ITAT Jaipur Sets Aside Appellate Order on Rs. 33.50 Lakh Section 154 Addition, Directs Fresh Hearing on Natural Justice Grounds
Overview of the Decision
The Income Tax Appellate Tribunal, Jaipur Bench, in the matter of Smt. Savita Vs ITO, intervened in a dispute arising from a rectification addition of Rs. 33,50,000 made under Section 154 of the Income Tax Act, 1961, pertaining to Assessment Year 2019-20. The Tribunal's intervention was not on the merits of the addition itself — whether the investment was explained, or whether Section 154 was the appropriate vehicle for the adjustment — but strictly on the ground that the first appellate authority had failed to accord a meaningful opportunity of hearing to the assessee before dismissing her appeal.
The Tribunal set aside the order of the Additional/Joint Commissioner of Income Tax (Appeals)-1 and restored the appeal for fresh adjudication. The appeal was allowed for statistical purposes only.
Important: The Tribunal did not delete the addition, did not hold that
Section 154was inapplicable, and did not rule on whether settlement under the Direct Tax Vivad se Vishwas Scheme, 2024 (DTVSV Scheme, 2024) created any bar against the subsequent rectification proceedings.
Background: From Original Assessment to DTVSV Settlement
The assessee had originally filed her return of income for Assessment Year 2019-20, declaring total income of Rs. 8,26,976. On completion of scrutiny proceedings under Section 143(3) of the Income Tax Act, 1961, the Assessing Officer (AO) determined the total income at Rs. 92,01,080, thereby making substantial additions over the returned income.
The assessee challenged this assessment order in appeal. That appellate dispute was subsequently brought to a close through settlement under the DTVSV Scheme, 2024, which provides a mechanism for resolution of pending income tax litigation.
The case, however, did not end with the settlement. A fresh controversy arose thereafter.
Post-Settlement Development: Section 154 Addition of Rs. 33.50 Lakh
After the original assessment dispute was settled under the DTVSV Scheme, 2024, the Assessing Officer invoked Section 154 of the Income Tax Act, 1961 — which deals with rectification of mistakes apparent from the record — and proceeded to make a further addition of Rs. 33,50,000, treating this amount as unexplained investment under Section 69 of the Act.
The assessee's case before the Tribunal was that the amount of Rs. 33,50,000 had been discussed in the original order under Section 143(3) dated 22 September 2021 in the context of unexplained investment, but had not ultimately been included while computing the assessed total income at that stage. The assessee contended that the payment had been made through banking channels and originated from explained sources, making the rectification application entirely valid.
Additionally, the assessee raised a substantive legal objection: that the subsequent addition through Section 154 was altogether beyond the permissible scope of that provision. The assessee pursued a rectification application on these grounds, which the AO rejected.