R.D.. Builders, Navi Mumbai vs Assessee

I.T.A.NO. 4786/M/2012 (Assessment Year: 2007-2008) M/s. R.D. Builders, Vs. ITO, Ward 22(3)(3), 211, Shiv Centre, Sector 17, Tower No.6, Vashi Railway Station, Vashi, Navi Mumbai - 400703. 3rd Floor, Vashi, Navi Mumbai-703. PAN NO.AAFFR9782H (Appellant) (Respondent)

Appellant by : Shri S.C. Tiwari & Ms. Priyanka J. Maru Respondent by : Shri Akhilendra Yadav, DR

Date of Hearing: 16.02.2015 Date of order: 25.2.2015

ORDER

PER D. KARUNAKARA RAO, AM:

This appeal filed by the assessee on 19.7.2012 is against the order of the CIT (A)-33, Mumbai dated 7.6.2012 for the assessment year 2007-2008. In this appeal, assessee raised the following grounds which read as under:

"1. That on the facts and in the circumstances of the appellant‟s case and in the law, Ld CIT (A) has erred in not holding that the order u/s 154 made by the Assessing Officer on 19th September, 2011 is without jurisdiction and / or otherwise bad in law.

2. That without prejudice to ground of appeal no.1 above, on the facts and in the circumstances of the appellant‟s case in law, Ld CIT (A) has erred in holding that the interest expenses amounting to Rs. 39,06,642/- and other expenses amounting to Rs. 14,27,906/- cannot be claimed as deduction in the computation of the appellant „s total income for assessment year 2007- 2008.

3. The impugned order of the Ld CIT (A) being contrary to law and the facts of the case be set aside or other relief may be granted to the appellant as deemed fit."

2. Briefly stated relevant facts of the case are that the assessee is a builder and developer and filed the return of income declaring the total income of Rs. 7,40,985/- . Assessment was completed u/s 143(3) of the Act determining the total income of Rs. 70,04,500/-. On 19.9.2011, the said order of the assessment dated 31.12.2009 was rectified u/s 154 of the Act making further additions amounting to 2

Rs.53,34,548/-on finding that the claims belong to the earlier assessment year. Aggrieved with the above rectification order of the Assessing Officer, assessee filed an appeal before the CIT (A). Before the first appellate authority, assessee raised the legal ground questioning the above rectification order of the Assessing Officer without issuing the proper notice as required u/s 154(3) of the Act. There is no ground wise adjudication by the CIT (A) in the impugned order. Aggrieved with the order of the CIT (A), assessee is in appeal before the Tribunal by raising both the legal as well as the merit grounds.

3. In connection with the legal ground, i.e., passing of the rectification order without issuing the proper notice, Ld Counsel for the assessee brought our attention to the provisions of subsection (3) of section 154 of the Act and mentioned that notice should be given to the assessee conveying his intention for enhancing the assessment and the assessee should be given a reasonable opportunity of being heard in that case. Bringing our attention to the said order of the rectification dated 19.9.2011, Ld Counsel for the assessee demonstrated that the said order was passed without complying to the said provisions of subsection (3) of section 154 of the Act. Further, Ld Counsel for the assessee filed a judgment of the Hon‟ble Apex Court in the case of M. Chockalingam & M. Meyyappan vs. CIT & Anr [1963] 48 ITR 34 (SC) for the proposition that the issue of notice is mandatory when there is an enhancement in the assessment. The rectification, done without giving notice to the assessee becomes invalid as the same amounts to violation of principles of natural justice. Ld Counsel also mentioned that the said order was passed in the context of section 35(1) of Income Tax Act, 1922 which is paramateria with section 154 of the Income Tax Act, 1961.

4. On the other hand, Ld DR could not demonstrate that the show cause notice was issued to the assessee before the rectification order was passed on 19.9.2011.

5. We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited judgment of the Hon‟ble Apex Court in the case of M. Chockalingam & M. Meyyappan (supra). We find it relevant to refer the provisions of section 154(3) of the Act and the same reads as under:

"Sec: 154(3):- An amendment, which has effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee [or the deductor], shall not be made under this section unless the authority concerned has 3

given notice to the assessee [or the deductor] of its intention so to do and has allowed the assessee [or the deductor] a reasonable opportunity of being heard."

6. From the above, it is evident when the amendment which has the effect of enhancing the an assessment should not be done unless the authority concerned has given notice to the assessee of its intention to do so. Further, we have also gone though the cited judgment of the Hon‟ble Supreme Court in the case of M. Chockalingam & M. Meyyappan (supra) and find the same is relevant for the following proposition.

"Levy of penal interest under section 18A being enhancement of assessment, such, interest charged in rectification proceedings without giving notice under section 35(1) proviso was invalid being violative of principles of natural justice."

7. Considering the above settled nature of the issue, we are of the opinion that the rectification order passed by the Assessing Officer, without giving the statutory show cause notice to the assessee, is invalid and the same is quashed. Revenue failed to prove that the said notice was given as per the provisions of section 154(3) of the Act. Accordingly, the legal issue raised by the assessee is allowed.

8. Since, the legal ground raised by the assessee in this appeal is decided in favour of the assessee, the adjudication of other grounds relating to the merits of the rectification order become academic exercise. Therefore, the ground nos. 2 and 3 raised by the assessee are dismissed as academic.

9. In the result, appeal of the assessee is treated as allowed.

Order pronounced in the open court on 25th February, 2015.

Sd/- Sd/- (H.L. KARWA) (D. KARUNAKARA RAO) PRESIDENT ACCOUNTANT MEMBER

Date: 25.2.2015

At :Mumbai

Okk 4

Copy to : 1. Appellant 2. Respondent 3. The CIT (A), Concerned. 4. The CIT concerned. 5. The DR "D", Bench, ITAT, Mumbai. 6. Guard File. // True Copy//

By Order

Assistant Registrar ITAT, Mumbai Benches, Mumbai