2025 (6) TMI 2011 - HC - Income Tax

Rectification u/s 154 - Intimation under Section 143 (1) income under the head of Profit and Gains from the Business or Profession at Rs. 35, 09, 675/- has wrongly been shown instead of Nil which is an apparent error on the face of the record - AO Rejected the application u/s 154 simply by observing that the assessee himself has filed the return and the mistake is not apparent from the record - HELD THAT - CIT (Appeals) as well as the ITAT have also committed the same error as like AO. In our considered opinion the Assessing Officer ought to have considered the application under Section 154 of the IT Act on merits after properly appreciating the points raised on behalf of the appellant/assessee. The order passed by the Assessing Officer is set-aside. The subsequent order passed by the CIT (Appeals) as well as the order passed by the ITAT is also set-aside. Application under Section 154 of the IT Act is restored to the file of Assessing Officer for hearing and disposal in accordance with law expeditiously.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

(a) Whether the Assessing Officer was justified in rejecting the appellant's application filed under Section 154 of the Income Tax Act, 1961, by recording a finding that was perverse to the record?

(b) Whether the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal were justified in upholding the Assessing Officer's order, again by recording a finding that was perverse to the record?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of the Assessing Officer's rejection of the Section 154 application

Relevant legal framework and precedents: Section 154 of the Income Tax Act empowers the Assessing Officer to rectify any mistake apparent from the record. The power is intended to correct errors that are obvious and do not require elaborate inquiry. The jurisprudence on Section 154 mandates that the error must be "apparent" on the face of the record, and the application must be considered on merits rather than summarily rejected.

Court's interpretation and reasoning: The Court noted that the appellant initially filed a return declaring net taxable income of Rs. 39,44,780/-, and subsequently revised it to Rs. 74,54,460/-. The revised return was accepted under Section 143(1) of the IT Act. However, in the intimation issued by CPC Bengaluru, the income under the head "Profit and Gains from Business or Profession" was incorrectly shown as Rs. 35,09,675/- instead of 'Nil'. This was identified by the appellant as an apparent error on the face of the record.

The Assessing Officer rejected the application under Section 154, reasoning that the mistake was not apparent from the record and that the appellant himself had filed the return. The Court found this reasoning flawed and perverse because the error in the intimation was evident and should have been corrected under the statutory mandate of Section 154.

Key evidence and findings: The critical evidence was the discrepancy between the income declared under the head "Profit and Gains from Business or Profession" in the intimation (Rs. 35,09,675/-) and the appellant's claim that it should have been 'Nil'. The record showed this was a clear and apparent error.

Application of law to facts: The Court applied the principle that Section 154 is designed to correct such apparent errors without the need for prolonged adjudication. The Assessing Officer's failure to consider the application on merits and summarily rejecting it was contrary to the statutory scheme.

Treatment of competing arguments: The respondent contended that the Assessing Officer was correct in rejecting the application since the appellant had filed the return and the mistake was not apparent. The Court rejected this argument, emphasizing the statutory purpose of Section 154 and the nature of the error.

Conclusion: The Court concluded that the Assessing Officer erred in rejecting the application under Section 154 without proper consideration and that the error in the intimation was an apparent error on the face of the record.

Issue 2: Justification of the CIT (Appeals) and ITAT in upholding the Assessing Officer's order

Relevant legal framework and precedents: The appellate authorities are required to independently examine whether the Assessing Officer's order is legally sustainable and whether the application under Section 154 was rightly rejected.

Court's interpretation and reasoning: Both the CIT (Appeals) and ITAT upheld the Assessing Officer's rejection of the Section 154 application without addressing the merits of the appellant's claim regarding the apparent error. The Court found that these appellate orders simply affirmed the flawed reasoning of the Assessing Officer, thereby perpetuating the error.

Key evidence and findings: The appellate orders did not demonstrate any independent or substantive consideration of the appellant's contention that the income under the business head was wrongly recorded.

Application of law to facts: The Court emphasized that appellate authorities must ensure that the statutory provisions are correctly applied and that errors apparent on the record are rectified. The failure to do so amounted to a miscarriage of justice.

Treatment of competing arguments: The respondent's support for the impugned orders was based on deference to the Assessing Officer's findings. The Court rejected this, holding that appellate authorities have a duty to correct errors and not merely rubber-stamp lower orders.

Conclusion: The Court held that the CIT (Appeals) and ITAT erred in upholding the rejection of the Section 154 application without proper consideration and that their orders were perverse to the record.

3. SIGNIFICANT HOLDINGS

The Court set aside the orders of the Assessing Officer dated 18.10.2019, the CIT (Appeals) dated 21.03.2023, and the ITAT dated 07.03.2024, restoring the application under Section 154 to the file of the Assessing Officer for fresh consideration on merits.

In answering the substantial questions of law, the Court held:

"The Assessing Officer ought to have considered the application under Section 154 of the IT Act on merits after properly appreciating the points raised on behalf of the appellant/assessee."

"The CIT (Appeals) as well as the ITAT have also committed the same error by not considering the application on merits and upholding the rejection."

Core principles established include:

• The power under Section 154 is to rectify apparent errors on the face of the record and must be exercised on merits.
• Rejection of an application under Section 154 without considering the merits of an apparent error is perverse and contrary to the statutory scheme.
• Appellate authorities must independently examine and correct errors apparent from the record and cannot simply uphold flawed orders.

The final determination was in favour of the appellant/assessee, with the matter remitted for fresh disposal of the Section 154 application in accordance with law and expeditiously.