Rectification Order Disallowing Carry Forward of Loss Without Granting Hearing Opportunity to Assessee is Invalid | HC

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carry forward of loss

Case Details: Apollo Speciality Hospitals (P.) Ltd. v. DCIT - [2024] 162 2 (Telangana)

Judiciary and Counsel Details

    • P. Sam Koshy & N. Tukaramji, JJ.

Facts of the Case

The petitioner filed a writ petition before the High Court challenging the order passed under section 154. The brief facts of the case are that a scheme of amalgamation between Apollo Bangalore Cradle Limited and Apollo Specialty Hospitals Private Limited was approved by the National Company Law Tribunal (NCLT).

As a consequence of the amalgamation, Apollo Bangalore Cradle Limited was dissolved, and all assets, properties, rights, and liabilities to transfer were vested into Apollo Specialty Hospitals Private Limited.

Apollo Bangalore Cradle Limited was a public company incorporated in 2011. The said company had filed its return for the Assessment Year 2016-17 on 14.10.2016, declaring loss. The return of income was subject to scrutiny, and an order of assessment was passed, making disallowance and recomputing the total loss. The order of assessment was not further challenged, and the same attained finality.

Later, the petitioner received an order of rectification under section 154 disallowing the carrying forward of the loss reflected in the Assessment Year 2016-17. The petitioner contended that the impugned order was passed without issuing any show cause notice and, therefore, liable to be quashed.

High Court Held

The High Court held that the order was passed under section 154 disallowing the carrying forward of the loss reflected in the Assessment Year 2016-17. By disallowing the carrying forward of the loss, the petitioner would be deprived and denied to carry forward the said loss of the previous year into the Books of Account of the next financial year.

Thus, the said action on the part of the Assessing Officer (AO) had an adverse bearing and impact on the interest of the petitioner. Section 154(3) clearly envisages that in the event of effect of rectification resulting in an enhancement of assessment, reducing a refund, or increasing the liability of the assessee, it is incumbent upon AO to issue a notice to the assessee and grant reasonable opportunity of hearing before the order of rectification is passed.

The said provision has to be read in a manner where it means that, in the event of any order which has a detrimental effect upon the assessee in those circumstances, firstly a notice and secondly a reasonable opportunity of hearing becomes mandatory.

Since the petitioner would suffer a loss due to the disallowance of carrying forward of the loss, the Assessing Officer was required to issue notice and grant a reasonable hearing before passing the order. Therefore, the order passed under Section 154 was in violation of the statutory provision of Section 154(3), and accordingly, the same was unsustainable.

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