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TMI Blog2024 (8) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... one as on the date of passing rectification order u/s 154 dated 15/06/2019 and therefore the said disallowance was outside the scope of the provisions of section 154 of the Act. 3. The Ld. Counsel for the assessee submitted that the assessee filed return on 30/10/2017 declaring income of Rs. 79,08,452/- and an intimation u/s 143(1) was passed by CPC on 01/06/2018 accepting the returned income. A rectification order u/s 154 of the Act was passed by CPC on 30/12/2018 by raising a demand of Rs. 1,41,940/- allowing TDS credit of Rs. 65,17,430/- only as against Rs. 66,49,457/- claimed in the return. The Ld. Counsel submits that assessee filed a rectification application u/s 154 of the Act against the 154 order dated 30/12/2018 passed by CPC requesting to allow the entire TDS credit of Rs. 66,49,457/- reflected in Form 26AS. The Ld. Counsel submits that on 08/04/2019 rectification order u/s 154 was passed by CPC by raising a demand of Rs. 54,35,750/- after allowing TDS credit of Rs. 77,52,917/-. However, a disallowance of Rs. 1,80,95,758/- was made u/s 36(1)(va) of the Act. Ld. Counsel submits that assessee filed a rectification application u/s 154 against order dated 08/04/2019 passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. Therefore, it is submitted that as on 15/06/2019 the said issue was certainly a debatable one and is outside the scope of rectification under section 154 of the Act. 6. The Ld. Counsel further submits that in the following cases it has been held that claim of deduction made in ITR in respect of a debatable legal issue cannot be said to be a "mistake apparent from record" and, therefore, no disallowance in respect of such debatable legal claim can be made while passing rectification order u/s 154 of the Act: 1. ITO vs. M/s Volkart Brothers & Ors [(1971) 82 ITR 50 (SC)] 2. CIT Vs. Hero Cycles (P) Ltd. [(1997) 228 ITR 463 (SC)] 3. CIT Vs. Krishak Bharati Co-opeative Ltd. [(2004) 266 ITR 208 (Del)(HC)] 4. Bajaj Auto Finance Ltd. vs. CIT [(2018) 404 ITR 564 (Bom) (HC)] 5. Khatau Junkar Ltd. vs. DCIT [(1992) 196 ITR 55 (Bom) (HC)]. 7. Ld. Counsel for the assessee also placed reliance on the decision of the Madhya Pradesh High Court in the case of CIT Vs. Mahavir Drilling Company (273 ITR 201) for the proposition that when there are divergent views of High Courts existing on the date of grant of relief to the assessee, Assessing Officer is not justified in wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancing the income and this violated the provisions of section 154(3) of the Act. It has also been argued that the principle of natural justice has been upheld by the various Hon'ble Courts across the country in numerous cases wherein it has been held that the failure to provide an opportunity before enhancement will render the entire proceedings null and void. Admittedly, the impugned rectification order was passed proposing to enhance the income of the assessee by enhancing the transfer pricing adjustments as made in the final assessment order dated 30/12/2015 passed subsequent to the directions of the Ld. DRP. In the proceedings before us, the department was not able to negate the contention of the assessee that the impugned rectification order was passed without giving any opportunity to the assessee. It remains uncontroverted that principle of natural justice was not followed by the Transfer Pricing Officer while rectifying his earlier order. It is settled law that it not proper to remove a defect, if any, wherein no notice has been given to the assessee and wherein there will be an increased tax liability on the assessee. The Hon'ble Apex Court in the case of Chockalin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the order of rectification was passed. In view of the same, we proceed to decide this very issue at the threshold before we proceed to decide the other issues, if required. 7. In the instant case, by way of the rectification the respondent-Department has disallowed carrying forward of the loss reflected in the Assessment Year 2016-17 so far as the petitioner's firm is concerned. As a consequence of the disallowance of carrying forward of the loss to the tune of Rs. 2,60,98,369/-, the petitioner herein would be deprived and denied to carry forward the said loss of the previous year into the Books of Account of the next financial year. Thus, the said action on the part of 1st respondent has an adverse bearing and impact so far as the interest of the petitioner is concerned. 8. It is in this context that Sub-Section (3) of Section 154 has to be read which clearly envisages that in the event of effect of rectification resulting in an enhancement of assessment, reducing a refund, increasing the liability of the asseee, it is incumbent upon the respondent-Department for issuance of a notice to the assessee and grant reasonable opportunity of hearing before the order of rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order under that sub-section in relation to any matter other than the matter which has been so considered and decided. (2) Subject to the other provisions of this section, the authority concerned - (a) may make an amendment under sub-section (1) of its own motion, (b) shall made such amendment for rectifying any such mistake which has been brought to its notice [by the assessee or by the deductor] [or by the collector], and where the authority concerned is the Commissioner (Appeals), by the Assessing Officer also. (3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of [the assessee or the deductor] [or the collector], shall not be made under this section unless the authority concerned has given notice to [the assessee or the deductor] [or the collector] of its intention so to do and has allowed [the assessee or the deductor] [or the collector] a reasonable opportunity of being heard." 11. If we peruse the aforesaid provision of law, it would be evidently clear that Sub-Sections (1) & (2) both reflect the powers which are conferred upon the authorities concerned for rectification of a mistake. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are left open to be decided in an appropriate case as and when raised." 13. The ratios of the above decision squarely applies to the facts of the assessee's case. Thus, respectfully following the above decisions, we hold that the 154 order passed by the CPC dated 15/06/2019 was without issuing any prior notice/intimation granting an opportunity of being heard to the assessee and therefore is in violation of the mandate as provided in sub-section (3) of section 154 of the Act. Thus, the rectification order of CPC is bad in law. 14. The order of the CPC passed u/s 154 is also not sustainable for one more reason. We observed that as on the date of passing the order u/s 154 dated 15/06/2019 there were divergent views on the issue of disallowance u/s 36(1)(va) of the Act which were paid before due date u/s 139(1) of the Act. As on the date of passing rectification order i.e. 15.06.2019 the jurisdictional High Court in the case of CIT Vs. AIMIL Ltd. (supra) was in favour of the assessee, wherein the Hon'ble High Court held that the contributions to PF/ESI paid before the due date u/s 139(1) of the Act are allowable as deduction. Therefore, the issue of disallowance u/s 36(1)(va) of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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