2025 (4) TMI 995 - AT - Income Tax

Reopening of assessment u/s 147 - Addition towards cash deposit u/sec.69A - appeal filled against the order passed by the AO u/sec.154 levying tax @ 60% u/sec.115BBE - HELD THAT - In the present case even though the appeal filed by the assessee against the order passed by the Assessing Officer u/sec.143(3) r.w.s.147 is pending for adjudication the learned CIT(A) disposed of the appeal filed by the assessee against the order passed by the Assessing Officer u/sec.154 of the Act without taking cognizance of the appeal filed by the assessee u/sec.143(3) r.w.s.147 of the Act. Therefore this issue needs to be go back to the file of CIT(A) to decide the issue simultaneously along with appeal filed by the assessee against the order passed by the Assessing Officer u/sec.143(3) r.w.s.147 or after deciding the appeal filed by the assessee against the order of the Assessing Officer passed u/sec.143(3) r.w.s.147. Appeal of the assessee is allowed for statistical purposes.

Summary

The core legal questions considered in this appeal are:

1. Whether the Rectification Order passed under section 154 of the Income Tax Act, 1961 (the Act) was valid, especially given the pending appeal against the original assessment order passed under section 143(3) read with section 147 of the Act.

2. Whether the provisions of section 115BBE of the Act, which impose a special tax rate on undisclosed income, are applicable to disputed cash credits relating to transactions prior to the introduction of this provision.

3. Whether the appellate authority erred in relying on a judgment from a non-jurisdictional High Court and not the jurisdictional High Court precedent.

4. Whether the income disclosed by the assessee during the demonetization period and the cash credits attributed to the appellant's husband were correctly assessed and whether the tax computations properly accounted for disclosed income and self-assessment tax paid.

5. Whether the responses and objections filed by the assessee during assessment and appellate proceedings were duly considered before passing the rectification order.

Issue 1: Validity of Rectification Order under Section 154 in the Context of Pending Appeal

Legal Framework and Precedents: Section 154 of the Act allows the Assessing Officer to rectify mistakes apparent on the face of the record. However, it is well-established that such rectification cannot be used to circumvent the appellate process or to pre-empt pending appeals challenging the original assessment. Precedents emphasize that rectification proceedings should not be a substitute for regular appeal proceedings.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee had filed an appeal against the assessment order under section 143(3) read with section 147, challenging additions made towards cash deposits. Despite this, the Assessing Officer proceeded to pass a rectification order under section 154, which was subsequently upheld by the CIT(A). The Tribunal found that the CIT(A) erred in disposing of the appeal against the rectification order without considering the pending appeal against the original assessment.

Application of Law to Facts: Since the appeal against the original assessment was pending, the rectification order should not have been passed or at least should not have been adjudicated independently. The proper course was to decide the original appeal first or to hear both appeals together to avoid conflicting decisions.

Treatment of Competing Arguments: The assessee argued that the rectification order was premature and should not have been passed without disposal of the original appeal. The Revenue, through its Senior AR, conceded that the matter should be remitted back to the CIT(A) for fresh adjudication along with the original appeal.

Conclusion: The Tribunal held that the appeal against the rectification order must be set aside and remitted to the CIT(A) to be decided in conjunction with the appeal against the original assessment order.

Issue 2: Applicability of Section 115BBE to Cash Credits Pertaining to Period Before Its Introduction

Legal Framework and Precedents: Section 115BBE imposes a special tax rate of 60% on undisclosed income, including unexplained cash credits. However, its applicability is generally prospective, and transactions prior to the insertion of this provision may not be liable under this section. The proviso or retrospective applicability is a matter of statutory interpretation and judicial scrutiny.

Court's Interpretation and Reasoning: The assessee contended that the cash credits of Rs. 60,00,000/- pertained to transactions of her husband before 15.12.2016, the date when section 115BBE was introduced. Therefore, the levy of tax under this section was not applicable. The Assessing Officer rejected this argument and applied section 115BBE on the additions made towards cash deposits.

