2019 (8) TMI 547 - HC - Income Tax

Rectification proceedings in terms of Sections 154/155 - mistake apparent from the record - pendency of the appeal before the CIT (A) pursuant to the remand by the Tribunal - HELD THAT - It is ex facie apparent that the notice issued under Sections 154/155 of the Act dated 02.08.2018 is incomplete. Furnishing the details of the rectification, which the Authority is proposing to, is sine qua non for passing rectification order. In the absence of such particulars made available to the petitioner/assessee, the assessee is deprived to meet the proposals made which would result in violation of principles of natural justice. On the basis of the notice dated 02.08.2018, the order impugned is passed enhancing the tax liability. Hence, the said order suffers from the vice of arbitrariness and is illegal per se. The pendency of the proceedings before CIT(A) pursuant to the order of ITAT on a different issue, would not preclude the respondent No.2-Authority to proceed with the rectification of the order giving effect to the original order of CIT(A), not the subject matter of the present appeal before CIT(A). But in view of the remand by ITAT to the CIT(A) for adjudication on the ground Nos.9 and 10, this Court deems it appropriate to direct CIT(A) to dispose of the appeal in accordance with law in an expedite manner, preferably within a period of six months from the date of receipt of the certified copy of the order and is ordered accordingly. The respondent No.2 is at liberty to conclude the rectification proceedings in accordance with law relating to any other issue not the subject matter of the pending appeal, after issuing a fresh notice

Issues involved:
Challenge to order and demand notice, adjudication of ground Nos. 9 and 10, rectification under Sections 154/155 of the Income Tax Act, enhancement of tax liability, violation of principles of natural justice, pendency of appeal before CIT(A), arbitrariness in passing order, legality of rectification proceedings.

Detailed Analysis:

1. Challenge to Order and Demand Notice:
The petitioner challenged the order and demand notice dated 04.09.2018 passed by respondent No.2 seeking direction to adjudicate issues on ground Nos. 9 and 10 as per ITAT's direction within a timeframe.

2. Adjudication of Ground Nos. 9 and 10:
The petitioner, a Co-operative Society, filed its return of income for AY 2013-2014 claiming deduction under Section 80P of the Income Tax Act. The assessment disallowed the deduction, leading to an appeal before respondent No.1, partly allowed. Appeal before ITAT on ground Nos. 9 and 10 was remitted to CIT(A) for adjudication.

3. Rectification under Sections 154/155 of the Act:
Respondent No.2 issued a notice proposing rectification of the order dated 12.01.2017, enhancing tax liability, without providing details of rectification to the petitioner. The order was passed during the pendency of the appeal before CIT(A).

4. Enhancement of Tax Liability and Violation of Principles of Natural Justice:
The petitioner contended that the rectification order enhancing tax liability was unsustainable as it was passed without providing an opportunity to meet the proposals, violating principles of natural justice. The order was deemed arbitrary and illegal per se.

5. Pendency of Appeal Before CIT(A):
The Revenue argued that rectification proceedings could proceed despite the appeal before CIT(A) being on a different subject matter unrelated to the rectification order.

6. Decision and Legal Analysis:
The Court found the notice incomplete and lacking necessary details for passing a rectification order, depriving the assessee of the opportunity to respond, violating natural justice. The order enhancing tax liability was deemed arbitrary and illegal. The Court directed CIT(A) to dispose of the appeal on ground Nos. 9 and 10 within six months. Respondent No.2 was allowed to conclude rectification proceedings on other issues after issuing a fresh notice and providing a hearing to the petitioner.

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