Rectification Under Section 154 Must Delete Duplicate Addition When Same Cash Deposit Is Assessed in Successor’s Hands

ORDER

B.M. Biyani, Accountant Member. – Feeling aggrieved by the order of first appeal dated 21.02.2026 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“Ld. CIT(A)”], which in turn arises out of the rectification-order dated 08.12.2023 passed by learned ITO, Ward-5, Navsari [“Ld. AO”] u/s 154 of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2017-18, the assessee has filed this appeal on following effective grounds:

“1. The Ld CIT(A)-NFAC has erred and was not just and proper on the facts of the case and in law in confirming the rejection order u/s 154 of the Act, with regard addition of Rs. 31,69,500/-.

2. The rectification application filed by the assessee may be kindly considered on merits.”

2. The background facts leading to present appeal are as under:

“5. DECISION ON THE GROUNDS OF APPEAL:

5.1 The appellant is a partnership firm has filed the return of income for AY 21017-18 on 28.02.2018 declaring total income of Rs. 2,40,620/-. The case was selected for scrutiny under CASS and the notice u/s 143(2) was issued and served on the appellant through speed post and ITBA. The Learned Assessing Officer (Ld.AO) in the rectification order u/s 154 dated 08.12.2023 has mentioned that the appellant has not responded during the assessment proceedings and the assessment proceedings was completed under best judgement u/s 144 of the IT Act 1961 dated 09.12.2019 with addition of Rs. 31,69,500/- on the account of unexplained cash deposits reflected in the bank account no 041602000000496 and raised a demand of Rs. 34,44,144/-. The appellant later filed a rectification before the Ld.AO that the issue of the cash deposit was already covered in the assessment proceedings of Shri. Harshukbhai Parshottambhai Soni (ABKPS9762J) and requested the Ld.AO to delete the addition.

5.2 The Ld. AO has rejected the rectification request as below:-

5.3 The appellant is in appeal against the rectification order dated 08.12.2023. The appellant during the appeal proceedings has furnished a written submission along with paper book. The same was perused and it is seen that the appellant has stated that the appellant is a partnership, and has been dissolved on 31.10.2016. This is informed to the department on 21.11.2016 vide letter dated 14.11.2016. After the dissolution, the business under the same name was continued as proprietorship concern of Shri Harsukh P Soni, one of the erstwhile partner. The appellant further stated that, there was a SURVEY in the case of the appellant on 20/02/2018 and the proceedings were completed in the name of the proprietor. During the SURVEY, this cash deposit of Rs 31,69,500/- was accepted as unrecorded Income of the business and disclosure was made accordingly. The Return of Income filed by Shri HARSUKH SONI included this amount of Rs 31,69,500/- as his Income and Taxes were paid. Later this case of HARSUKH SONI was also under scrutiny and the same was assessed u/s 143(3) without any addition except for taxing the amount of Rs 31,69,500/-u/s 115BBE at MMR of 30percent. There was no change in the quantum of the Income Returned by the said Shri Harsukh Soni.

5.4 Thereafter vide letter notice dated 01/11/2013 u/s 188A, notices were received from Jurisdiction Assessing Officer, Navsari by the erstwhile partners of the firm asking them, Why to be held responsible for the demand. On receipt of the notice, the assessee firm approached the Income Tax Officer by way of a rectification letter stating that the same amount (Bank Deposit of Rs 31,69,500/-) is taxed twice, once in the hands of Shri HARSUKH P SONI u/s 143(3) and again in the hands of the Firm (Assessee). Thus, it was submitted that the mistake is apparent from the records and may be rectified. The Ld Jurisdictional Assessing Officer, however, did not accept the application and rejected by Order.

5.5 First let us discuss whether the issue of addition made of Rs. 31,69,500/- as unexplained cash credits in the hands of the appellant and in the hands of the one of the partner Shri Harsukh P Soni are same and the addition made in the hands of the partnership firm can be deleted under the rectification order and whether the same amounts to mistake apparent from record.

5.6 On perusal of the records it is observed that the present appeal has been filed against the rectification order passed under section 154 of the Income-tax Act, 1961 dated 08.12.2023 for Assessment Year 2017-18, wherein the AO has rejected the rectification request of the appellant stating that it does not qualify as mistake apparent from record as the assessment proceedings was done u/s 144 of the IT Act 1961 as the appellant was non-compliant throughout the assessment proceedings. Hence, the rectification request sought by the appellant is not a mistake apparent from the record of the Order u/s 144 dated 09.12.2019. The impugned order clearly records the same and the assessed income is same as already determined in the assessment order passed under section 144 dated 09.12.2019.

5.7 However, from the grounds of appeal and statement of facts filed in Form No. 35, it is evident that the appellant has primarily challenged the addition made in the assessment proceedings u/s 144 dated 09.12.2019 contending that the addition made in the appellants hand is same as the income disclosed in survey in the hands of the partner Shri Harsukh P Soni and the same is mistake apparent from record and it is to be deleted u/s 154. These grounds relate the addition made in the original assessment order and the appellant has not responded either before the Ld.AO nor filed any appeal against the assessment order u/s 144 dated 09.12.2019.

