The Amritsar Bench of Income Tax Appellate Tribunal (ITAT) ruled before going for addition under Section 40A(7) of the income Tax Act, the assessee should get a reasonable opportunity before the revenue authority for processing of rectification under Section 154.
The assessee, The Nakodar Primary Cooperative Agriculture Development Bank Ltd. represented by Sh. Sameer Bhatia, has filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], NFAC, Delhi order passed under Section 250 of the Income Tax Act 1961 for the Assessment Year (A.Y.) 2019-20.
The impugned order of the CIT(A) was emanated from the order of the Centralized Processing Centre, Bengaluru (AO) order passed under Section 143(1)/154 of the Income Tax Act.
The succinct fact is that, while processing the return under Section 143(1) of the Income Tax Act, the provision for gratuity payment under Section 40A(7) was disallowed, resulting in an amount of Rs. 3,22,425 being rejected. Subsequently, the assessee submitted a rectification petition to the CPC (Centralized Processing Center) under Section 154 of the Income Tax Act. However, the CPC dismissed the rectification petition.
Aggrieved by the order, the assessee filed an appeal before the CIT(A). The CIT(A) upheld the observation of the CPC and rejected the appeal of the assessee. Further, the assessee filed an appeal before the ITAT.
Dr. Vedanshu Tripathi, the Departmental Representative pointed out the extracts from the order of the CIT(A) before the tribunal that an adjustment relating to disallowance of expenditure under Section 40A(7) indicated in Form No.3CD of the Audit Report was not made in the intimation under Section 143(1)(a) is a mistake apparent from record which can be rectified under Section 154 of the Income Tax Act. It is not mandatory that such a rectification process gets initiated only at the request of the assessee.
The CIT(A) also stated that “The Department can also take suo-moto cognizance of any mistake apparent from record and take suitable action to rectify this mistake. I find no infirmity in the order u/s 154 of the I.T. Act. “.
The bench noted that according to the revenue, the CPC (Centralized Processing Center) has the authority to disallow the amount based on the tax audit report mentioned in Column 21(e) of Form No. 3CD.
Further stated that the matter does not fall under the category of an error that is clearly evident from the record, as defined in Section 154 of the Income Tax Act. Therefore, Section 154 does not apply to this case.
It was also observed that the assessee prayed that a reasonable opportunity was denied by the revenue authorities.
Hence, the bench consisting of Dr. M. L. Meena (Accountant Member) and Anikesh Banerjee (Judicial Member) have acknowledged the importance of adhering to the principles of natural justice.
In order to rectify the violation of natural justice by the revenue authorities towards the assessee, the case has been remitted back to the Assessing Officer (AO) for re-adjudication. The tribunal aims to ensure that the concerns of natural justice are appropriately addressed in this matter
As a result, the appeal of the assessee was allowed for statistical purposes.
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