Application of Law to Facts: The Tribunal did not finally decide on this issue but indicated that since the appeal against the original assessment (which includes these additions) is pending, the question of applicability of section 115BBE should be considered in that appeal. This issue is thus linked to the first issue and requires adjudication in the pending appeal.

Treatment of Competing Arguments: The assessee's argument on non-applicability of section 115BBE to prior transactions was not accepted by the Assessing Officer or the CIT(A). However, the Tribunal deferred the final decision pending adjudication of the original appeal.

Conclusion: The issue of applicability of section 115BBE to disputed cash credits prior to its introduction remains open for consideration during the hearing of the original appeal.

Issue 3: Reliance on Non-Jurisdictional High Court Judgment

Legal Framework and Precedents: Generally, decisions of the jurisdictional High Court are binding on lower authorities. While judgments from other High Courts may be persuasive, they are not binding. The principle of stare decisis mandates adherence to binding precedents.

Court's Interpretation and Reasoning: The assessee contended that the CIT(A) relied on a Kerala High Court judgment, which was not binding on the jurisdictional authorities in Hyderabad. The Tribunal acknowledged this argument but did not delve deeply into it, as the matter was to be reconsidered on remand.

Application of Law to Facts: Since the appeal was remitted for fresh adjudication, the CIT(A) is expected to consider binding precedents of the jurisdictional High Court and apply them appropriately.

Conclusion: The issue is noted for reconsideration on remand, ensuring reliance on binding jurisdictional precedents.

Issue 4: Treatment of Income Disclosed During Demonetization and Self-Assessment Tax Credits

Legal Framework and Precedents: Income disclosed during demonetization and self-assessment tax paid should be duly accounted for in assessment computations. The law mandates that disclosed income and tax credits are to be considered to avoid double taxation or erroneous additions.

Court's Interpretation and Reasoning: The assessee claimed that Rs. 3,83,500/- was disclosed during demonetization and Rs. 3,28,810/- was returned as income, with self-assessment tax of Rs. 4,590/- paid and credited. The assessee argued that these facts were not properly considered during rectification and assessment proceedings.

Application of Law to Facts: The Tribunal observed that the Assessing Officer and CIT(A) did not adequately address these submissions. However, since the appeal was remitted, these factual and computational issues are to be examined afresh by the CIT(A).

Conclusion: Proper consideration of disclosed income and tax credits is mandated on remand.

Issue 5: Consideration of Responses Filed During Assessment and Appellate Proceedings

Legal Framework and Precedents: Procedural fairness requires that all submissions and objections filed by an assessee during assessment and appellate proceedings be duly considered before passing orders affecting the assessee's rights.

Court's Interpretation and Reasoning: The assessee contended that responses filed during assessment and appellate proceedings were not properly considered, and the rectification order was passed hastily without due consideration.

Application of Law to Facts: The Tribunal agreed that the rectification order was passed without proper consideration of the objections and responses. This procedural lapse justified remanding the matter for fresh adjudication.

Conclusion: The appellate authority is directed to consider all responses and objections on remand.

Significant Holdings:

"In our considered view, this issue needs to be go back to the file of learned CIT(A) to decide the issue simultaneously along with appeal filed by the assessee against the order passed by the Assessing Officer u/sec.143(3) r.w.s.147 of the Act dated 24.03.2022 or after deciding the appeal filed by the assessee against the order of the Assessing Officer passed u/sec.143(3) r.w.s.147 of the Act dated 24.03.2022."

This establishes the principle that rectification proceedings under section 154 cannot be adjudicated independently when an appeal against the original assessment is pending, to prevent conflicting decisions and ensure comprehensive adjudication.

The Tribunal also upheld the principle that the applicability of section 115BBE to prior transactions requires careful examination in the context of the statutory timeline and pending appeals.

Finally, the Tribunal emphasized procedural fairness, mandating that all objections and responses must be duly considered before passing orders affecting the assessee's tax liability.

The appeal was allowed for statistical purposes, with the matter remitted to the CIT(A) for fresh adjudication consistent with these directions.