Facts of the Case

The assessee, Srishti Associates, was subjected to assessment proceedings for Assessment Year 2018-19 pursuant to a search and seizure operation under Section 132 conducted on the Resonance Group, Kota, on 07.09.2017. Notice under Section 153C was issued to the assessee. The assessee filed its return of income declaring total income of ₹6,27,310. The Assessing Officer completed assessment under Section 153C read with Section 143(3) on 27.12.2019 determining total income at ₹4,02,56,560, which included an addition of ₹3,96,05,000 on account of alleged unaccounted on-money received in cash against sale of flats.

Subsequently, the Assessing Officer issued notice under Section 154 stating that the said addition was taxable under Section 115BBE at 60% instead of 30%, treating it as income under Section 69A. A rectification order dated 28.02.2023 was passed enhancing the tax demand substantially by applying Section 115BBE. The assessee challenged the rectification before the CIT(A), who set aside the rectification order. Aggrieved, the Revenue filed an appeal before the Tribunal.

Issues Involved

Whether rectification under Section 154 applying tax at 60% under Section 115BBE could survive when the underlying addition of unaccounted on-money had already been deleted by a coordinate bench of the ITAT, and whether the CIT(A) was justified in setting aside the rectification order.

Petitioner’s Arguments

The Revenue contended that the Assessing Officer had committed an apparent mistake in the original assessment by applying tax at 30% instead of 60% on income treated under Section 69A and that such mistake was rectifiable under Section 154. It was argued that the CIT(A) erred in setting aside the rectification order.

Respondent’s Arguments

The assessee submitted that the very addition of ₹3,96,05,000 forming the basis of rectification had already been deleted by the coordinate bench of the ITAT, Jaipur in ITA No. 587/JP/2024 dated 16.07.2024. It was contended that once the quantum addition no longer survived, there was no question of rectifying the rate of tax applicable thereto. The assessee also pointed out that the Revenue had not challenged the earlier ITAT order deleting the addition.

Court Order / Findings

The ITAT Jaipur observed that the addition of ₹3,96,05,000 on account of alleged unaccounted on-money stood deleted by a coordinate bench of the Tribunal vide order dated 16.07.2024, which had attained finality as it was not challenged by the Revenue before the High Court. The Tribunal held that once the very foundation of the rectification, namely the addition itself, was removed, the rectification order applying Section 115BBE could not survive. The Tribunal found no infirmity in the order of the CIT(A) setting aside the rectification under Section 154. Accordingly, the appeal filed by the Revenue was dismissed.

Important Clarification

The Tribunal clarified that rectification proceedings under Section 154 are purely consequential and cannot stand independently. Where the underlying addition is deleted on merits by a higher appellate authority, any rectification altering the tax treatment of such addition automatically becomes infructuous. Rectification cannot be used to revive or continue tax consequences of a non-existent addition.

Final Outcome

The appeal filed by the Revenue was dismissed. The order of the CIT(A) setting aside the rectification order dated 28.02.2023 passed under Section 154 was upheld, and no tax under Section 115BBE could be levied in the absence of the underlying addition.

Source Link- https://itat.gov.in/public/files/upload/1765972970-vRS8zb-1-TO.pdf

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