ITAT Quashes CIT(A)’s Rectification Order Passed Without Notice, Restores Relief on Land Acquisition Interest

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed a rectification order passed by the Commissioner of Income Tax (Appeals) [CIT(A)], holding that the appellate authority exceeded its jurisdiction under Section 154 of the Income-tax Act, 1961 by reviewing its earlier order without issuing any notice to the assessee. The Tribunal ruled that such rectification violated the mandatory principles of natural justice.

The assessee, Balbir Singh Saini HUF, had originally filed its return for Assessment Year 2016-17 declaring an income of Rs 14.02 lakh. Subsequently, it sought rectification before the Assessing Officer, claiming that the entire interest of Rs 13.01 lakh received on the compulsory acquisition of land was exempt from tax. The Assessing Officer granted only partial relief.

On appeal, the CIT(A), by order dated 21 June 2023, accepted the assessee’s claim and allowed the entire interest amount as exempt. However, on a rectification application filed by the Assessing Officer, the CIT(A) later passed an order under Section 154 on 11 July 2024, withdrawing the earlier relief and directing the Assessing Officer to allow only a deduction under Section 57(iv), thereby reducing the exempt amount.

Before the Tribunal, the assessee also sought condonation of a delay of 574 days in filing the appeal. It explained that the rectification order had been sent to the email address of its former Chartered Accountant instead of its authorised counsel, and therefore it never received the order in time. Accepting the explanation supported by an affidavit, the Tribunal condoned the delay and admitted the appeal.

On merits, the assessee argued that the rectification order had been passed without issuing any show-cause notice or granting an opportunity of hearing, despite the order resulting in the withdrawal of relief already granted. It further contended that Section 154 permits only rectification of an apparent mistake and cannot be used to review, recall or reverse a concluded appellate decision. If the Revenue believed that the original appellate order was erroneous, its proper remedy was to file an appeal before the ITAT rather than invoke Section 154.

The Tribunal found merit in the assessee’s submissions. It was observed that the CIT(A) had admittedly passed the rectification order without issuing any notice to the assessee, although Section 154(3) specifically mandates an opportunity of hearing before making any amendment prejudicial to the taxpayer. The Tribunal held that an order passed in violation of this mandatory requirement is void ab initio.

The Tribunal further held that the power under Section 154 is confined to correcting mistakes apparent from the record and does not permit an appellate authority to review or reverse its own concluded order. Since the CIT(A) had effectively recalled and altered its earlier appellate decision, it had acted beyond the scope of its rectification powers.

Thus, the Tribunal set aside the rectification order dated 11 July 2024 and allowed the assessee’s appeal.

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