2023 (2) TMI 450 - AT - Income Tax

Rectification of mistake u/s 154 - clerical error of non-giving credit of TDS - AO athough, withdrew the addition which was made in the rectification order u/s 154 but made another addition by disallowing interest expenses - CIT(A) held that the TDS credit has been allowed as per claim of the assessee and observed that the Assessing Officer did not give any reason whatsoever for enhancing income from other sources - HELD THAT - AO has misinterpreted the order of the CIT(A). CIT(A) has only directed to verify the record and adopt correct amount. However, since the above directions of the CIT(A) was not clear, therefore, the Assessing Officer proceeded to make a fresh assessment which was neither justified nor within the jurisdiction of the Assessing Officer. Firstly, in the rectification petition, AO was supposed to rectify the error apparent on record. The AO was not justified at all to enhance the income of the assessee from other sources without assigning any reason and without giving any opportunity to the assessee, that too in a rectification order. CIT(A) should have given a clear-cut direction of deleting the enhancement of income in the rectification order instead of directing the AO to verify the record. AO after verification, though, deleted the enhanced income but again proceeded to make certain other disallowance which action of the Assessing Officer has resulted due to inappropriate directions of the CIT(A). In view of this, the impugned order of the CIT(A) is set aside and thereby the enhancement of income made by the AO is also set aside. Any consequential order passed by the Assessing Officer, under the circumstances, of enhancement of income is also hereby set aside. In nutshell, the assessee will be given credit of the TDS as determined by the Assessing Officer in the rectification application u/s 154 of the Act and further enhancement of income, if any, is order to be deleted. Appeal of the assessee stands allowed.

Summary

Issues:
1. Rectification order u/s 154 enhancing income without notice and reason
2. CIT(A) directing AO to verify and adopt correct income from other sources
3. Misinterpretation of CIT(A)'s directions by Assessing Officer

Analysis:
1. The appeal was against the order of the National Faceless Appeal Centre passed under section 250 of the Income Tax Act. The Assessing Officer had enhanced the income of the assessee under section 154 without issuing any notice, leading to the first ground of appeal. The CIT(A) allowed the TDS credit but did not provide reasons for the income enhancement, directing the AO to verify and adopt the correct amount. The issue was the lack of justification for enhancing income without notice or reason, which was deemed unjustified and beyond jurisdiction. The Tribunal set aside the CIT(A)'s order and the income enhancement, emphasizing that rectification orders should correct apparent errors, not initiate new assessments without proper justification.

2. The second ground of appeal pertained to the CIT(A)'s direction to verify and adopt the correct income from other sources. The Tribunal found that the Assessing Officer misinterpreted the CIT(A)'s order, leading to a fresh assessment and additional disallowances. The Tribunal clarified that the CIT(A) should have explicitly directed the deletion of the income enhancement instead of a vague instruction to verify records. The Assessing Officer's actions were deemed inappropriate, resulting in the setting aside of the CIT(A)'s order and the subsequent income enhancement.

3. The third issue involved the misinterpretation of the CIT(A)'s directions by the Assessing Officer. The Tribunal highlighted that the CIT(A) only directed to verify records and adopt the correct amount, not initiate a new assessment. The Assessing Officer's actions of making additional disallowances were deemed unwarranted due to the vague directions given by the CIT(A). Consequently, the Tribunal set aside the CIT(A)'s order and the income enhancement, emphasizing the need for clear and specific directions in rectification proceedings to avoid misinterpretations and unjust assessments.

In conclusion, the Tribunal allowed the appeal, setting aside the CIT(A)'s order and the income enhancement made by the Assessing Officer. The decision emphasized the importance of clarity and specificity in directions given during rectification proceedings to prevent unjust assessments and ensure the correction of apparent errors only.