5.8 In view of the above it is held that in an appeal filed against an order under section 154, the appellate authority is empowered to examine only the correctness of the rectification order and the issues arising there from and cannot adjudicate upon matters forming part of a separate assessment order passed under section 144 which has independent existence and is separately appealable under section 246A of the Act. Since the appellant has sought to agitate issues pertaining to the original reassessment order which are beyond the scope of the present rectification order, the same cannot be entertained in this appeal. Accordingly, the appeal filed against the order under section 154 dated 08.12.2023 is liable to be dismissed as the grounds raised do not arise out of the impugned rectification order and are outside the jurisdiction of this appellate proceeding.

6. In result, the appeal is DISMISSED.”

3. Before us, Ld. AR for assessee re-iterated the very same submissions as made by assessee to Ld. CIT(A), which are duly incorporated by Ld. CIT(A) in Paras 5.3 and 5.4 of impugned order of first-appeal (re-produced above). Thereafter, the Ld. AR drew us to the following documents filed in assessee’s Paper-Book to corroborate those submissions made by assessee to Ld. CIT(A):

4. Thus, the Ld. AR successfully demonstrated from the material available on record that the impugned cash deposits of Rs. 31,69,500/-made on 10.11.2016, 11.11.2016 and 22.11.2016 pertained to the proprietorship concern of “Shri Harsukhbhai Parshottambhai Soni” and not to the assessee-firm. The record further establishes that the assessee-firm stood dissolved on 31.10.2016 and that separate books of account were maintained for the firm and the subsequent proprietorship concern. More importantly, the very same amount of Rs. 31,69,500/- was disclosed by “Shri Harsukhbhai Parshottambhai Soni” as undisclosed income in his return and was duly considered in the scrutiny assessment completed u/s 143(3). It was, therefore, submitted that taxing the same amount again in the hands of the assessee-firm resulted in double taxation of the very same income and constituted a mistake apparent from record warranting rectification u/s 154 of the Act.

5. With above submissions, Ld. AR requested this bench to delete the impugned addition made by AO and upheld by CIT(A) in present assessee-firm’s assessment.

6. Per contra, Ld. DR for revenue supported the orders of lower authorities. He submitted that the original assessment was completed u/s 144 of the Act as mentioned by AO in closing para of assessment-order [although the AO has referred section 143(3) in the beginning of assessment-order] and the assessee had not challenged the said assessment-order by filing an appeal. According to Ld. DR, the assessee was, in substance, seeking deletion of the addition made in the original assessment-order through proceedings u/s 154 which was beyond the limited scope of rectification. He, therefore, submitted that the Ld. CIT(A) was justified in dismissing the appeal and that no interference was called for.

7. We have considered rival contentions of both sides and perused the orders of lower-authorities as well as the material held on record to which our attention has been drawn. The core issue involved in the present appeal is whether, on the facts and circumstances of the case, the impugned addition of Rs. 31,69,500/- made in the hands of the assessee-firm can be rectified u/s 154 when the very same amount has already been assessed as undisclosed income in the hands of “Shri Harsukhbhai Parshottambhai Soni”.

8. On a careful consideration of the material available on record, we find that the assessee-firm “Usha Jewellers” stood dissolved on 31.10.2016 and thereafter the concern “Usha Jewellers” was continued and carried as a proprietorship concern of “Shri Harsukhbhai Parshottambhai Soni” w.e.f. 01.11.2016. The impugned cash deposits were admittedly made on 10.11.2016, 11.11.2016 and 22.11.2016, i.e. after dissolution of the assessee-firm. The separate books of account maintained for the assessee-firm and the proprietorship concern further corroborate this position. Significantly, the scrutiny assessment-order dated 27.12.2019 passed u/s 143(3) in the case of “Shri Harsukhbhai Parshottambhai Soni” specifically records the impugned deposits of Rs. 31,69,500/-; the survey conducted u/s 133A; and the disclosure of the said amount as undisclosed income by “Shri Harsukhbhai Parshottambhai Soni”. The Ld. AO accepted the said disclosure in substance, with the limited variation that the tax was charged at the rate prescribed u/s 115BBE. Thus, the same income of Rs. 31,69,500/- stands assessed in the hands of “Shri Harsukhbhai Parshottambhai Soni”. In these peculiar facts, the contention of Ld. CIT(A) that the assessee is merely seeking to re-open the original assessment is not acceptable. The assessee is not seeking a fresh adjudication of the merits of the original addition on the basis of any new claim or evidence. Rather the assessee has brought to the notice of the AO a factual error demonstrable from the existing record, namely, that the very same cash deposits, pertaining to the period subsequent to dissolution of the assessee-firm, have already been brought to tax in the hands of the successor proprietorship concern. Once the material establishing the identity of the deposits and their assessment in the hands of successor proprietor “Shri Harsukhbhai Parshottambhai Soni” is available on record, retention of an addition of very same income in the hands of assessee-firm would result in assessing the same income in the hands of two different assessees. The fact that the original assessment was framed u/s 144 or that no appeal was filed against such assessment cannot, by itself, retention of impugned addition. We, therefore, hold that the mistake pointed out by the assessee is apparent from the record and falls within the permissible scope of rectification u/s 154 of the Act. Accordingly, considering the overall facts, we direct the AO to delete the impugned addition of Rs. 31,69,500/- made in the hands of the assessee-firm. The assessee succeeds in this appeal.

9. In result, this appeal is allowed.