2025 (7) TMI 1294 - AT - Income Tax

Cause of action against order u/s 154 if original cause of action arose from the order passed u/s 143(1) - NFAC rejecting the appeal made against order passed u/s 154 for the reason that appellant ought to have filed appeal against intimation passed u/s 143(1) and not us 154 as according to him there is no cause of action against order u/s 154. HELD THAT - The assessee filed rectification application under section 154 of the IT act which was not allowed and the order passed u/s 143(1) of the IT Act was maintained. The assessee than preferred 1st Appeal against the order passed under section 154 of the Income Tax Act. CIT(A)/NFAC has not gone into merits of the case and dismissed the appeal for the sole reason that the assessee should have had filed the appeal against the order u/s 143(1) instead of against the order passed under section 154 of the IT act. In this regard we find that the order passed u/s. 143(1) of the IT Act and the order passed u/s 154 are same since the order passed under section 143(1) has again been issued as order under section 154 of the IT Act. We further find that a contingent liability was reported in the financial statements towards disputed sales tax demand for the purposes of information only and neither any deduction was claimed in the profit and loss account nor it was shown as a liability in the balance sheet. We find that the above demand was not accepted by the assessee and an appeal was preferred before sales tax authorities and stay order dated 23rd December 2016 was also obtained on a payment of Rs. 80, 000 which was shown as receivable from sales tax Department. We also find that the contingent liability was disclosed in the shape of note in the financial statements for the purposes of information only. In support of its contentions AR relied on the order passed by coordinate bench of this tribunal in the case of Shivganga Drillers Pvt. Ltd. 2022 (5) TMI 1427 - ITAT INDORE wherein coordinate bench of this tribunal has allowed the appeal filed by the assessee which was filed against order passed u/s 154 of the IT instead of against the order passed under section 143(1) of the IT act since the claim of the assessee was an allowable claim. We also accept the contention of the assessee and hold that the order passed by learned CIT(A)/NFAC was not correct wherein he dismissed the appeal on technical grounds by observing that the assessee has filed appeal against 154 order whereas the cause of action arose from the order passed under section 143(1) of the IT act. We find that the prima facie addition was wrongly made by CPC and the assessee has rightly moved under section 154 of the IT act for rectification and when the rectification application was rejected the assessee has rightly filed an appeal u/s. 246A(1)(c) of the IT Act before learned CIT(A)/NFAC. Accordingly we hold that learned CIT(A)/NFAC erred in dismissing the appeal filed by the assessee and therefore we set aside the order passed by learned CIT(A)/NFAC and remand the matter back to his file with a direction to decide the appeal afresh as per fact law in the light of our above discussion after providing reasonable opportunity of hearing to the assessee.

Summary

ISSUES:

Whether an appeal against an order passed under section 154 of the Income Tax Act is maintainable when the original cause of action arose from the order passed under section 143(1) of the Income Tax Act.Whether the addition of Rs. 35,50,679/- on account of contingent liabilities related to sales tax demand can be sustained when such contingent liability was neither claimed as an expense nor shown as a liability in the balance sheet.Whether the rectification application under section 154 of the Income Tax Act was properly rejected by the tax authorities.Whether the failure to issue notice before making the addition under section 143(1) violates the procedural requirements under the Income Tax Act.

RULINGS / HOLDINGS:

The appeal against the order passed under section 154 of the Income Tax Act is maintainable and the dismissal of such appeal on the ground that the cause of action arose at the stage of section 143(1) is incorrect, as the order under section 154 is a separate and appealable order under section 246A(1)(c) of the Act.The addition of Rs. 35,50,679/- on account of contingent liability was prima facie wrongly made by the CPC since the liability was disclosed only as a contingent liability for informational purposes and was neither claimed as an expense nor shown as a liability in the balance sheet.The rectification application under section 154 was rightly filed to correct the mistake apparent from record, and the rejection of the rectification application without considering the merits was erroneous.The learned CIT(A)/NFAC erred in dismissing the appeal on technical grounds without adjudicating the merits, and therefore the matter is remanded for fresh adjudication after providing reasonable opportunity of hearing.

RATIONALE:

The legal framework applied includes sections 143(1), 154, and 246A(1)(c) of the Income Tax Act, which respectively govern processing of returns, rectification of mistakes apparent from record, and the right to appeal against certain orders including those under section 154.The tribunal recognized that the order under section 154 is distinct and appealable, rejecting the notion that an appeal against it is impermissible merely because the original cause of action arose at the section 143(1) stage.The tribunal relied on precedent from coordinate benches affirming the maintainability of appeals against orders under section 154 and the principle that contingent liabilities disclosed for information only do not warrant additions to taxable income.The tribunal emphasized procedural fairness, noting the absence of notice before the addition and the importance of adjudicating on merits rather than dismissing appeals on technical grounds.No dissent or doctrinal shift was noted; the decision follows established statutory interpretation and precedent.