2025 (6) TMI 1054 - AT - Income Tax

Addition of remuneration from a firm as shown as salary - addition on the basis of information available in 26AS statement - appeal of the assessee that there was mistake in the order u/s 154 - HELD THAT - As the addition was made by the Ld.AO u/s 143(1) and therefore the assessee if at all ought to have contested the said order. This hypothesis is taken because the doctrine of merger is not applicable and both order u/s 143(1) and u/s 154 operate on independent plains and are separately appealable. No addition or any change qua returned / assessed income of the assessee in the order u/s 154 the Ld.CIT(A) was well within its rights in rejecting the appeal of the assessee. The order of the Ld.CIT(A) as thus found to be based upon correct understanding of the contemporary statute and befitting order not requiring any intervention at this stage. The same is therefore upheld. Accordingly all the grounds of appeal raised by the assessee are dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

• Whether the delay of 673 days in filing the appeal before the tribunal can be condoned given the reasons put forth by the assessee.
• Whether the addition of Rs. 12 lakhs made by the Assessing Officer (AO) under section 143(1) of the Income Tax Act, 1961, treating the amount as salary, was justified.
• Whether the order rejecting the rectification application filed under section 154 dated 04.06.2020 was correctly upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].
• Whether the doctrine of merger applies to the orders under sections 143(1) and 154, and if the assessee's appeal should have been directed against the order under section 143(1) instead of under section 154.
• Whether the CIT(A) was correct in dismissing the appeal on the ground that no mistake was made in the order under section 154 and that the addition was rightly confirmed.

2. ISSUE-WISE DETAILED ANALYSIS

Delay in filing the appeal:

The assessee pleaded that the delay in filing the appeal was due to non-receipt of the physical copy of the CIT(A)'s order and serious illness requiring bedrest from August to November 2024. The tribunal considered these reasons and found them adequate and not indicative of any willful or wanton delay. The Departmental Representative (DR) did not seriously object to the delay. Consequently, the tribunal exercised discretion to condone the delay, emphasizing that no litigant gains by intentionally delaying proceedings.

Addition of Rs. 12 lakhs under section 143(1):

The AO made an addition of Rs. 12 lakhs under the head "Salary" in the assessment order passed under section 143(1). The assessee contended that this amount was actually remuneration from a firm and was erroneously shown as salary. The CIT(A) confirmed the addition on the basis of information available in the Form 26AS statement, holding that the AO was within his rights under section 143(1)(vi) to make such an addition. The tribunal noted that the addition arose from the initial processing of the return and was not subject to any further modification in subsequent assessment orders.

Order rejecting rectification application under section 154:

The assessee filed a rectification application under section 154 seeking correction of the addition. The AO rejected this application, and the CIT(A) upheld that rejection. The tribunal relied on precedents from coordinate benches which held that section 154 is intended only for correction of arithmetical or typographical errors and not for re-opening or re-assessment of issues already decided. Since no such error was found in the order dated 04.06.2020, the CIT(A)'s rejection of the rectification application was held to be correct.

Doctrine of merger and appealability of orders under sections 143(1) and 154:

The tribunal examined whether the doctrine of merger applied, i.e., whether the order under section 154 merges into the order under section 143(1), thereby restricting the assessee's right to appeal only against the latter. It was held that both orders operate on independent planes and are separately appealable. The tribunal referred to a coordinate bench decision which clarified that the assessee should have contested the order under section 143(1) if aggrieved, since that order was primarily responsible for the generation of the impugned demand.

The tribunal further noted that the CIT(A) rightly dismissed the appeal because the assessee was not aggrieved by any action of the AO under section 143(3), and the grounds of appeal did not arise from an order under section 143(3). The tribunal emphasized the statutory position under section 246(1)(a) that appeals lie against orders under section 143(1) and that the assessee's failure to appeal against the initial order under section 143(1) precluded further relief.

Application of law to facts and treatment of competing arguments:

The assessee argued that the addition amounted to double taxation and that the CIT(A) erred in rejecting the rectification application. The tribunal rejected these contentions, relying on the statutory framework and judicial precedents which restrict the scope of section 154 to correction of errors and not re-assessment. It was also noted that the addition was made on the basis of information in the Form 26AS and that the assessee had the opportunity to contest the order under section 143(1) but failed to do so.

The DR supported the orders of the lower authorities, and the tribunal found no reason to interfere with these decisions.

3. SIGNIFICANT HOLDINGS

The tribunal held:

"It is settled principle of law that section 154 of the act only provides for attendance to any arithmetical or typographical errors. In the present case since there was no such error, the Ld. First Appellate Authority cannot be faulted for rejecting assessee's appeal u/s 154."

"Section 246 of the income tax act provides that an assessee aggrieved by orders passed by Income Tax Authorities under various sections are entitled to file appeal before the Ld.CIT(A). Section 143(1) is one such section included in section 246(1)(a) and reads as under:... an order against the assessee, where the assessee denies his liability to be assessed under this Act or an intimation under sub-section (1) or sub-section (1B) of section 143, where the assessee objects to the making of adjustments..."

"The doctrine of merger do not arise in this case. We find that the first appellate authority has rightly dismissed the assessee's appeal as it was not aggrieved by any action of the AO qua order u/s 143(3). The assessee in the right scheme of things should have contested the order u/s 143(1) passed by the CPC on 29.03.2019."

The tribunal concluded that the CIT(A) correctly rejected the appeal against the order under section 154, as no mistake was found in the order and the addition was validly made under section 143(1). The appeal was dismissed accordingly.