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2025 (4) TMI 924 - HC - Income TaxValidity of order passed by CIT(A) - addition was made towards unexplained sundry creditors which was outstanding as on March 31 2014 - CIT(A) directing the AO to delete the additions subject to certain conditions - HELD THAT - This Court is therefore of the considered view that the order of the CIT(A) directing the Assessing Officer to delete the addition of amount on account of unexplained sundry creditors was not set aside by the Hon ble Division Bench. The portion of the order of CIT(A) directing the AO to delete the addition stands. The resultant effect is that the order of the AO stood set aside. Upon a conjoint reading of subsection (1) (2) (3) and (4) of Section 154 this Court holds that the authority has the power to make an amendment u/s 154 (1) of its own motion but if such amendment has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee the authority concerned is under a statutory obligation to issue a notice upon the assessee and give a reasonable opportunity of hearing before passing an order of amendment for rectification of any mistake apparent from the record. In the case on hand the assessing officer made the amendment of its own motion. It is not in dispute that notice in terms of Section 154 (3) of the Income Tax Act was not served upon the petitioner. No opportunity of hearing was afforded to the petitioner before passing the order dated February 7 2025. This Court holds that there has been a violation of the provision laid down u/s 154 (3) of the 1961 Act and for such reason the order dated February 7 2025 calls for interference. AO while passing the order dated February 7 2025 held that the impugned Assessment Order of the AO passed under Section 143 (3) of the Income Tax Act dated August 31 2016 remains uninterfered and still remains in force. This Court has already observed that the effect of the order of the Hon ble Division Bench is that the order of the appellate authority directing the Assessing Officer to delete the additions stands. This Court holds that the observation made in the order dated February 7 2025 to the effect that the order of the AO dated August 31 2016 is still in force calls for interference. The order is set aside and quashed. Consequently the order stands revived. The authorities are directed to take all consequential steps in terms of the order dated January 3 2024 within a period of four weeks from the date of receipt of a server copy of this order.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS Legal Framework and Precedents: The legal framework involves the interpretation of Sections 143, 154, and 251 of the Income Tax Act, 1961. Section 143 pertains to the assessment of income, Section 154 deals with the rectification of mistakes, and Section 251 outlines the powers of the Commissioner (Appeals) in an appeal against an assessment order. Court's Interpretation and Reasoning: The Court interpreted that the CIT(A) had directed the deletion of additions made by the Assessing Officer concerning unexplained sundry creditors, which was not set aside by the Division Bench. The Division Bench found that the CIT(A) could not remand the matter back to the Assessing Officer due to a statutory embargo post the Finance Act, 2001 amendment. Key Evidence and Findings: The Court noted that the CIT(A) had provided a detailed order indicating that the additions made by the Assessing Officer were unsustainable. The Division Bench observed that the CIT(A) had discussed the matter on merits and issued a positive direction to delete the additions, which was not interfered with by the Division Bench. Application of Law to Facts: The Court applied Section 154(3) of the Income Tax Act, which mandates that any amendment enhancing assessment or reducing refund must be preceded by a notice and opportunity for the assessee to be heard. The absence of such notice in the February 7, 2025 order rendered it invalid. Treatment of Competing Arguments: The Revenue argued that the Division Bench's order revived the original assessment order. However, the Court rejected this, stating that the Division Bench did not interfere with the CIT(A)'s direction to delete the additions. The Court also dismissed the Revenue's argument that the order of refund was not approved by higher authorities, emphasizing the procedural lapse under Section 154(3). Conclusions: The Court concluded that the order dated February 7, 2025, was invalid due to procedural violations under Section 154(3), and the order dated January 3, 2024, should be reinstated. 3. SIGNIFICANT HOLDINGS Verbatim Quotes of Crucial Legal Reasoning: The Court noted, "the authority concerned is under a statutory obligation to issue a notice upon the assessee and give a reasonable opportunity of hearing before passing an order of amendment for rectification of any mistake apparent from the record." Core Principles Established: The judgment reinforces the principle that procedural requirements under tax laws, particularly concerning amendments that affect an assessee's liability, must be strictly adhered to. It also clarifies that the powers of the CIT(A) do not extend to remanding matters back to the Assessing Officer post the Finance Act, 2001 amendment. Final Determinations on Each Issue:
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