2018 (9) TMI 953 - AT - Income Tax

Expenditure of rent paid to Rajasthan State Warehousing Corporation by invoking the provisions of section 40(a)(ia) - Allowing the said claim while passing the assessment under section 143(3) is a mistake apparent on record which was rectified by the AO while passing the impugned order under section 154 - Held that - Since the rent was paid to the Rajasthan State Warehousing Corporation, therefore we find merit in the contention of the ld. A/R that said amount was certainly considered for computing the total income and filing the return of income by the RSWC. Therefore, if the said amount was already considered by the recipient while computing its total income and filed the return of income, then in view of the second proviso to section 40(a)(ia) which has been held as applicable retrospectively by the various decisions of Hon ble High Courts including the decision of CIT vs. Naresh Kumar (2013 (9) TMI 275 - DELHI HIGH COURT) no disallowance is called for. Hence without going into the other contention raised by the ld. A/R, we find that if the said amount of rent has been considered by the RSWC in its total income while filing the return, then no disallowance shall be made under section 40(a)(ia) of the Act. Accordingly we direct the AO to verify this fact and then decide the issue in the light of the above observations and binding precedents.

Summary

Issues:
1. Justification of sustaining order u/s 154 of the IT Act
2. Consideration of opportunity before passing order u/s 154 of the IT Act
3. Validity of the order passed under section 154 without giving an opportunity to the assessee

Analysis:

Issue 1: Justification of sustaining order u/s 154 of the IT Act
The appeal was against the order of the ld. CIT (A) sustaining the order u/s 154 of the IT Act for the assessment year 2010-11. The AO disallowed the expenditure of rent under section 154 for want of TDS deduction. The assessee contended that the AO's change of opinion based on an audit objection is not covered under section 154. The ld. CIT (A) upheld the order passed under section 154. The Tribunal found merit in the contention that if the rent amount was already considered by the recipient while filing the return of income, no disallowance should be made under section 40(a)(ia). The Tribunal directed the AO to verify this fact and decide accordingly.

Issue 2: Consideration of opportunity before passing order u/s 154 of the IT Act
The assessee argued that the AO passed the order under section 154 without giving an opportunity to be heard, contrary to the provisions of section 154(3) and principles of natural justice. The Tribunal acknowledged this argument and emphasized the importance of providing an opportunity of hearing before passing orders under section 154. The failure to issue a notice to the assessee prior to the order was deemed a violation of principles of natural justice.

Issue 3: Validity of the order passed under section 154 without giving an opportunity to the assessee
The Tribunal considered the contention that the order passed under section 154 enhancing the assessment without hearing the assessee was not sustainable. It was highlighted that passing such an order without providing an opportunity of hearing goes against the principles of natural justice and is contrary to the provisions of section 154(3). The Tribunal emphasized the need for procedural fairness in such matters and ruled in favor of the assessee for statistical purposes.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the importance of considering all relevant facts, providing opportunities for hearing, and ensuring procedural fairness in assessments under section 154 of the IT Act.