Basanti Mata Agri Product Private Limited Vs ACIT (ITAT Kolkata)
Rectification Cannot Enhance Income Without Prior Notice under Section 154(3): Kolkata ITAT Restores ₹85.06 Lakh Addition
The assessee, operating a cold-storage business, filed its return declaring nil income. In assessment under section 143(3), the AO made an addition of ₹85,06,000 under section 68 towards unexplained cash deposits, along with other disallowances.
On the assessee’s rectification application, the AO passed an order under section 154 and maintained:
- ₹85,06,000 as unexplained cash credit;
- ₹1,15,770, being one-third of machinery-maintenance expenditure; and
- ₹98,551 relating to donations and subscriptions.
The assessee contended that the donation addition was made or enhanced in rectification without issuing any prior notice. It also argued that the cash deposits had already been explained through the Income-tax compliance portal during demonetisation and that tax of ₹99,800 had been paid under the Pradhan Mantri Garib Kalyan Yojana Rules, 2016.
The ITAT observed that section 154(3) expressly prohibits any rectification that enhances an assessment, reduces a refund or otherwise increases the assessee’s liability unless prior notice and a reasonable opportunity of hearing are given. Therefore, increasing the donation-related disallowance without issuing a show-cause notice was unjustified.
The Tribunal also noted that the assessee’s explanation regarding the demonetisation deposits and PMGKY payment had not been properly considered by the CIT(A). Since the assessee could not effectively represent its case, all the disputed issues were restored to the AO for de novo disposal of the rectification application.
The AO was directed to examine the assessee’s evidence and provide a proper opportunity of hearing, particularly before proposing any enhancement. The appeal was partly allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is against the order of the Addl/JCIT(A)-2, Hyderabad [hereinafter referred to as Ld. ‘Addl/JCIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2017-18 dated 22.04.2026.
2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“01. For that in the facts and circumstances of the case and in law, the addition of Rs. 98,551 representing Donation & Subscription without issuing notice for enhancement of income before passing order u/s. 154 dated 03.12.2019 is wrong, erroneous, misconceived, arbitrary, excessive and deserves to be deleted.
02. For that in the facts and circumstances of the case and in law, the addition on estimate of Rs. 1,15,770 representing 1/3 of Machinery Maintenance of Rs. 3,47,309 is wrong, erroneous, misconceived, arbitrary, excessive and deserves to be deleted.
03. For that in the facts and circumstances of the case and in law, the addition u/s. 68 of Rs. 85,06,000 as Cash Credit in books of account is a mistake apparent from record where no books of account is produced nor verified in course of assessment, and the addition is wrong, erroneous, misconceived, arbitrary, excessive and deserves to be deleted.
04. For that the assessee craves leave to amend, alter, add, modify, subtract or delete any one or more of the ground/grounds of appeal at any time before or during hearing.”
3. Brief facts of the case are that the assessee had filed the return of income for AY 2017-18 on 21.09.2017 declaring total income at ₹NIL. The assessment was framed u/s 143(3) of the Act on 13.11.2019, wherein the Assessing Officer (hereinafter referred to as the Ld. ‘AO’) made an addition of ₹85,06,000/- u/s 68 of the Act towards unexplained cash deposits, along with other disallowances. Subsequently, upon a rectification petition filed by the assessee, the Ld. AO passed an order u/s 154 r.w.s. 143(3) of the Act on 03.12.2019, recomputed the total income after rectifying the order and confirming the disallowance for donation and subscription at ₹98,551/-, the disallowance for machinery maintenance at ₹1,15,770/- and maintaining the addition of ₹85,06,000/- made u/s 68 of the Act. Aggrieved with the rectification order, the assessee filed an appeal before the Ld. Addl/JCIT(A), who observed that the grounds raised were against the quantum additions made in the original assessment order u/s 143(3) of the Act, and the assessee had not brought out any mistake apparent from record not considered in the rectification order u/s 154 of the Act. Accordingly, the Ld. Addl/JCIT(A) confirmed the action of the Ld. AO and dismissed the appeal of the assessee.
4. Aggrieved with the order of the Ld. Addl/JCIT(A), the assessee has filed the appeal before the Tribunal.
5. Rival contentions were heard and the details filed and the paper book and the submissions made have been examined. It was submitted by the Ld. AR that the addition of ₹98,551/- representing donation and subscription made without issuing any notice for enhancement of income before passing the order u/s 154 of the Act dated 3rd December, 2019 was non-est, wrong, erroneous, arbitrary and deserved to be deleted. Similarly, for the addition on estimate of ₹1,15,770/- out of machinery maintenance expenses claimed at ₹3,47,309/- was also disputed as well as the addition of ₹85,06,000/- made u/s 68 of the Act on account of cash deposit as no books of account were produced nor v erified in the course of the assessment. The Ld. AR drew our attention to paras 4 and 5.2 of the order of the Ld. Addl/JCIT(A) and submitted that the written submissions filed were not considered. The assessee runs a cold storage and it was submitted that proper submission could not be made before the Ld. AO and a request was made to set aside the order of the Ld. Addl/JCIT(A) and remand the issues before the Ld. AO so that proper submission can be made.
6. The Ld. DR stated that the order of the Ld. Addl/JCIT(A) does not require any intervention. The Ld. DR relied upon the order of the Ld. Addl/JCIT(A) and requested that the same may be upheld.
7. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. Addl/JCIT(A). The Bench was of the view that adequate opportunity of being heard to the assessee was not granted by the Ld. Addl/JCIT(A) and the enhancement in the income on account of donation was made without issuing a show cause notice to the assessee. Sub-section (3) of section 154 of the Act states that an amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee or the deductor or the collector, shall not be made under this section unless the authority concerned has given notice to the assessee or the deductor or the collector of its intention so to do and has allowed the assessee or the deductor or the collector a reasonable opportunity of being heard. Therefore, increasing the addition on account of donation etc. was not justified. The assessee had also given details of cash deposited in the facts of the case filed before the Ld. Addl/JCIT(A) wherein it is mentioned that the explanation for the cash deposited during the demonetization period was made in the compliance portal of the Department on 14.12.2017 and tax was also paid for ₹99,800/- under the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana Rules, 2016 on 31. 03.2017. Therefore, the cash deposited was adequately explained but the explanation was not considered by the Ld. Addl/JCIT(A). The Bench was of the view that the assessee could not represent the case properly and one more opportunity may be granted. Therefore, we set aside the order of the Ld. Addl/JCIT(A) and remand all the issues before the Ld. AO for passing the rectification order de novo. The assessee is directed to furnish the evidence relating to the rectification application filed and the Ld. AO is also directed to grant an opportunity of being heard to the assessee, in case he proposes to enhance the disallowance made on any issue, as the opportunity of being heard does not appear to have been provided.
8. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 19th August, 2026.
