibility for deduction, and the alleged violation of IT Rules by the Appellate Tribunal.