2024 (7) TMI 433 - AT - Income Tax

Validity of order passed u/s 154/147/143(3) - Disallowance of prior period expenses - As contented the relevant previous year consisting of 2 months was the first year of the appellant/ assessee s business; therefore, there was no prior period expenses - HELD THAT - The quantum addition and charging of interest in the reassessment order dated 02.09.2011 passed under section 147/143 of the Act cannot be raised during the appellate proceedings initiated in consequence to the revision/rectification order dated 24.10.2018 passed under section 154/147/143(3) of the Act. Basically, the appellant/assessee, in consequence to the order of the Hon ble High Court against penalty order, filed an application u/s 154 of the Act requesting deletion of the penalty demand from the System, which was acceded to by the AO. We are of the considered opinion that the rectification order passed under section 154/147/143(3) of the Act cannot be taken as escape route to challenge the validity and quantum addition made in the reassessment order passed under section 147/143 of the Act. We, therefore, do not find any merit in the appeal challenging the quantum addition. Hence, we dismiss grounds no. 2 and 3 challenging the quantum addition. Appeal of the assessee is dismissed.

Summary

Issues:
- Justification of CIT(A) dismissing the assessee's appeal
- Disallowance of prior period expenses
- Validity of reassessment order passed under section 147/143 of the Act
- Challenge to the rectification order dated 24.10.2018
- Quantum addition of Rs. 1,69,71,833
- Charging of interest under sections 234A, 234B, 234C and interest under section 244A

Analysis:
The core issue in this case is the justification of the Commissioner of Income Tax (Appeals) dismissing the assessee's appeal challenging the order passed under section 154/147/143(3) of the Act for the Assessment Year 2006-07. The appellant, a Central Government Public Sector Unit, filed its Income Tax Return declaring income of Rs. 9,11,18,593/- for the two-month previous year. The original assessment was completed under section 143(3) of the Act, revised, and later reopened, resulting in a quantum addition of Rs. 1,69,71,833/- and interest charges. The CIT(A) dismissed the appeal, leading the appellant to approach the ITAT.

Regarding the disallowance of prior period expenses, the appellant argued that the expenses were wrongly classified, citing relevant case laws and a CBDT Circular. The appellant contended that the reassessment order determining income at Rs. 1,69,71,833/- was void due to pending proceedings under section 154 of the Act. However, the Sr. DR argued that the reassessment order had attained finality as the appellant accepted it and never challenged it before any appellate authority.

The ITAT observed that the appellant had accepted the quantum addition in the reassessment order and never challenged it. The ITAT held that the appeal against the rectification order could not be used to question the validity of the reassessment order. The appeal challenging the quantum addition and interest charges was dismissed, as the rectification order could not be an escape route to challenge the reassessment order.

In conclusion, the ITAT dismissed the appeal, stating that the quantum addition and interest charges in the reassessment order could not be raised during the appellate proceedings initiated in consequence to the rectification order. The ITAT found no merit in the appeal challenging the quantum addition and upheld the decision of the CIT(A) regarding interest charges under sections 234A, 234B, 234C, and section 244A.