2024 (10) TMI 700 - AT - Income Tax

Validity of assessment u/s 143(1) - non-following the procedure laid down u/s 144B - as argued selection of the case for regular assessment and the assessee was not given opportunity before making such addition - Revenue vehemently argued that the intimation order does mot merge with the regular assessment when the AO taxes the taxable income based on the intimation order u/s 143(1) - HELD THAT - It is well-settled law that assessee cannot be taxed at an amount which is not legally imposable. As per the facts on record, assessee chose to address the grievance against wrong order, however we noticed that the intimation u/s 143(1) of the Act was passed after selection of the case for regular assessment and the assessee was not given opportunity before making such addition. We also noticed that after passing of the intimation order u/s 143(1) of the Act within three months, the regular assessment u/s 143(3) was also passed. As per the Second Proviso to Section 143(1) of the Act, no intimation under this sub-section shall be sent after the expiry of one year (9 months as applicable at that point of time) from the end of financial year. Since, in the present case, intimation was passed on 22.09.2022 assessee could have filed rectification application u/s 154 of the Act and the same has to be disposed off within 6 months from the date of reference. In the given case, the regular assessment itself was passed on 28.12.2022. That means assessee could have raised this issue before the AO in the regular assessment itself. Since this is a peculiar case wherein the addition was proposed based on the apparent mistake on record, which was not appreciated by the authorities. Considering these facts on record with the moto of our institution Impartial, Easy Speedy Justice , in our considered view, ld. CIT (A) even though having co-terminus power had failed to appreciate the real facts on record and we do not want to toe the same line of argument of ld. DR CIT (A), particularly when we noticed that the assessee has not made any claim of the contingent liability in its profit loss account and merely based on the mistake of the tax auditor, who wrongly mentioned at Col.21(a) of the tax audit report for such mistake the assessee cannot be penalized. In our view, there is no point in dismissing this appeal and directing the assessee to file a fresh appeal against the intimation order u/s 143(1), we noticed that the AO without making any verification has completed the assessment u/s 143(3) of the Act considering the total taxable income as per intimation u/s 143(1) of the Act. In order to achieve the speedy justice, we are inclined to direct the AO to delete the additions made in the gross taxable income u/s 143(1) of the Act which was borrowed by the AO to compute the assessment u/s 143(3) of the Act to determine the taxable income for the year under consideration. Accordingly, we allow the grounds raised by the assessee.

Issues Involved:

1. Whether the addition of Rs. 26,54,02,75,345/- under Section 37 of the IT Act was justified.
2. Whether the procedure under Section 144B of the IT Act was violated.
3. Whether the assessee's appeal against the assessment order under Section 143(3) was valid despite not appealing against the intimation under Section 143(1).
4. Whether the principles of natural justice were violated.

Issue-wise Detailed Analysis:

1. Addition under Section 37 of the IT Act:
The primary issue was the addition of Rs. 26,54,02,75,345/- as a contingent liability under Section 37 of the IT Act. The assessee argued that this amount was inadvertently reported by the tax auditor in Form 3CD and was not actually debited to the profit and loss account. The tribunal noted that the tax auditor had indeed made a clerical mistake in reporting this liability, which was clarified later. The tribunal emphasized that taxes should be collected as per the authority of law and not due to inadvertent mistakes in the tax audit report. The tribunal directed the Assessing Officer to delete this addition, acknowledging the error and the fact that the amount was not claimed in the profit and loss account.

2. Procedure under Section 144B of the IT Act:
The assessee contended that the procedure under Section 144B, which mandates issuing a show cause notice and draft assessment order before a final assessment, was not followed. The tribunal agreed with the assessee, noting that no such notice or draft was issued, which constituted a clear violation of the mandatory procedure. The tribunal referenced several judgments supporting the necessity of following statutory procedures to uphold the principles of natural justice.

3. Validity of Appeal against Assessment Order:
The tribunal addressed the issue of whether the appeal against the assessment order under Section 143(3) was valid, given that the assessee did not appeal against the intimation under Section 143(1). The tribunal observed that the Commissioner of Income Tax (Appeals) erred by dismissing the appeal on technical grounds without appreciating the factual error in the auditor's report. The tribunal emphasized that the CIT(A) has the power to assess the income properly and should have considered the clarification provided by the assessee.

4. Principles of Natural Justice:
The tribunal found that the principles of natural justice were violated as the assessee was not given an opportunity to clarify the mistake before the addition was made. The tribunal noted that the assessment was completed without following the due procedure, and the assessee was not given a chance to rectify the error in the audit report. The tribunal highlighted that the assessee should not be penalized for the auditor's mistake and that the appeal should not be dismissed on technical grounds when the facts clearly indicate an error.

Conclusion:
The tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to delete the addition made under Section 143(1) of the IT Act. The tribunal emphasized the importance of adhering to statutory procedures and the principles of natural justice, ensuring that taxes are imposed based on accurate and lawful grounds. The decision underscores the tribunal's commitment to providing "Impartial, Easy & Speedy Justice."

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