2024 (4) TMI 920 - AT - Income Tax

Rectification u/s 154 - disallowance u/s 36(1)(va) for delay in depositing employee contribution of PF/ESI - Rectification was made relating to the additions u/s 36(1) by giving reason that addition was missed by the assessing officer while passing order u/s 143(3) - Doctrine of merger of intimation u/s 143(1) and the assessment order u/s 143(3) - If intimation u/s 143(1) of the Act got merged with assessment order u/s 143(3) and consequently AO was not justified to make addition by way of rectification u/s 154 on the basis of facts which have been considered during assessment - HELD THAT - While exercising power u/s 154 r.w.s. 143(3) AO has not gone back to reconsider the issues examined u/s 143(3) and make an addition thereupon. It is not a case where rectification power was exercised consequent to any change of law or applying a different proposition of law than one considered while framing assessment u/s 143(3) of the Act. The rectification order as reproduced above makes it apparent that the income determined vide intimation u/s 143(1) was taken as income for making further additions u/s 143(3) assessment. Certainly that was a mistake apparent from record as the intimation u/s 139(1) stood final after withdrawal of the appeal by the assessee. Accordingly the difference between the returned income and the assessed income u/s 143(1) was erroneously ignored while passing order u/s 143(3). Therefore we are of view AO had committed no error in exercising the rectification powers u/s 154. As with regard to applicability of the doctrine of merger of intimation u/s 143(1) and the assessment order u/s 143(3) the proposition of law in case Title M/s. Areca Trust 2024 (3) TMI 707 - ITAT BANGALORE where the additions made under intimidation u/s 143(1) and 43(3) are on different issues and heads and intimation u/s 143(1) of the Act stood final after withdrawal of appeal by assessee on what so ever erroneous belief there was no merger of two orders. Whether addition could be made by learned AO by exercising powers u/s 154 of the Act where learned AO had accepted the return filed u/s 139 of the Act vide intimation u/s 143(1) of the Act ? - There in the question of delay in deposit of the employees contribution was very much in the assessment records upon which the intimation u/s 143(1) was served upon the assessee and no disallowance was made. However here in the case in hand the addition was made in intimation u/s 143(1) of the Act with regard to disallowances on account of delayed contribution of PF and ESI and the house property income in intimation u/s 143(1) of the Act. In scrutiny assessment these issues were not under examination so as to say that while exercising powers rectification the Ld. AO has made rectification due to any change in opinion of law or fact.

Issues Involved:

1. Whether the intimation under section 143(1) of the Income Tax Act, 1961 merged with the assessment order under section 143(3) of the Act.
2. Whether the Assessing Officer (AO) was justified in making additions by way of rectification under section 154 of the Act.
3. Whether the disallowance of Employees' Contribution to PF and ESI under section 36(1)(va) was appropriate.
4. Whether the addition of Rs. 24,000/- under the head house property was justified.

Summary of Judgment:

Issue 1: Merger of Intimation under Section 143(1) with Assessment Order under Section 143(3):

The Tribunal examined whether the intimation under section 143(1) merged with the assessment order under section 143(3). It was noted that the intimation under section 143(1) recomputed the income of the assessee due to disallowance of PF/ESI contributions and house property income. The assessee had initially filed an appeal against this intimation but later withdrew it, believing the issues were considered in the scrutiny assessment under section 143(3). However, the Tribunal found that the issues addressed under section 143(1) were not examined in the scrutiny assessment under section 143(3). Therefore, there was no merger of the two orders.

Issue 2: Justification of Additions by Rectification under Section 154:

The Tribunal upheld the AO's action of making additions through rectification under section 154. The rectification was based on the apparent mistake that the income determined under section 143(1) was not considered while passing the order under section 143(3). The Tribunal found that the AO did not reconsider issues already examined under section 143(3) but corrected an apparent mistake from the record.

Issue 3: Disallowance of Employees' Contribution to PF and ESI:

The assessee argued that the disallowance under section 36(1)(va) should not be made under sections 143(1) or 154 as it is not a prima facie adjustment. The Tribunal, however, noted that the disallowance was made in the intimation under section 143(1) and was not under scrutiny in the assessment under section 143(3). Therefore, the rectification under section 154 was justified.

Issue 4: Addition under the Head House Property:

The Tribunal observed that the addition of Rs. 24,000/- under the head house property was already included in the income from other sources in the ITR filed by the assessee. However, since this issue was not under scrutiny in the assessment under section 143(3), the rectification under section 154 was appropriate.

Conclusion:

The Tribunal dismissed the appeal of the assessee, sustaining the order of the Commissioner of Income Tax (Appeals). The Tribunal held that the AO was justified in exercising rectification powers under section 154, and there was no merger of the intimation under section 143(1) with the assessment order under section 143(3). The disallowance of Employees' Contribution to PF and ESI and the addition under the head house property were upheld.

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